Shri Gian Parkash Acharya, Kangra V. DCIT, Circle, Palampur

ITA 785/CHANDI/2019

AI Insights

The case involves Shri Gian Parkash Acharya, a government contractor, who appealed against the order of the CIT(A) which confirmed a net profit rate of 7% for the assessment year 2014-15, as opposed to the 5.46% declared by the assessee. The assessee argued that the CIT(A) did not consider the reduced profit margins from contracts executed during the year and the historical profit rates which were lower. The Tribunal noted that the CIT(A) had not adequately considered the assessee's past profit rates and the specific circumstances of the contracts for the year in question. Consequently, the Tribunal adjusted the net profit rate back to 5.46% and allowed the depreciation claim which the CIT(A) had rejected.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127615 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 25-04-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 19-05-2019
• Other Referred Cases: CIT Vs. Vidya Sagar Saini, ITO Vs. M/s S. L. Road Construction Co.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gross profit estimation; Depreciation
• Section: 143(2); 145(3)

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ “ए” , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH ी आकाश द प जैन, उपा य एवं ी #व$म &संह यादव, लेखा सद+य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM ITA NO. 785/Chd/ 2019 Assessment Year : 2014-15 Shri Gian Parkash Acharya Govt. Contractor VPO Sagoor, Tehsil Baijnath, Distt. Kangra(H.P.) Dy. CIT, Palampur(H.P.) PAN NO: ABZPA4981A Appellant Respondent ! " Assessee by : Shri Ashwani Kumar, C.A # ! " Revenue by : Smt. Amanpreet Kaur, Sr. DR $ % ! & Date of Hearing : 26/04/2023 '()* ! & Date of Pronouncement : 27/04/2023 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the assessee against the order of the Ld. CIT(A)-2, Amritsar Camp at Palampur dt. 25/02/2019 wherein the assessee has taken the following grounds of appeal: 1. That order passed u/s 250(6) of the Income Tax Act, 1961 by the Learned Commissioner of Income Tax (Appeals)-2, Amritsar camp at Palampur is against law and facts on the file. 2. That the Learned Commissioner of Income Tax (Appeals) is not justified in confirming the net rate of profit at 7% as against 5.46% declared by the appellant who maintains proper and regular books of accounts which are duly audited by the Chartered Accountant. The profit rate of the appellant is between 5.28% to 5.46% in the past three years. The order of CIT(A) is against law and facts on the file and the net profit are declared by the appellant be accepted. 3. That the Learned CIT(A) was further not justified to arbitrarily reject the claim of depreciation made by the appellant in the books of accounts of Rs. 28,54,571/-. 4. That any other ground of appeal may be taken up at the time of hearing of the appeal. 2. Briefly the facts of the case are that the assessee is a Government Contractor having executed contracts for Himachal Pradesh Public Works Department (HP PWD) and has filed his return of income declaring net income of Rs. 80,01,190/-. Subsequently, the case of the assessee was selected for scrutiny and notices under section 143(2) and 2 142(1) were issued and after calling for information and explanation from the assessee, the books of accounts were rejected by the AO invoking the provisions of Section 145(3) of the Act and net profit @ 8% of gross receipt amounting to Rs. 9,24,41,675/- was applied as against the declared net profit rate of 5.46% by following the decision of Coordinate Amritsar Benches in case of CIT Vs. Vidya Sagar Saini which was subsequently affirmed by the Hon’ble Punjab & Haryana High Court vide its order dt. 13/02/2013. 3. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) and it was submitted that during the year under consideration the assessee has executed contract for HP PWD which were at rates which were lower than the scheduled rates and which has resulted in lower gross profit and resultant net profit for the year under consideration. 3.1 Further it was submitted that in the previous years as well, the assessee has reported almost similar results and which have been accepted by the Department. It was further submitted that even if the AO has computed his income by following the net profit of 8%, depreciation amounting to Rs. 28,54,571/- should be allowed separately to him which has not been allowed to him. 3.2 The Ld. CIT(A) after considering the submissions of the assessee upheld the invocation of provision of section 145(3) of the Act and has held that once the books of accounts are rejected, the AO is entitled to estimate the profit which needs to be reasonable and based upon material available on the record. 3.3 Regarding the decision of Coordinate Amritsar Benches in case of CIT Vs. Vidya Sagar Saini (supra), the Ld. CIT(A) held that the AO has applied the said decision without bringing any material on record that the facts of the assessee’s case were identical with the said case and even without considering the past history of the assessee. 3.4 The Ld. CIT(A) also agreed with the assessee’s contention that the contracts executed during the year under reference contained the reduced margin of profit and the same needs to be taken into account for estimating the net profit in the hands of 3 the assessee. Thereafter, referring to another decision of the Coordinate Amritsar Benches in case of ITO Vs. M/s S. L. Road Construction Co. in ITA No. 425/Asr/2017 dt. 22/02/2018, the ld CIT(A) applied the net profit of 7% subject to no further deduction on account of depreciation and accordingly the net profit was directed to be assessed at Rs. 64,70,917/- as against Rs. 73,95,334/- assessed by the AO. 3.5 Regarding the assessee’s contention that the AO has not allowed the claim of the depreciation, the said contention was rejected by the Ld. CIT(A). As per the Ld. CIT(A), in this case the AO has applied net profit rate of 8% after due consideration of all relevant facts and the application of net profit rate is after allowing the depreciation and where the depreciation of Rs. 28,54,571/- is allowed from the assessed net profit of Rs. 64,70,917/-, the assessed net profit from contract work will be less than the returned net profit of Rs. 50,53,369/-. Hence the claim of the assessee for claim of depreciation was not allowed. 4. Against the said findings and direction of the Ld. CIT(A), assessee is in appeal before us. 5. During the course of hearing, the rival contention were advanced by both the parties and considering the same and material available on the record, we find that as far as the rejection of books of account and invocation of provision of section 145(3) are concerned, the same is not in dispute. Once the books of accounts have been rejected, the AO is required to estimate the net profit based on certain reasonable basis and the Courts have held from time to time that the assessee’s past history provide a reasonable basis for estimating the net profit. In the instant case, the assessee has reported a net profit of 7% for A.Y 2011-12, 5.28% for A.Y. 2012-13 and 5.29% for A.Y. 2013-14 which have attained finality and average of the same comes to 5.85% as against 5.46% declared by the assessee during the year. Here it is relevant to note that these net profit percentages have been worked out after allowing depreciation. Further taken into consideration the fact that the Ld. CIT(A) has also found the assessee’s explanation that the contracts executed during the year under reference contains reduced margin of profit, we find that the net profit declared by the assessee after factoring in the fall in the margin of the profit in respect of contract executed 4 during the year is well within the range of the average profits which have been declared in the past and the net profit declared by the assessee @ 5.46% deserves to be accepted. 6. In view of the same, the Ground No. 2 of the assessee’s appeal is allowed and Ground No. 3 regarding additional claim of depreciation becomes infructous. 7. In the result, appeal of the assessee is partly allowed. Order pronounced in the open Court on 27/04/2023 Sd/- Sd/- आकाश द प जैन #व$म &संह यादव (AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV) उपा य / VICE PRESIDENT लेखा सद+य/ ACCOUNTANT MEMBER AG Date: 27/04/2023 ( + ! , - . - Copy of the order forwarded to : 1. The Appellant 2. The Respondent 3. $ / CIT 4. $ / 0 1 The CIT(A) 5. - 2 ग 4 5 & 4 5 678 ग9 DR, ITAT, CHANDIGARH 6. ग 8 : % Guard File ( + $ By order, ; # Assistant Registrar