M/S VIJAY KUMAR GARG CONTRACTORS V. COMMISSIONER OF INCOME TAX

ITA/110/2003

AI Insights

The case involves Vijay Kumar Garg Contractors appealing against the order of the Commissioner of Income Tax (CIT) and the Income Tax Appellate Tribunal (ITAT). The primary contention was regarding the gross profit rate applied by the ITAT, which the appellant argued was erroneous and not required to be followed from the earlier assessment years. The respondent, representing the revenue, argued that the ITAT had correctly examined the facts and there was no substantial question of law to be examined by the court. The court's decision focused on the factual findings of the ITAT and the proper application of the net profit rate for estimating income, including the necessary allowance for depreciation.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 749557 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 08-08-2024
• Assessment Year: misc
• Other Referred Cases: CIT Vs. Chopra Bros. (India) Pvt. Ltd., 252 ITR 412
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: VAIBHAV GUPTA
• Assessee Lawyers: AKSHAY BHAN; YUGANK GOEL
• Keywords: Depreciation; Disallowance; Estimation of income; Gross Profit Rate; Income tax appellate tribunal; Net profit rate

Judgement Text

" 206 IN THE HIGH COURT OF PUNJAB AND HARYANA AT M/S VIJAY KUMAR GARG CONTRACTORS COMMISSIONER OF CORAM: HON'BLE MR. JUSTICE HON'BLE M Present Mr. Akshay Bhan, Sr. Advocate with Mr. Yugank Goel, Advocate for the appellant. Mr. Vaibhav Gupta, Standing Counsel for Income Tax Department. *** SANJEEV PRAKASH SHARMA 1. Learned Senior Counsel for the appellant has vehemently argued that the order of CIT(A) w Income Tax Appellate Tribunal (for short, ‘the ITAT’) and the additions made was based on the gross profit rate by the ITAT is erroneous. He submits that there was no occasion to observe that the gross profit r earlier assessment year was required to be followed. 2. Learned counsel appearing on behalf of respondent/revenue however points out that the ITAT has examined the question of fact and there is no substantial question of law required to be examine 3. We have considered the submissions following observations, which are as under: IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA Date of Decision: VIJAY KUMAR GARG CONTRACTORS V/s. COMMISSIONER OF INCOME TAX AND ANR HON'BLE MR. JUSTICE SANJEEV PRAKASH SHARMA HON'BLE MR. JUSTICE SANJAY VASHISTH Mr. Akshay Bhan, Sr. Advocate with Mr. Yugank Goel, Advocate for the appellant. Mr. Vaibhav Gupta, Standing Counsel for Income Tax Department. *** SANJEEV PRAKASH SHARMA, J. (Oral) Learned Senior Counsel for the appellant has vehemently argued that the order of CIT(A) was not required to be interpreted at all by the Income Tax Appellate Tribunal (for short, ‘the ITAT’) and the additions made was based on the gross profit rate by the ITAT is erroneous. He submits that there was no occasion to observe that the gross profit r earlier assessment year was required to be followed. Learned counsel appearing on behalf of respondent/revenue however points out that the ITAT has examined the question of fact and there substantial question of law required to be examine We have considered the submissions following observations, which are as under: “8.3 Besides, we have also observed that the assessed claimed to have shown GP @ 11.42% the assessment year IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA-110-2003(O&M) Date of Decision:08.08.2024 VIJAY KUMAR GARG CONTRACTORS ..…...Appellant V/s. INCOME TAX AND ANR ….....Respondents SANJEEV PRAKASH SHARMA. SANJAY VASHISTH. Mr. Akshay Bhan, Sr. Advocate with Mr. Yugank Goel, Advocate for the appellant. Mr. Vaibhav Gupta, Standing Counsel Learned Senior Counsel for the appellant has vehemently argued not required to be interpreted at all by the Income Tax Appellate Tribunal (for short, ‘the ITAT’) and the additions made was based on the gross profit rate by the ITAT is erroneous. He submits that there was no occasion to observe that the gross profit rate of the earlier assessment year was required to be followed. Learned counsel appearing on behalf of respondent/revenue however points out that the ITAT has examined the question of fact and there substantial question of law required to be examined by this Court. We have considered the submissions. The ITAT has made Besides, we have also observed that the assessed claimed to have shown GP @ 11.42% the assessment year Learned Senior Counsel for the appellant has vehemently argued not required to be interpreted at all by the Income Tax Appellate Tribunal (for short, ‘the ITAT’) and the additions made was based on the gross profit rate by the ITAT is erroneous. He ate of the Learned counsel appearing on behalf of respondent/revenue however points out that the ITAT has examined the question of fact and there ITAT has made Besides, we have also observed that the assessed claimed to have shown GP @ 11.42% the assessment year RASHMI 2024.08.09 12:13 I attest to the accuracy and integrity of this document ITA-110-2003(O&M) 2003(O&M) Page 2 of 4 under reference. While working has included other income of Rs. 26, 27, 243. PAge 17 of the paper book, which is a copy of audited account, shows profit on sale of investments, i.e. sale of shares at Rs. 23,49,426. This is included in the income of Rs. 26, 27, 243. Such profit had nothing to do with the contract receipts as the same was on sale of shares on which assessee had shown long terms capital gain of Rs.11,31,066. Thus the amount of Rs. 23,49,426 Was required to be reduced from the income for working out the GP rate. If we deduct an amount of Rs.23,49,426 from the total credits on income side of Rs.2,86,65,379, the net amount remains at Rs.2,63,15,953. Likewsie, amount of Rs.23,49,426 being profit on sale of shares was required to be reduced from the GP of the GP works out to Rs. 9,24, 131 (3273557 23,49,426). The same works out to 3.51% as against GP rate of 10.87% and 9.63% of the assessment years 90 92 respectively. Therefore, the contention of the assessee that GP shown by the assessее for the assessment year under reference is better than the GP of the earlier assessment years is absolutely wrong and this is nothing but an attempt to mislead the Bench. 9. The next issue that requires to be decided by this Bench is, whether estimation of income by the A0 by applying net profit rate of 7% inclusive of depreciation was correct? From the facts detailed above, it is obvious that in the past the assessee had sho and 9.63% for the assessment years 90 respectively. As against this, the GP rate shown the assessee works out to 3.5%, which is lower by almost 6%. The AO has applied only net profit rate of 7%, which under reference. While working out the GP, the assessee has included other income of Rs. 26, 27, 243. PAge 17 of the paper book, which is a copy of audited account, shows profit on sale of investments, i.e. sale of shares at Rs. 23,49,426. This is included in the income of Rs. 26, 27, 43. Such profit had nothing to do with the contract receipts as the same was on sale of shares on which assessee had shown long terms capital gain of Rs.11,31,066. Thus the amount of Rs. 23,49,426 Was required to be reduced from the income for working out the GP rate. If we deduct an amount of Rs.23,49,426 from the total credits on income side of Rs.2,86,65,379, the net amount remains at Rs.2,63,15,953. Likewsie, amount of Rs.23,49,426 being profit on sale of shares was required to be reduced from the GP of Rs. 32,73,557. If we do so, the GP works out to Rs. 9,24, 131 (3273557 23,49,426). The same works out to 3.51% as against GP rate of 10.87% and 9.63% of the assessment years 90-91 and 91- 92 respectively. Therefore, the contention of the assessee hown by the assessее for the assessment year under reference is better than the GP of the earlier assessment years is absolutely wrong and this is nothing but an attempt to mislead the Bench. The next issue that requires to be decided by this Bench is, whether estimation of income by the A0 by applying net profit rate of 7% inclusive of depreciation was correct? From the facts detailed above, it is obvious that in the past the assessee had shown GP rate of 10.87% and 9.63% for the assessment years 90-91 and 91-92 respectively. As against this, the GP rate shown the assessee works out to 3.5%, which is lower by almost 6%. The AO has applied only net profit rate of 7%, which out the GP, the assessee has included other income of Rs. 26, 27, 243. PAge 17 of the paper book, which is a copy of audited account, shows profit on sale of investments, i.e. sale of shares at Rs. 23,49,426. This is included in the income of Rs. 26, 27, 43. Such profit had nothing to do with the contract receipts as the same was on sale of shares on which assessee had shown long terms capital gain of Rs.11,31,066. Thus the amount of Rs. 23,49,426 Was required to be reduced from the income for working out the GP rate. If we deduct an amount of Rs.23,49,426 from the total credits on income side of Rs.2,86,65,379, the net amount remains at Rs.2,63,15,953. Likewsie, amount of Rs.23,49,426 being profit on sale of shares was required Rs. 32,73,557. If we do so, the GP works out to Rs. 9,24, 131 (3273557 23,49,426). The same works out to 3.51% as against GP rate of - 92 respectively. Therefore, the contention of the assessee hown by the assessее for the assessment year under reference is better than the GP of the earlier assessment years is absolutely wrong and this is nothing The next issue that requires to be decided by this Bench is, whether estimation of income by the A0 by was correct? From the facts detailed above, it is obvious wn GP rate of 10.87% 92 respectively. As against this, the GP rate shown the assessee works out to 3.5%, which is lower by almost 6%. The AO has applied only net profit rate of 7%, which RASHMI 2024.08.09 12:13 I attest to the accuracy and integrity of this document ITA-110-2003(O&M) 2003(O&M) Page 3 of 4 appears to be fair and reasonable. However, while doing so, the AO has not allowed deduction on account of depreciation. This is contrary to the judgment of jurisdictional High Court of Punjab & Haryana High Court in the case of CIT Vs. Chopra Bros. (India) Pvt. Ltd., 252 ITR 412, where the High Court by referring to CBDT's Circular No.29- held that even if income is estimated by applying net profit rate, the AO is duty bound to allow depreciation if the same is claimed by the assessee in the return full particulars thereof. Thus, while we uphold the action of the AO in estimating the income by applying net profit rate of 7%, we direct the AO to allow depreciation as per the provisions of law and keeping the judgment of Hon'ble Punjab & Haryana High Court in the case of Chopra Bros (supra). We order accordingly. This part of the ground is partly allowed. 10. The next ground of appeal relates to the fact that the CIT(A) was not justified in restricting the disallowance to Rs.50,000 from th by the AO. The facts of the case are that the AO had estimated the income by applying net profit rate. separate disallowance for the expenses was made in view of the fact that income was estimated by rejecting results and by applying net profit rate. On appeal, the CIT(A) held that the AO was not Justified in rejecting the book results. However, the CIT(A) sustained the disallowance of Rs.50,000 out of the various expenses keeping in view the past history of the case. Sinc already set aside the order of CIT(A) on the issue of rejection of book results and upheld the action of the AO, there is no point in making further disallowance of d reasonable. However, while doing so, the AO has not allowed deduction on account of depreciation. This is contrary to the judgment of jurisdictional High Court of Punjab & Haryana High Court in the case of CIT Vs. Chopra Bros. (India) Pvt. 412, where the High Court by referring to -D(XIX)-14 dated 31.8.65 has held that even if income is estimated by applying net profit rate, the AO is duty bound to allow depreciation if the same is claimed by the assessee in the return and furnish full particulars thereof. Thus, while we uphold the action of the AO in estimating the income by applying net profit rate of 7%, we direct the AO to allow depreciation as per the provisions of law and keeping the judgment of Hon'ble ryana High Court in the case of Chopra Bros (supra). We order accordingly. This part of the The next ground of appeal relates to the fact that the CIT(A) was not justified in restricting the disallowance to Rs.50,000 from the trading addition made by the AO. The facts of the case are that the AO had estimated the income by applying net profit rate. separate disallowance for the expenses was made in view of the fact that income was estimated by rejecting the book by applying net profit rate. On appeal, the CIT(A) held that the AO was not Justified in rejecting the book results. However, the CIT(A) sustained the disallowance of Rs.50,000 out of the various expenses keeping in view the past history of the case. Since we have already set aside the order of CIT(A) on the issue of rejection of book results and upheld the action of the AO, there is no point in making further disallowance of d reasonable. However, while doing so, the AO has not allowed deduction on account of depreciation. This is contrary to the judgment of jurisdictional High Court of Punjab & Haryana High Court in the case of CIT Vs. Chopra Bros. (India) Pvt. 412, where the High Court by referring to 14 dated 31.8.65 has held that even if income is estimated by applying net profit rate, the AO is duty bound to allow depreciation if the and furnish full particulars thereof. Thus, while we uphold the action of the AO in estimating the income by applying net profit rate of 7%, we direct the AO to allow depreciation as per the provisions of law and keeping the judgment of Hon'ble ryana High Court in the case of Chopra Bros (supra). We order accordingly. This part of the The next ground of appeal relates to the fact that the CIT(A) was not justified in restricting the e trading addition made by the AO. The facts of the case are that the AO had estimated the income by applying net profit rate. separate disallowance for the expenses was made in view of the the book by applying net profit rate. On appeal, the CIT(A) held that the AO was not Justified in rejecting the book results. However, the CIT(A) sustained the disallowance of Rs.50,000 out of the various expenses e we have already set aside the order of CIT(A) on the issue of rejection of book results and upheld the action of the AO, there is no point in making further disallowance of RASHMI 2024.08.09 12:13 I attest to the accuracy and integrity of this document ITA-110-2003(O&M) 4. Thus, we find that the ITAT has taken into consideration the factual aspects and also gone through the books of accounts and the audited account, the findings are purely fa appeal, the question of best judgment assessment would also not apply in the present case and the present appeal is hereby dismissed. 5. All pending application stands dismissed accordingly. August 08, 2024 rashmi Whether speaking / reasoned Whether Reportable 2003(O&M) Page 4 of 4 Rs.50,000. Therefore, we setaside the order of the CIT(A) and direct the AO not to make any separate disallowance Rs.50,000. This ground of appeal is allowed.” Thus, we find that the ITAT has taken into consideration the factual aspects and also gone through the books of accounts and the audited , the findings are purely factual and need not be gone in the present appeal, the question of best judgment assessment would also not apply in the present case and the present appeal is hereby dismissed. All pending application stands dismissed accordingly. [SANJEEV PRAKASH [SANJAY VASHISTH , 2024 r speaking / reasoned :Yes / No Whether Reportable :Yes/ No Rs.50,000. Therefore, we setaside the order of the CIT(A) o make any separate disallowance Rs.50,000. This ground of appeal is allowed.” Thus, we find that the ITAT has taken into consideration the factual aspects and also gone through the books of accounts and the audited ctual and need not be gone in the present appeal, the question of best judgment assessment would also not apply in the present case and the present appeal is hereby dismissed. All pending application stands dismissed accordingly. SANJEEV PRAKASH SHARMA] JUDGE SANJAY VASHISTH] JUDGE No Rs.50,000. Therefore, we setaside the order of the CIT(A) o make any separate disallowance Thus, we find that the ITAT has taken into consideration the factual aspects and also gone through the books of accounts and the audited ctual and need not be gone in the present appeal, the question of best judgment assessment would also not apply in the RASHMI 2024.08.09 12:13 I attest to the accuracy and integrity of this document "