Gujarat High Court
The Principal Commissioner Of Income ... vs Backbone Construction ... on 1 February, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, Mohinder Pal
O/TAXAP/911/2015 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 911 of 2015
With
TAX APPEAL NO. 912 of 2015
==========================================================
THE PRINCIPAL COMMISSIONER OF INCOME TAX,RAJKOT-
1....Appellant(s)
Versus
BACKBONE CONSTRUCTION P.LTD.....Opponent(s)
==========================================================
Appearance:
MR PRANAV G DESAI, ADVOCATE for the Appellant(s) No. 1
==========================================================
CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE MOHINDER PAL
Date : 01/02/2016
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. These tax appeals involve the same assessment order and arise in similar background. In Tax Appeal No.911 of 2015 for assessment year 2008-09, the revenue has suggested following question for our consideration:
" a. Whether, on the facts and circumstances of the case, the ITAT is right in reducing the profit estimated from 16% to 8% by CIT(A)?
b. Whether, on the facts and circumstances of the case, the ITAT is right in deleting the disallowance made u/s.40A(3) of the Income Tax Act, of Rs.5,47,500/- without discussing the merit of the issue, merely on the ground that once when profit is Page 1 of 4 HC-NIC Page 1 of 4 Created On Wed Feb 03 02:01:51 IST 2016 O/TAXAP/911/2015 ORDER estimated there is no requirement to make any further disallowance?"
2. Likewise, in Tax Appeal No.912 of 2015 for assessment year 2009-10, the revenue has suggested following question for our consideration:
"(A) Whether, on the facts and circumstances of the case, the ITAT is right in reducing the profit estimated from 16% to 8% ?"
3. The central issue is regarding reduction of gross profit rate by CIT (A) from 16% to 8%. The CIT (A) having found that the accounts of the assessee is not reliable after rejection of book results, proceeded to make additions on the basis of gross profit rate. The CIT(A) in a detailed judgment came to the conclusion that the net profit of the assessee should be estimated at the rate of 16% of the contract receipts in all the assessment years.
4. The assessee dissatisfied with such decision of the CIT(A), approached the Tribunal. The Tribunal in the impugned order reduced the gross profit rate at 8% making following observations:
"9. We find that no basis for making estimation of net income at the rate of 16% was brought on record by the CIT(A). In respect of net income of the preceding year disclosed by the assessee at the rate of 12.41%, the assessee pointed out that the said rate cannot be adopted during the year under consideration, because the nature of work in that year was quite different from the nature of work undertaken during the year. It is explained that the work executed during the preceding year was not of under-sea project, whereas the work involved during the year was of under-sea project. In respect of tender documents, it was explained that the net profit embedded in Page 2 of 4 HC-NIC Page 2 of 4 Created On Wed Feb 03 02:01:51 IST 2016 O/TAXAP/911/2015 ORDER the project was 11.11% as well as loss of 22.20%, which was verified from work order No.ED/C.E./MRW/Work-4-07/220 dated 25.4.2007 and work order No.ED/C.E.MRW/Work-1/07/218 dated 25.4.2007 respectively.
10. The DR has not disputed the above explanation of the assessee.
11. Considering the entire facts and circumstances of the case, we find that the estimate of net income from the contract work at the rate of 16% of the turnover was without any basis. We find that as per the provisions of section 44AD of the Income Tax Act, net profit from contract work declared by the assessee at the rate of 8% of the turnover would be accepted if the turnover of the assessee is less than the limit prescribed in that section. Though the said section is not applicable in the instant case, as the turnover of the assessee is more than the turnover specified in that section, however, taking a cue from the provision of this section and taking into consideration normal trend that the percentage of net profit is generally less when the turnover is higher, in our considered view, it shall meet ends of justice, if the net profit is estimated at 8% of its turnover."
5. It can thus be seen that the Tribunal on the basis of evidence on record found that the gross profit rate of 16% of the contract amount was excess. Instead, adopting 8% rate prescribed in section 44AD of the Act, the Tribunal reduced the profit estimation.
6. In our opinion, the entire examination was on the basis of evidence on record and would not call for any question of law. It is true that the provisions of section 44AD of the Act would not ipso facto apply to every acts of the Tribunal merely adopting a yardstick in absence of any other concrete evidence to enable itself to estimate Page 3 of 4 HC-NIC Page 3 of 4 Created On Wed Feb 03 02:01:51 IST 2016 O/TAXAP/911/2015 ORDER the true profit of the assessee.
7. With respect to further additions, the Tribunal correctly dismissed the revenue appeal on the ground that the CIT (A) had adopted a gross profit rate methodology, new additions would, therefore, be not called for.
8. In the result, the tax appeals are dismissed.
(AKIL KURESHI, J.) (MOHINDER PAL, J.) KMGThilake) Page 4 of 4 HC-NIC Page 4 of 4 Created On Wed Feb 03 02:01:51 IST 2016