Punjab-Haryana High Court
Commissioner Of Income Tax Patiala vs M/S Harbhajan Singh & Co. Sangrur on 13 November, 2014
Bench: Rajive Bhalla, Amit Rawal
ARCHANA ARORA
ITA No. 31 of 2014 1 2014.12.08 17:37
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IN THE HIGH COURT OF PUNJAB & HARYANA, CHANDIGARH
ITA No. 31 of 2014
Date of decision: November 13, 2014
Commissioner of Income Tax, Patiala
....... Appellant
Versus
Harbhajan Singh and Co. Sangrur
........ Respondent
CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA AND
HON'BLE MR. JUSTICE AMIT RAWAL
Present:- Ms. Savita Saxena, Advocate
for the appellant.
Mr. Ravi Shankar, Advocate
for the respondent.
****
RAJIVE BHALLA, J (ORAL)
The revenue is before us challenging order dated 15.4.2013 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'B' .
Counsel for the revenue submits that as Section 44 AD (2) of the Income Tax Act, 1961 provides that where income is calculated at net profit rate no further deduction shall be allowed to an assessee, the Tribunal is not justified in allowing deduction on account of depreciation. The judgments in CIT Vs. Chopra Brothers, (252) ITR 412 and CIT Vs. Bhullar Construction (286) ITR 686 ITA No. 31 of 2014 2 relied by the Income Tax Appellate Tribunal do not apply to the present case as they pertain to assessment years before Section 44 AD was introduced into the Act and therefore, are not a precedent for allowing depreciation to the assessee despite the fact that income has been calculated at net profit rate. It is also argued that the net profit rate of 10%, has been wrongly set aside by the Income Tax Appellate Tribunal.
Counsel for the respondent, however, submits that as per circular issued by the Central Board of Direct Taxes, Section 44 AD of the Act applies to assessees whose receipts do not exceed `40 lacs but as the assessee's receipts admittedly exceed `10 crores, Section 44 AD of the Act does not apply to the present case. The net profit rate of 10% was rightly reduced to 6% and as there was no reason to apply such a high gross profit percentage.
We have heard counsel for the parties and perused the impugned order.
The first question that calls for an answer, is whether the Income Tax Appellate Tribunal has erred in granting depreciation to the assessee, as his income was calculated at a net profit rate (question Nos. 2 and 3 framed by the revenue)?
Section 44 AD (2) of the Income Tax Act, if read in isolation of a circular issued by the Central Board of Direct Taxes would, require us to answer this question, in favour of the revenue. A perusal of the circular, however reveals that it is clarified, that Section 44 AD (2) of the Act applies to assessees whose gross receipts do not exceed `40 lacs. The assessee's gross receipts, as, referred to in ITA No. 31 of 2014 3 the assessment order, admittedly exceeded `10 crores. A relevant extract from the circular issued by the Central Board of Direct Taxes is as follows:-
"The Estimated Income Method of assessment for certain categories of businesses is prevalent in several countries. The Tax Reforms Committee has also recommended gradual introduction of the Estimated Income Method in certain areas to facilitate better tax compliance. Accordingly, a new Section 44 AD has been inserted to the Income-tax with a view to providing for a method of estimating income from the business of civil construction or supply or labour for civil construction work. The new section is applicable to all assessees whose gross receipts from the above mentioned business do not exceed Rs.40 lakhs. Gross receipts are the amount received from the clients for the contract and will not include the value of material supplied by the client. The income from the above mentioned business will be estimated at 8 per cent of the gross receipts paid or payable to an assessee. A taxpayer can voluntarily declare a higher income in his return."
The circular having clarified that it applies to an assessee whose gross receipts do not exceed `40 lacs,we have no hesitation in holding that the ITAT has rightly allowed depreciation to ITA No. 31 of 2014 4 the assessee.
As regards the first question namely reduction of the net profit rate from 10% to 6% suffice is to state that Tribunal has determined the net profit rate after considering the past net profit rate applied to the assessee and that there is no perceptible change, in the assessment year under consideration. The findings of fact being devoid of an arbitrary exercise of discretion or any perversity in the reasoning does not give rise to a substantial question of law. Consequently the questions of laws are answered against the revenue and the appeal is dismissed.
(RAJIVE BHALLA) JUDGE (AMIT RAWAL) JUDGE November 13, 2014 archana