Commissioner Of Income Tax, Patiala v. Www

ITA No. 31 of 2014) IN THE HIGH COURT OF PUNJAB & HARYANA, CHANDIGARH ITA No. 31 of 2014.Date of decision: November 13, 2014 Commissioner of Income Tax, Patiala Versus www. Appellant Harbhajan Singh and Co. Sangrur www. ReESpONdent CORAM:HON'BLE MR. JUSTICE RAJIVE BHALLA AND|HON'BLE MR. JUSTICE AMIT RAWAL Present:-Ms. Savita Saxena, Advocatefor the appellant.Mr. Ravi Shankar, Advocatefor the respondent, KK K RAJIVE BHALLA, J (ORAL) The revenue is before us challenging order dated15.4.2013 passed by the Income Tax Appellate Tribunal, ChandigarhBench 'B' _| Counsel for the revenue submits that as Section 44AD (2) of the Income Tax Act, 1961 provides that where income Iscalculated at net profit rate no further deduction shall be allowed toan assessee, the Iribunal is not justified in allowing deduction onaccount 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) rellea by the Income lax Appellate Iridbunal do not apply to thpresent case as they pertain to assessment years before Section 44AD was. introduced into the Act and therefore, are not a precedentfor allowing depreciation to the assessee despite the fact that Incomehas been calculated at net profit rate. It is also argued that the netprofit rate of 10%, has been wrongly set aside by the Income laxAppellate I[ribunal Counsel for the respondent, however, submits thatas per circular issued by the Central Board of Direct Taxes, Section44 AD of the Act applies to assessees whose receipts do not exceedL40 lacs but as the assessees receipts admittedly exceed —L!%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 therewas no reason to apply such a high gross profit percentage. We have heard counsel for the parties and perusedthe impugned order. The first question that calls for an answer, isiwhether the Income lax Appellate Iridbunal has erred tn grantindepreciation to the assessee, as nis Income was calculated at a netprofit rate (question Nos. 2 and 3 framed by the revenue)? section 44 AD (2) of the Income Tax Act, if read Inisolation of a circular issued by the Central Board of Direct Taxeswould, require us to answer this question, in favour of the revenue. Aperusal of the circular, however reveals that it is clarified, that Section44 AD (2) of the Act applies to assessees whose gross receipts donot exceed440 lacs. The assessee's gross receipts, as, referred to In ITA No. 31 of 2014) the assessment order, aamittedily exceeded410 crores. A relevantextract from the circular issued by the Central Board of Direct Taxesis as follows:- “The Estimated Income Method of assessment forcertain categories of businesses is prevalent inseveral countries. The Tax Reforms Committee hasalso recommended gradual introduction of theEstimated Income WMetnod in certain areas tfacilitate better tax compliance. Accordingly, a newSection 44 AD has been inserted to the Income-taxwith a view to providing for a method of estimatingincome from the business of civil construction orsupply or labour for civil construction work. Thenew section Is applicable to all assessees wnosegross receipts from the above mentioned businessdo not exceed Rs.40 lakhs. Gross receipts are theamount received from the clients for the contractand will not include the value of material supplied bythe cllent. The Income from the above mentionedbusiness will be estimated at 8 per cent of the grossreceipts paid or payable to an assessee. A taxpayercan voluntarily declare a higher Income in hisreturn. The circular having clarified that it applies to anassessee wnose gross receipts ao not exceed440 lacs,we have nonesitation in holding that the ITAT has rightly allowed depreciation to ITA No. 31 of 2014) the assessee. The circular having clarified that it applies to anassessee wnose gross receipts ao not exceed440 lacs,we have nonesitation in holding that the ITAT has rightly allowed depreciation to ITA No. 31 of 2014) the assessee. As regards the first question namely reduction of thenet profit rate from 10% to 6% suffice Is to state that Tribunal hasdetermined the net profit rate after considering the past net profit rateapplied to the assessee and that tnere Is no perceptible change, Inthe assessment year under consideration. The findings of fact beingdevoid of an arbitrary exercise of discretion or any perversity in thereasoning does not give rise to a substantial question of law.Consequently the questions of laws are answered against therevenue and the appeal Is dismissed. (RAJIVE BHALLA)JUDGE (AMIT RAWAL)JUDGE November 13, 2014archana