Ma/56/2011 Of Trishul Constructions v. Commissioner Of Income Tax, Muzaffarpur

IN THE HIGH COURT OF JUDICATURE AT PATNAMiscellaneous Appeal No.56 of 2011 ====================================================== Trishul Constructions a partnership firm having its office at ChhatradhariBazar, P.O.- Chapra, P.S. Bhagwan Bazar, District- Saran through its partnerJitendra Kumar Singh, Son of Nand Lal Singh, resident of ChhatradhariBazar, P.O. Chapra, P.S. Bhagwan Bazar, District- Saran. ... ... Appellant/s Versus 1.Commissioner of Income Tax, Muzaffarpur having its office at Bela Kothi,Muzaffarpur.Muzaffarpur. 2.Dy. Commissioner of Income Tax, Circle-2, having its office at Bela Kothi,Muzaffarpur.Muzaffarpur. ... ... Respondent/s ======================================================Appearance :For the Appellant/s: Mr. D.V.Pathy, AdvocateFor the Respondent/s: Mr. Harshwardhan Prasad, Advocate====================================================== CORAM: HONOURABLE THE CHIEF JUSTICE and HONOURABLE MR. JUSTICE PARTHA SARTHYORAL JUDGMENT (Per: HONOURABLE THE CHIEF JUSTICE) Date : 08-08-2023 The relevant assessment year is 2003-04, and theissue raised is with respect to the adoption of net profit at the rateof 8%, deviating from the adoption of net profit in the earlieryears at a rate of 6%, and the depreciation allowable to theassessee insofar as the assets used in the business of the assessee 2. The assessee is a contractor engaged in executingcivil contract works for the Railways. A return was filed for therelevant assessment year on 31.10.2006, declaring total incomeat Rs. 59,98,090/-. On scrutiny, the Assessing Officer observedthat the books of accounts maintained by the assessee was notcorrect and complete and he applied the net profit rate of 8% on the contract receipts. 3. An appeal carried to the Commissioner of Income Tax Appeals stood rejected. Before the Tribunal, the assesseetook up the following grounds. One, that the order of theauthorities below are bad in law and fact, next, the estimate ofnet profit at 8%; especially when for the earlier assessment yearof 2003-04, the estimation of net profit at 6% was found to bereasonable by the very same Tribunal was unjustified. It was alsocontended that when the books of accounts are rejected and anestimation is made of profit, it would be reasonable and just tofollow the estimation adopted in the earlier years. It is alsocontended that the application of Section 44AD cannot beconsidered relevant for the assessment year, when the turnover ofthe assessee exceeded Rs. 40 lakhs for the relevant year. 4. The questions of law arising from the order of theTribunal which confirmed the order of the Appellate Authorityare the following:- (i) Whether the order of theTribunal in adopting the estimate of profits atthe rate of 8 percent on the basis of an orderin an altogether different case, overlookingthe estimate of profit @ 6 percent inassessment year 2003-04 by the Tribunalitself in the assessee’s case, runs counter tothe rule of consistency? (ii) Whether in view of the ruleof consistency, in the absence of any material change in the nature of business activity, theTribunal ought to have followed the estimateof profits made in the assessment year 2003-04 in the case of the appellant itself? (iii) Whether the order of theTribunal refusing consideration ofdepreciation, runs contrary to the mandate oflaw? 5. The question raised as (i) and (ii) are answeredtogether. Any estimation is based on the best judgment of theAssessing Officer and if it is reasonable, there is no reason forthe Appellate Authorities or even this Court to substitute thesame for yet another reasonable view. There is also no rule ofconsistency applicable in estimations, as the factors regulatingprofits fluctuate from year to year and every assessment yearbrings forth a different cause of action. change in the nature of business activity, theTribunal ought to have followed the estimateof profits made in the assessment year 2003-04 in the case of the appellant itself? (iii) Whether the order of theTribunal refusing consideration ofdepreciation, runs contrary to the mandate oflaw? 5. The question raised as (i) and (ii) are answeredtogether. Any estimation is based on the best judgment of theAssessing Officer and if it is reasonable, there is no reason forthe Appellate Authorities or even this Court to substitute thesame for yet another reasonable view. There is also no rule ofconsistency applicable in estimations, as the factors regulatingprofits fluctuate from year to year and every assessment yearbrings forth a different cause of action. 6. The assessee was a railway contractor carrying onworks for very many years. It cannot be assumed that the netprofit of the assessee would have been the same for all the years.The mere fact that in the assessment year, twice prior to therelevant assessment year, the Assessing Officer had adopted anincome of 6% would not restrict the estimation of net profit tothat, for all time to come. 7. The Assessing Officers, rightly reckoned theprofit margin of similar businesses in the relevant assessment year to estimate the net profit at 8%. 8. We find no question of law as framed at (i) and (ii) arising from the above order and refuse to answer thequestions framed by the assessee, which is on facts and not oflaw. There is no perversity discernible in the estimation made bythe Assessing Officer and it cannot be termed unreasonable. 9. On the question of depreciation, the learned counsel for the assessee relied on Shyam Bihari v.Commissioner of Income-Tax and Anr.; [2012] 345 ITR 283(Patna). We extract paragraph number 10 and 11 of the saiddecision. 10. We have been taken throughthe provisions of circular of the Board datedAugust 31, 1965. According to that circularwhich is binding on the department and itsauthorities, where it is proposed to estimatethe profit and the prescribed particulars havebeen furnished by the assessee, thedepreciation allowance should be separatelyworked out. In all such cases, as per thecircular, the gross profit should be estimatedand the deductions and allowance includingthe depreciation allowance should beseparately deducted from the gross profit. Ifthe net profit is required to be estimated, itshould be estimated subject to the allowancefor depreciation and the depreciationallowance should be deducted therefrom. 11. Since it is the case of theappellant that the authorities should notapply the principles emanating section 44AD of the Act but should be guided by thebinding circular of the Board, we find itnecessary not only to set aside the order ofthe Tribunal but also the orders of theAssessing Officer and the learnedCommissioner of Income-tax (Appeals) asthose orders also suffer from error of law onboth the points. Accordingly, this appeal isallowed and the order under appeal passedby the Tribunal, the appellate order of theleamed Commissioner of Income-tax(Appeals), Patna, and also the order of theAssessing Officer are set aside and the matteris remitted back to the Assessing Officer forpassing a fresh order of assessment inaccordance with law keeping in view thequestions of law as answered by this court. 10. The second question raised is no longer res integra. It is covered by the another Division Bench of this Courtin Shyam Bihari (supra). The question is answered in favour ofthe assessee and against the revenue. The Assessing Officer shallgive effect to this order of this court. 11. The appeal stands partly allowed. (K. Vinod Chandran, CJ) aditya/-AFR/NAFRCAV DATEUploading Date17.08.2023.Transmission Date (Partha Sarthy, J)