M/S Pooja Construction Co v. The Commissioner Of Income Tax, Patiala

ITR No. 166 of 1999 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITR No. 166 of 1999 Date of Decision: 10.9.2010 M/s Pooja Construction Co. ....Petitioner. Versus The Commissioner of Income Tax, Patiala ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. D.N. Ganeriwala, Advocate for the petitioner. Ms. Savita Saxena, Advocate for Ms. Madhu P.K. Singh, Advocate for the respondent. ADARSH KUMAR GOEL, J. 1.The Income Tax Appellate Tribunal, Amritsar Bench,Amritsar (hereinafter referred to as “the Tribunal”) has referred foropinion of this Court following question of law under Section 256(1) ofthe Income Tax Act, 1961 (in short “the Act”) arising out of its orderdated 31.8.1998 in ITA No. 750 (ASR)/1992 in respect of assessmentyear 1990-91:- “Whether the income-tax Appellate Tribunal wasjustified in giving the finding that proper estimation ofincome in a contract case is adoption of net profitrate as applied in other comparable cases and thenet profit excludes a separate allowance of any otherexpenditure claimed under profit and loan accountand trading account?” 2. The assessee is a MES Contractor. During the course of assessment, the Assessing Officer noticed defects in the maintenanceof accounts and since the true taxable income was not disclosed in theaccounts, invoking proviso to Section 145(1) of the Act, the AssessingOfficer made assessment after applying net profit rate of 10%. The saidrate was applied after recording a finding that interest of Rs.1,02,567/-and depreciation of Rs.4,79,677/- claimed by the assessee had alreadybeen considered in the expenses which were to the extent of 90% of thetotal receipts. On appeal, this view was reversed in light of circular ofCBDT dated 31.8.1965. It was held that the assessee was entitled toclaim depreciation and interest. On further appeal by the revenue, theview of the Assessing Officer was restored. Regarding depreciation,the Tribunal observed:- “The application of net rate is directly dependent onthe net rate shown by other cases in the line of thebusiness. Other cases of contractors are beingapplied net rate of profit without giving themadvantage of depreciation as discussed already withmany contractors debit various items which relate toprofit & loss or trading account expenditure andclaimed 100% of depreciation. This method createsan abnormal situations in the net profit. The A.O.has, therefore, taken a proper course by ignoringdepreciation and the interest and applied net rate of10%. The second positive feature in the assessmentof the I.T.O. relates to the observation that the netprofit rate of the person who use heavy machinery is going to be more than the net profit of a person whois not using the mechanical aid for execution of CivilWorks.” 3.We have heard learned counsel for the parties. 4.Learned counsel for the assessee relying upon thejudgment of this Court in Shri Girdhari Lal v. Commissioner ofIncome Tax, Jalandhar and another, ITA No. 51 of 2000, decided on10.9.2001, submits that depreciation has to be deducted out of net profitin view of circular of CBDI dated 31.8.1965 relied upon by the CIT andalso referred to in the judgment of this Court. 5.Learned counsel for the revenue, on the other hand,submits that after due consideration of the said circular, the Tribunalheld on facts that the depreciation having been already taken intoaccount while determining the income at net profit rate of 10%, thesame could not be taken into account once again. 6.We find merit in the contention raised on behalf of therevenue. As already observed, the depreciation has to be taken intoaccount out of the net profit rate but if the same has already taken placewhile applying the net profit rate for determining the income, therecannot be further allowance for depreciation. Judgment in ShriGirdhari Lalis distinguishable. 5.Learned counsel for the revenue, on the other hand,submits that after due consideration of the said circular, the Tribunalheld on facts that the depreciation having been already taken intoaccount while determining the income at net profit rate of 10%, thesame could not be taken into account once again. 6.We find merit in the contention raised on behalf of therevenue. As already observed, the depreciation has to be taken intoaccount out of the net profit rate but if the same has already taken placewhile applying the net profit rate for determining the income, therecannot be further allowance for depreciation. Judgment in ShriGirdhari Lalis distinguishable. 7.In view of above, question referred is answered against theassessee. (ADARSH KUMAR GOEL) JUDGE September 10, 2010gbs (AJAY KUMAR MITTAL)JUDGE