The Commissioner Of Income-Tax, Panchkula v. M/S Creative Engineering & Construction Co

-1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 259 of 2003Date of Decision: 3.2.2011 The Commissioner of Income-tax, Panchkula Versus M/s Creative Engineering & Construction Co. ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Yogesh Putney, Advocate for the appellant. AJAY KUMAR MITTAL, J. 1.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (in short “the Act”) againstthe order dated 29.10.2002 passed by the Income Tax AppellateTribunal, Chandigarh Bench “A”, Chandigarh (hereinafter referred to as“the Tribunal”) in ITA No. 93/CHANDI/97, for the assessment year1993-94, claiming following substantial question of law:- “Whether on the facts and in the circumstances ofthe case, the Ld. ITAT, Chandigarh Bench 'A',Chandigarh has erred in accepting that the net profitrate disclosed by the assessee as 7%, whereas, thenet profit rate (shown at 1.86%) after considering depreciation, interest and salary paid to the partners,works out to 3.4% only. The order of the Ld. ITAT is,thus, perverse?” 2.Briefly stated, the facts necessary for adjudication asnarrated in the appeal are that the assessee is a civil contractor andfiled return of income for the assessment year 1993-94 declaring anincome of Rs.2,17,410/-. The Assessing Officer rejected the books ofaccounts and framed assessment at total income of Rs.11,66,590/-.Feeling aggrieved, the assessee filed an appeal before theCommissioner of Income Tax (Appeals) [in short “the CIT(A)”] whoupheld the order of the Assessing Officer applying 10% of net profitrate. Against the order of the CIT(A), assessee filed further appeal tothe Tribunal. The Tribunal vide order dated 29.10.2002 treated theprofit disclosed by the assessee to be reasonable and acceptable.Hence, the present appeal by the revenue. 3.We have heard learned counsel for the appellant. 4.The issue for determination in this appeal is as to what isthe appropriate net profit rate in the facts and circumstances to beadopted in the case of the assessee. 5.The Assessing Officer had adopted net profit rate of 10% tobe appropriate with the following observations:- “Shri Atul Jain argued that if a net rate of 10% isapplied to the net contract receipts the addition to thereturned income will be much higher than the amountof fresh cash credits introduced during the year underconsideration. These credits should be considered to be covered in that addition. Therefore, no separatecognizance needs to be taken. The introduction ofcash credits is part of income earned by theassessee as sought to be determined by applicationof a flat rate of 10% by the Assessing Officer, ShriAtul Jain, CA, contended.” 6.The CIT(A) on appeal by the assessee had affirmed thesaid net profit rate while observing as under:- “2.4The contention of the assessee appears to bereasonable in as much as the unexplained cashcredits are nothing but the manifestation ofunexplained income earned by the assessee duringthe year which is sought to be determined byapplying a net rate of profit of 10% to the netcontractual receipts of the assessee as under:-Net payments received 11665879/- Net profit @ 10% as discussed above 1166590/-2.5In view of the above discussion and the facts andcircumstances of the case, I am of the consideredview that the AO has rightly applied that net profitrate of 10% of the net contractual receipts.” 7.However, on appeal to the Tribunal, the Tribunal hadreduced the same by holding that net profit rate of 10% in the case ofthe assessee as applied by the CIT(A) and the Assessing Officer in theassessment order would not be appropriate. 8.Learned counsel for the revenue submitted that the Net profit @ 10% as discussed above 1166590/-2.5In view of the above discussion and the facts andcircumstances of the case, I am of the consideredview that the AO has rightly applied that net profitrate of 10% of the net contractual receipts.” 7.However, on appeal to the Tribunal, the Tribunal hadreduced the same by holding that net profit rate of 10% in the case ofthe assessee as applied by the CIT(A) and the Assessing Officer in theassessment order would not be appropriate. 8.Learned counsel for the revenue submitted that the assessee had disclosed net profit of Rs.2,17,417/- in relation tocontractual receipts of Rs.1,16,65,879/- and the gross profit thus worksout to be 1.86%. He further submitted that after taking intoconsideration the depreciation, interest and salary paid to the partnerswhich has been debited to the profit and loss account, the net profit ratewould work out to 3.4% only. The Tribunal, however, has observed thatthe net profit rate disclosed by the assessee is 7% which is not correct.It was also urged that if the material at site valuing Rs.16,09,189/-shown in profit and loss account is taken into consideration, the netprofit rate would be below 3.4%. He, on the strength of abovesubmissions, stressed that the Tribunal while accepting the plea of theassessee had not referred or discussed any material in this regard. Hesubmitted that the order of the Tribunal is patently unsustainable. 9.The assessee has been served by way of affixation as perthe report of Shri Suresh Bhardwaj, Inspector. No one has chosen toappear to contest the appeal. 10.We have given our thoughtful consideration to thesubmission of learned counsel for the revenue and find merit in thesame. As noticed above, the Assessing Officer and the CIT (A) whileadopting the net profit rate of 10% had kept in mind that this includedthe cash credits which had not been disclosed in the books of accountsand this was as per submission of counsel for the assessee. However,the Tribunal failed to advert to the aforesaid aspect and, therefore, theorder stands vitiated. 11.In view of the above, the substantial question of law isanswered in favour of the revenue. The present appeal is allowed and ITA No. 259 of 2003 the order of the Tribunal is set aside. The matter is remitted to the Tribunal for afresh decision, in accordance with law. (AJAY KUMAR MITTAL) JUDGE February 3, 2011gbs (ADARSH KUMAR GOEL)JUDGE