The Commissioner Of Income Tax v. M/S Construction Engineers, 54 Industrial Estate, Barzulla, Srinagar

HIGH COURT OF JAMMU AND KASHMIRAT SRINAGAR ITA No. 04/2012 Date of Order: 5[th] June 2017 The Commissioner of Income Tax Vs. M/s Construction Engineers, 54 Industrial Estate, Barzulla, Srinagar Coram: Hon’ble Mr. Justice Badar Durrez Ahmed, Chief Justice Hon’ble Mr. Justice Ali Mohammad Magrey, Judge Appearing counsel: For appellant(s): Mr. J. A. Kawoosa, Adv. For respondent(s): Mr. R. A. Jan Sr. Adv. with Ms. Amani Syed, Adv. i/ Whether to be reported in Press/Media? Yes/No ii/ Whether to be reported in Digest/Journal? Yes/No Badar Durrez Ahmed, CJ (Oral) 1. The present appeal is directed against the order dated 11.05.2012 passed by the Income Tax Appellate Tribunal (ITAT), Amritsar Bench, Amritsar in, inter alia, ITA Nos. 495(Asr)/2010 and 382(Asr)/2010, both pertaining to the assessment year 2007-08. ITA No. 495(Asr)/2010 was an appeal by the assesse and ITA No. 382(Asr)/2010 was an appeal by the revenue against the order of the Commissioner of Income Tax (Appeals) dated 28[th] June 2010 which in turn was in respect of the assessment order dated 30[th]December 2009. 2. By virtue of an order dated 02.07.2013, a Division Bench of this Court, while admitting the present appeal, had framed the following substantial questions of law:- (i)Whether the ld. ITAT in the facts of the case was justified to assume that net profit rate must be 7% and not 10.5% as recorded by the fact finding authority i.e., Assessing Officer, especially when the assesse itself pleaded that it should be assumed between 9% and 10%? justified to assume that net profit rate must be 7% and not 10.5% as recorded by the fact finding authority i.e., Assessing Officer, especially when the assesse itself pleaded that it should be assumed between 9% and 10%? (ii)Whether in the facts and circumstances and in law, the learned ITAT was justified in deleting the addition made on account of other receipts amounting to Rs. 6,69,340/- when the Assesse has himself shown the same income in its second return of income which he filed before the Assessing Officer?” learned ITAT was justified in deleting the addition made on account of other receipts amounting to Rs. 6,69,340/- when the Assesse has himself shown the same income in its second return of income which he filed before the Assessing Officer?” 3. However, the order also indicated that it would be open to the counsel for the assesse to argue that no substantial question of law had in fact arisen at the time of regular hearing of the appeal. 4. On examining the facts of the case and after hearing the learned counsel for the parties, we are of the view and it is also agreed by the learned counsel for the parties that question No. (ii) does not arise. Therefore, we are left with the determination of question No. (i) only. 5. This is a case where the assesse’s books were rejected and a best assessment was done under Section 144 of the Income Tax Act, 1961. The issue relates to the net profit rate which has to be adopted based on the gross contract receipts. The net profit rate which was adopted by the Assessing Officer was 10.5 % which was reduced by the Commissioner of Income Tax (Appeals) to 10% and on further appeal by the assesse was reduced to 7%. The revenue on the other-hand in its appeal before the Tribunal had requested that the Commissioner of Income Tax (Appeals) had wrongly reduced the rate of net profit from 10.5% to 10%. 6. The question that has been framed clearly indicates that the assesse had pleaded that the net profit rate should be between 9% and 10% and, if that be the case, there was no ground for the Tribunal to have adopted the net profit rate of 7% lower than what the assesse itself had pleaded. 6. The question that has been framed clearly indicates that the assesse had pleaded that the net profit rate should be between 9% and 10% and, if that be the case, there was no ground for the Tribunal to have adopted the net profit rate of 7% lower than what the assesse itself had pleaded. 7. The learned counsel for the revenue drew our attention to a letter dated 15.12.2009 addressed by the Additional Commissioner of Income Tax to the assesse wherein the assesse was required to explain why the total income in the assesse’s case should not be estimated @ 12.5% of the gross contract receipts without giving any further deduction on account of salary etc. In response by a letter dated 24.12.2009, the assesse submitted that the proposed rate of 12.5% was too excessive in view of a number of decisions of courts and of the ITAT. Several cases were mentioned in the said letter, in all of which either the rate of 10% or the rate of 9% was applied. Based thereupon, the assesse requested that the rate proposed was very high and that the rate of 9% with interest and salary to partners and depreciation to be allowed be considered. Thus, it is evidently clear that the assesse itself had requested for a net profit rate of 9%. As against this, the Tribunal, without citing any reasons, has adopted the net profit rate of 7%. On this ground alone, the appeal is liable to be allowed insofar as the issue of net profit rate is concerned. 8. Consequently, we set-aside the finding of the Tribunal to the effect that the net profit rate should be 7%. The matter is remitted to the Tribunal to ascertain the appropriate net profit rate which must not be less than 9% which was admitted by the assesse itself. 9. The appeal stands allowed as above. (Ali Mohammad Magrey) (Badar Durrez Ahmed) Judge Chief Justice Srinagar 5[th] June 2017 Altaf.