The Income Tax Appellate Tribunal (ITAT), Patna Bench, has recently, in an appeal filed before it, while restricting the net profit rate of 6% in civil contract business, held that 8% income over the gross revenue is unjustifiable.
The aforesaid observation was made by the Tribunal when an appeal was filed before it by M/s. Kumar Constructions, as against the order passed u/s 143(3) of the Income-tax Act, 1961, by the OSD, CIT(A), dated 26.06.2014, for the A.Y. 2005-06.
The brief facts of the case were that the appellant assessee had filed its return for the A.Y. 2005-06 on 29.10.2005, declaring the income of Rs. 2,36,990/-. Subsequently, the case of the assessee was selected under scrutiny, wherein the AO found that the books of accounts of the assessee were not properly maintained or supported by evidence of expenses. Further, neither the stock register was maintained by the assessee in respect of the materials purchased or consumed, nor the sundry creditors were verifiable.
Therefore, the A.O rejected the books of accounts u/s 145(3) of the Income Tax Act and determined the net profit by applying the net profit rate of 8% on gross receipts of Rs. 3,93,24,971/, after taking into account all expenses including depreciation claimed in the profit and loss accounts, and while doing so, he allowed salary and interest to partners amounting to Rs. 3,97,897/- therefrom.
Since the assessee firm was reconstituted and seven partners had introduced Rs. 17,86,586/- towards their capital who did not file any documentary proof to explain the source of capital introduced by them, the AO had made an addition of Rs. 12,20,000/- as income of the firm and added the same to its total income. And against the above said assessment order, the assesse had filed an appeal before the CIT(A), Patna, who vide his order dated 04.12.2009 had dismissed the same.
Against this order of the CIT(A), the assessee had preferred an appeal before the ITAT vide order dated 21.02.2012, wherein the Tribunal remitted the matter to the file of CIT(A) to consider the issue afresh after giving one more opportunity to the assesse, and in pursuance to that, the CIT(A) had passed an order dated 26.06.2014, dismissing the appeal of the assessee for the AY 2005-06. And it is against the same, that the assessee has preferred the instant appeal before the Tribunal.
With Smt. Archana Sharma, CA, the AR for the assessee submitting that such higher rate of income is very harsh and further that 6% in civil contract business as reasonable and also taking into reference the following cases: “i. Metropolitan Engg. Co. Opt. Society Ltd. vs ACIT ITA No. 2172/Kol/2010. ii. Pravin Pandurang Patil, Islampur in ITA No. 850/PN/08. iii. ACIT Gandhidham Circle vs M/s. Ishwar Construction Co. Gandhidham, ITA No. 1140/RJT/2009.”
While Shri Rupesh Agrawal, Sr. DR, supported the decision of the department authorities, it was submitted by Smt. Archana Sharma, CA, the AR for the assessee, that the assessee is engaged in civil contract business executing govt. contracts on which the profit rate is not very high, and that the work assigned to the assessee is on a very low profit margin and further that the contracts has been accepted at the rate which is 14% lower than the rate specified.
With the AR for the assesse further submitting that such higher rate of income, if considered would be very harsh, she, by relying upon a number of precedents on the point drew the attention of the Tribunal towards the fact that it is the rate of 6% in civil contract business which would be reasonable, hearing which the Bench consisting of Manish Borad, the Accountant Member and Sonjoy Sarma, the Judicial Member observed as follows:
“We after considering the rival submission of the parties on this issue and material available on record as well as going through the Paper Book submitted by the assessee to substantiate its claim and also perusing the affidavit filed by the individual assessee in this regard and the order passed by the Hon’ble Patna High Court, find force in the submission made by the assessee.”
“Therefore, we allow the claim of the assessee and directed the AO to delete the addition of Rs. 12,20,000/- in the hands of the assessee.”, allowing the assessee’s appeal the Bench ruled.
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