2007 (5) TMI 641 - HC - Income Tax

High Court upholds profit estimation for contractors and limits of section 44AD under Income Tax Act

The High Court dismissed the revenue's appeal against the ITAT's decision on profit estimation for contractors and the applicability of section 44AD to ... - Issues Involved: The issues involved in this case are: 1. Whether profit can be worked on an estimate basis for contractors when proper books of account are not produced for verification before the Assessing Officer (AO)Rs. 2. Whether the deeming provisions of section 44AD can be applied to contractors with a turnover exceeding Rs. 40 Lakhs, as specifically provided in the Income Tax ActRs.Issue 1 - Profit Estimation for Contractors: The High Court considered the appeal filed by the revenue against the common order of the Income Tax Appellate Tribunal (ITAT) regarding assessment years 1999-2000 and 2000-2001. The main question was whether the ITAT was justified in allowing profit estimation at 10% of gross receipts for contractors who claim to maintain proper books of account but fail to produce complete books for verification before the AO. The Court referred to a previous case involving the same assessee for the assessment year 2001-2002, where similar issues were considered and the appeal was dismissed. The Court applied the same reasoning as in the earlier case and dismissed the current appeals based on the precedent set in the previous judgment.Issue 2 - Applicability of Section 44AD: The second issue raised by the revenue was whether the ITAT can extend the deeming provisions of section 44AD to contractors with a turnover exceeding Rs. 40 Lakhs, contrary to the statutory limit set by the Income Tax Act. The Court noted that the Act clearly specifies the applicability of section 44AD to contractors with a turnover not exceeding Rs. 40 Lakhs. The Court emphasized that the ITAT cannot go beyond the provisions of the Act and apply section 44AD to cases exceeding the prescribed limit. The Court upheld the statutory limit and ruled against the extension of the deeming provisions to cases not covered by the specified turnover limit.Separate Judgment: The judgment was delivered by Mr. Justice M.M. Kumar and Mr. Justice Rajesh Bindal of the Punjab & Haryana High Court. The Court addressed the issues raised by the revenue regarding profit estimation for contractors and the applicability of section 44AD to cases exceeding the turnover limit specified in the Income Tax Act. The Court relied on previous decisions and statutory provisions to make its determinations, ultimately dismissing the appeals based on established legal principles and precedents.