Net profit estimation in civil contract cases must rest on facts, not a blanket higher rate where comparables support the assessee.

An assessee engaged in civil contract receipts, having not maintained books of account, disclosed income on a 10% net profit rate. The Tribunal held that this rate could not be rejected merely by reference to a general 12.5% practice for civil contractors, because comparable cases showed the same assessing officer had accepted lower rates and the revenue did not justify a higher rate on the facts of this assessee's business. It also accepted the factual position that rising material and labour costs affected profitability. The assessee's 10% net profit rate was therefore upheld and the related disallowance of depreciation did not survive.

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Issues: Whether the assessee's declared net profit rate of 10% from civil contract receipts was liable to be rejected and substituted by 12.5%, with consequential disallowance of depreciation.

Analysis: The assessee had not maintained books of account and had disclosed income by applying a 10% net profit rate on gross contract receipts. The revenue authorities justified the higher rate mainly on the general practice of applying 12.5% in civil contractor cases. The Tribunal noted that the assessee had produced comparable instances where the same assessing officer had accepted lower rates in similar contract cases, and the revenue failed to show why the higher rate was necessary in the assessee's case. The Tribunal also accepted the factual finding that material and labour costs had increased during the relevant years, affecting profitability.

Conclusion: The rejection of the 10% net profit rate was unwarranted, and the assessee's declared rate was upheld. The revenue's appeals failed.

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