AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2012 (12) TMI 718
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....rossly erred in invoking the provisions of sec. 263 of IT Act, 1961. iii. On the facts and in the circumstances of the case the ld. CIT grossly erred in directing the AO to estimate the profit @ 8% on gross receipts as against the net receipts in the assessment." At the time of hearing, the assessee raised the following additional ground before us:- "The ld. CIT in the alternative ought to have directed the ld. AO to allow royalty paid to the principal contractor as a separate deduction while estimating the income @ on gross receipts." 3. Facts of the case, in brief, are that the assessee is engaged in civil contract works which are mainly road works. During the relevant previous year, the assessee entered into sub-contract with M/s Sad....
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.... the assessee contended that when the AO has taken one out of two views possible, the order cannot be treated as erroneous, no profit arises out of supply of material by the main contractor, the AR of the assessee further relied on CBDT's Circular no.684 of 1994 which speaks of exclusion of value of material supplied by the contractee while estimating the net profit u/s 44AD. The CIT after considering the contentions raised on behalf of the assessee came to a conclusion that Circular No.684 of 1994 issued by the CBDT is only applicable to the assessee's where gross receipts are less than Rs. 40 lakhs and therefore not applicable to the facts of the assessee. The CIT has further observed that the assessee is a sub-contractor to the main cont....
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....e principal contractor. The learned AR contended that the entire material and consumables were supplied by the principal contractor and the assessee being a subcontractor entrusted with execution of work has incorporated the materials supplied by the principal contractor in the execution of work. Therefore, there is no profit element accruing to the assessee on the value of materials supplied by the principal contractor. The ld. AR further contended that in the assessment proceedings, all material facts were brought to the notice of the AO which were contained in the assessee's letters dated 8-9-2008 and 3-10-2008 and the AO having completed the assessment after taking all these facts into consideration, it cannot be said that the assessmen....
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.... to them shall be the net amount calculated as under:- (a) Amount calculated as the rates as noted in Schedule A hereto for the quantity (volume) of work completed by the Firm. (b) 14% rebate to be deducted from amount calculated as per para (a) hereinabove and (c) Cost of raw material and consumables as provided by SEL to the Firm for carrying out the work allotted shall be deducted from the net amount calculated i.e. (a-b as noted hereinabove. The amount so calculated and arrived at i.e. a-b-c shall be the consideration payable to the firm for the job work carried as per this agreement." It is seen from the aforesaid definition clause that from the gross amount of work awarded to the assessee as sub-contractor recoveries towards raw m....
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....see's claim with regard to the recoveries made by the principal contractor from the gross receipts of Rs.5,00,14,972/- which has been shown as the gross receipts in Profit & Loss A/c of the assessee for the assessment year under consideration. However, we are of the view that the CIT was not correct in directing the AO to estimate profit at 8% on the gross receipts of Rs.5,00,14,972/- simply on the view that the assessee is a sub-contractor to the main contractor and supply of materials or recoveries are not properly verifiable and therefore, an element of profit cannot be ruled out. When no enquiry has been made by the AO regarding the claim of the assessee, the CIT was not justified in coming to a conclusion that the supply of materials, ....