TaxTMI 
TaxTMI 
2011 (12) TMI 583
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.... 2004-05 4,50,07,549 54,98,488 12.22% 0.89% 2005-06 5,48,46,737 65,26,761 11.90% 0.84% 2006-07 14,01,79,045 1,71,15,840 12.21% 4.83% From the above chat, the AO noticed that the assessee has shown the gross profit at 12.21% which is better as compared to preceding year. It is lower than the gross profit rate disclosed in the assessment year 2004-05. Before the AO, the assessee agreed that he is not maintaining any stock register of material consumed on day to day basis. The quantitative detail of consumption of material and stock in hand is not verifiable. The assessee also failed to give headwise breakup of the expenses. The auditor has also mentioned that there might be some personal expenses pertaining to the partners in the form of traveling expenses, food expenses and entertainment expenses. The AO has observed that in the case of the Hon'ble Jurisdctional High Court upheld the gross profit rate of 12.5%. The same was applied for the assessment years 2003-04 to 2005-06 by the ld.CIT(A) and the assessee has not filed any appeal before the Tribunal. Accordingly the AO applied the gross profit rate of 12.5% and made the....
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....ere might be some personal expenses pertaining to the partners in the form of travelling expenses, food expenses and entertainment expenses. We therefore, feel that it will be fair and reasonable to restrict the addition to Rs. 2,03,000/- as against Rs. 4,06,547/- made by the AO. 4.1 The fourth ground of assessee is that the ld. CIT(A) has erred in enhancing the income by disallowing claim of sub-letting commission amounting to Rs. 33,38,926/- paid to the main contractor from whom the work was received on the basis of the payment of sublet commission. 4.2 The above referred addition is on account of enhancement of income by the ld.CIT(A). The ld.CIT(A) issued the show cause notice that the sublet commission is not to be allowed as deduction when net profit rate is being applied subject to deduction namely remuneration and interest to partners, depreciation and interest to third parties as also commission. 4.3 Before the ld.CIT(A), it was submitted that deduction on account of sublet commission was allowed by the ld.CIT(A) in the past and Tribunal upheld the action of the ld.CIT(A) in allowing deduction of sublet commission separately from the net profit. Reliance was place....
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....of the sub contractor is of no consequence to determine the moment when the liability regarding payment of subject commission crystallize which as has pointed out above, had already crystallized at the moment the agreement was entered into by the two parties. The agreement does not provide any precondition upon fulfillment of which the amount of sublet commission shall become payable by the assessee to the main contractor which establishes that the liability to pay the sublet commission crystallizes the moment the two parties had entered into the agreement. Thus, it is clear that the gross consideration that the sub contractor received for execution of the contract is the amount of gross receipt received by the main contractor from he contractee department as reduced by the amount of sublet commission. The manner or the moment of payment of sublet commission is of no consequence to determine the moment the liability regarding sublet commission crystallized. The above discussion clearly establishes that the gross receipt of the assessee for execution of the sub contract is restricted to the amount received from the main contractor as reduced by the sublet commission and the....
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....eld to be separately allowed. It will be useful to reproduce para 8 and 9 from the order of the Tribunal dated 28-05-2001 "8. The second issue relates to the allowability of deduction on account of subletting commission separately from the income of the assessee from contracting business estimated by applying net profit rate . This issue has been raised in Revenue's appeal being ITA No. 17(JDPP)/98 in ground no. 2 (sub-part) 9. After considering the rival submissions and perusing the relevant material on record, it is observed that the assessee executed certain contracts received by other contractors and paid commission on such main contractor at the agreed rate on the value of relevant contract. Considering the nature of this expenditure, we are of the view that the same cannot be considered as a regular or routine contract expenses and n fact the payment of such commission tantamounts to the distribution or sharing of the normal profit earned from the execution of the relevant contract. In that view of the matter, we hold that the ld.CIT(A) was fully justified in directing the AO to allow the deduction in respect of subletting commission amounting to Rs. 40,964/....