TaxTMI 
TaxTMI 
2017 (3) TMI 1029
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.... Rs. 10 lacs that resulted into net profit rate of 10.64% (subject to salary, interest and depreciation)." "3. That under the facts and circumstances of the case, the learned Assessing Officer has erred in disallowing of 10% of depreciation of jeep and car i.e. Rs. 20,472/- considering that the same were incurred on personal use particularly under the circumstances that appellant firm has also paid Fringe Benefit Tax on the expenses incurred on depreciation of vehicle and also for the reason that the learned Assessing Officer has rejected the books of accounts and has applied a N.P. rate on gross contract receipts. The Hon'ble Commissioner of Income Tax (Appeals) also erred in dismissing the ground taken by the appellant." 2. Brief facts of the case are that the assessee is a civil contractor and engaged in the business of contract work from the Ex. Engineer, Water Resources Baran, Pali, Kota, Tonk etc. The return of income was filed on 30.10.2006 at total income of Rs. 1,20,07,390/-. During the year under consideration the assessee has shown gross contract receipts of Rs. 17,35,96,602/- and N.P. at Rs. 1,74,62,945/- giving NP rate of 10.05% as against gross contract receipts at....
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....gards application of the profit rate, it may be mentioned that the assessee is carrying out such business with heavy utilization of capital assets and that is the reason that the depreciation claim of the assessee is for Rs. 34,31,532/-. Due to such capital investment, the assessee is deriving more economies of scale and profit rate should also be higher. The Hon'ble Rajasthan High Court in the case of M/s Jain Construction & Co. has upheld the NP rate of 12.5% in the business of civil construction. Similarly the Hon'ble Orissa High Court in the case of CIT V/s Builders Union 211 ITR 993 has also considered reasonable NP rate of 12.5% in the case of contractor. The following assesses of this Range carrying out the business of civil construction have also disclosed better profit rate subject to depreciation interest etc. as under:- Sl. No. Name of the Assessee A.Y. Total contract receipts Net Profit Net Profit @ 1. M/s Jain Enterprises 2006-07 Rs.9,60,64,093/- Rs.1,00,68,196/ - 10.48% 2. Sh. Harbans Lal Sethi Prop M/s Goodwill Advance construction Co., Kota. 2006-07 Rs.24,27,14,639/- Rs.2,66,97,007/ - 11% Considering all the facts and circumstances ....
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....these Sr. No. 5 & 6 were escalation bills and not related to any new work done by assessee. iii) Sr. No.3 [Sirohi Site] was also a price escalation bill [no work done]. iv) The Assessee purchased cement of Rs. 466900/- from Jodhpur on 31.03.2006 on the bill it was written that the same was delivered on 30.03.2006. We all know that such a huge quantity cannot be consumed in a day. Moreover ever if it was consumed, cement takes at least 7 days for quarrying etc. and no bill can be prepared and passed on the same day. v) Cement of Rs. 3,22,000/- was purchased on 31.03.2006, claimed to be delivered on 11/03/2006, no evidence of delivery was produced. vi) Cement of Rs. 2,37,000/- was purchased on 31.03.2006, claimed to be delivered on 11/03/2006 on 18.3, 23.3, 25.3 & 26.3 to Sai dam. vii) Cement was purchased from J.K. Laxmi Cement Ltd., out of various bills, Bill No.5042441 [Rs.61,796/-], Bill No.5042442 [Rs.33,988/-], 5042449 [Rs.61,796/-], Bill No.5042450 [Rs.30,898/-], Bill No.5042452 [Rs.62,760/-] showed date of removal as 31.03.2006. The cement was to be delivered at Jalore. The last bill raised for this site was dated 30.03.2006 and there was no possibility that this ....
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....act receipts duly reconciled with the TDS certificates. The fact of claiming labour payments based on the labour registers, must roll registers and the fact of maintenance of site wise details of labour payment, were also duly admitted by the AO. Thus, the only objection/basis of rejection of the accounts raised by the AO are that: i. the assessee has shown purchases of the material in the last days of the financial year, which is suspected not to have been consumed by the assessee and therefore, should remain as a part of the closing stock. Resultantly the profit to that extent should have gone up. ii. Payments were made in cash and the name & address of the recipients were not complete. The ld. CIT(A) also confirmed the same alleging that the assessee has shown excessive consumption of material. Firstly, we strongly rely upon the written submissions filed before the AO and the ld. CIT(A). The authorities below have completely ignored the practical difficulties and realities of the business and more particularly in the line of the Construction business, more particularly those reproduced in para (b) Justification for non maintenance of stock registers at pg 5 and 6 of the l....
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....d unavoidable compulsion on the part of the contractor to raise bills showing complete work done without being any work in progress/closing stock in hand, there is no justification for invoking of Section 145, also when this is not one of the reasons provided u/s 145. As regards the allegations of cash payment, it is a matter of common knowledge that labourers demand cash payment and cannot wait for receiving cheque and realization thereof. Further, once admittedly detailed wages sheets and muster rolls etc. have been maintained, they contain all the necessary details. The payments are made through the labour contractors/supervisors therefore, such payment cannot be doubted and is not a good basis to invoke Section 145. On the non maintenance of stock register the AO & ld. ICT(A) has not raised any objection and not made a finally basis of invoking Section 145 of the Act. Hence, invoking of Section 145 pleased by quashed. 5.1 On merits, alternatively and without prejudice to above submissions on merits, it was submitted that no addition at all was called for in view of the following facts and submissions: It is submitted that even invoking of Sec. 145 does not confer blind powe....
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.... Co. (P) Ltd. v/s CIT (2010) 37 DTR 386 (Ker.), ITO v/s Kenaram Saha & Subhash Saha (2008) 116 TTJ 289 (Kol.) (SB). In this case the ld. CIT(A) made the estimation of NP @ 10.64% based on the adhoc addition on account of the alleged inflated consumption of material and thus again considered the same accounts already rejected, hence was not a good basis. The only course left after the rejection is a fair estimation taking relevant material into consideration and past history being the most relevant and binding material, could not have been ignored. In the past also similar situation had arisen however, estimation from this approach were never made. The rule of consistency therefore demand that the AO must not have departed from the settled practice on facts and in law both, between the parties, in absence of any new material or changed circumstances. Kindly refer UOI And Ors vs Major S.P. Sharma And Ors (2014) 6 SSC 351 (SC), CIT vs. J.K. Charitable Trust (2008) 220 CTR 105 (SC)/308 ITR 161 (SC), CIT v/s K.J. Business Centre (2009) 24 DTR 99 (Del.). We may submit that past history has been held to be the best guide in the cases of fair estimation. Kindly refer CIT v/s Popular Ele....
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....been given by the assessee and the only explanation which has been furnished is that it will not significantly affect the profits as per the Assessing Officer as the assessee failed to provide necessary explanation regarding the purchase and consumption of material in the last week of March, 2006. It cannot be said that the said material was fully consumed. Therefore, this has resulted in excess claim of expenditure whereby the profits shown by the assessee was neither correct nor reliable. Further, the ld. CIT(A) has examined the matter and has given categorically finding giving specific instances where the material has been purchased on 31st March, 2006 and given that, it was held that there was no possibility that the material so purchased can be consumed in such a short period of time. During the course of hearing, the ld. AR has reiterated the submissions made before the ld. CIT(A) that the assessee has been recording the transaction in the same method and manner as was prevalent in the past. No closing stock, work in progress was shown this year and similarly no opening stock was shown. Thus, increase or decrease of work in progress, closing stock is tax neutral. The law is w....