TaxTMI 
TaxTMI 
1998 (8) TMI 111
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....g net profit rate of 10%. 3. Agitated against the order passed by the Assessing Officer the appellant filed appeal before the CIT(A). The Id. CIT(A) gave his findings in para - 5 of his order which are reproduced as follows:- "5. I have given careful consideration to the arguments of the Id. counsel and I have also looked into the assessment orders for earlier years. For the assessment years 1986-87 to 1989-90 a rate of 10% was considered reasonable and claim on account of depreciation as well as interest was also allowed. For the year under consideration the Assessing Officer has applied a rate of 10% but claim on account of interest and depreciation has been disallowed. The Assessing Officer has also referred to the cases of M/s. Madan Lal Bansal & Co. and M/s. Megh Raj Bansal & Co. decided by the CIT(A) where rate of 12.1/2% was applied but depreciation was allowed. The facts of both the cases referred to by the Assessing Officer were entirely different and higher rate was applied in the case of M/s. Madan Lal Bansal & Co. since MES had supplied coal at reduced rate for purchasing bricks and in the case of M/s. Megh Raj Bansal & Co. the rate was upheld since the assessee had n....
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.... allowance. In view of the foregoing discussion, it is held that the assessee is entitled to the claim of depreciation and interest and Assessing Officer is accordingly directed to allow depreciation after verification of the particulars of assets. He should also allow interest after verification that the loans taken are utilised for the purpose of business." 4. Aggrieved against the order passed by the CIT(A) the department is in appeal before us. The Id. DR has pleaded that after applying net profit rate, the CIT(A) should have not allowed the claim of interest and depreciation because the same has resulted into abnormal situation where net profit rate at considerably lower figure was in fact, accepted by the Id. CIT(A). The Id. counsel has also relied on the decision of Saraya Engg. Works (P.) Ltd. v. CIT [1987] 168 ITR 455 / 31 Taxman 165 (All.). The Id. counsel of the appellant pleaded that the Assessing Officer was not justified in invoking proviso to section 145(1). We have gone through the records and have also taken note of para-2 of Id. CIT(A) order. In para-A2 of the CIT(A)'s order, the Id. CIT(A) has mentioned that the appellant has only pressed Ground No. 1 and othe....
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....r. In such type of cases, the net profit rate or G. P. rate can be applied or the Assessing Officer can adopt any method of estimation and work out the income from profession or business. But the method adopted must be reasonable and logical. In all civil contract cases, if accounts are not maintained or defective accounts are maintained, a net rate of 10% is applied which is admitted by the Id. CIT(A) in his order. In those cases, neither depreciation nor interest nor any other expenditure debitable to profit & loss account re separately allowed. By allowing expenditure to the tune of Rs. 4,79,667 on account of depreciation and Rs. 1,02,567 on account of interest, net profit rate of approximately 3.5% has been applied consequential to the order of the Id. CIT(A). This rate itself is absolutely abnormal. There is no evidence on record whatsoever that there were abnormal conditions prevailing with the appellant to earn such a low net profit by executing the contract. 8. The Id. DR has pleaded that in earlier years and subsequent years, net rate of 10% subject to depreciation and subject to allowing of the interest, has been adopted by the Assessing Officer. We can assume that the p....
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....be taken. The Assessing Officer has categorically discussed in his order that if he will take note of the net rate shown by the appellant the same will be absolutely abnormal because the net profit rate shown by the appellant will be. 27%. He has also observed that the appellant is having its own plant and machinery and then under those circumstances, which will give more advantage to the appellant the net profit rate will be applied at 12.5%. He has also taken note that during the year, claim of depreciation is claimed on the new machinery. The appellant has claimed 50% depreciation on some items which can also be debited to profit & loss account as an expenditure. Apparently, even though nothing is on record, but apparently from the order of the Assessing Officer, it is clear that the appellant is also using transport vehicles for the execution of the contract. The Id. CIT(A) has not even taken note whether the depreciation claimed is allowable or in accordance with the rules. He has simply gone on ritualistic and in legal manner. The second aspect to be looked into is that once net rate is applied it is not open to the Assessing Officer to allow any other claim debited to profit....
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.... question with reference to the relevant material and in accordance with the correct principles. In the words of Viscount Haldane, "it is plain that the question of what is or is not profit or gain must primarily be one of fact, and of fact to be ascertained by the tests applied in ordinary business." (Sun Insurance Office v. Clark [1912] AC 443, 455 (HL). Referring to section 13 of the Indian Income-tax Act, 1922 which correspond to section 145 of the Income-tax Act, 1961, this Court had stated in Chhabildas Tribhuvandas Shah v. CIT [1966] 59 ITR 733, 737). We may point out that we are not concerned with the correctness of the conclusion and we are only concern with the question whether there is any material in support of the finding of the Appellate Tribunal. In cases involving, the applicability of the proviso to section 13, the question to be determined by the ITO is a question of fact, namely, whether the income profits and gains can or cannot be properly deduced from the method of accounting regularly adopted by the assessee. There is nothing special about this question of fact, and generally the only question of law that can possible arise is whether there is any material f....