2010 (8) TMI 1041 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the CIT(A)'s order.
2. Justification of enhancing the income by applying a net profit rate of 12%.
3. Ignoring the CBDT circular.
4. Denial of deductions for depreciation, interest, and other expenses.
5. Non-reduction of payment made to subcontractors from gross receipts.

Summary:

1. Validity of the CIT(A)'s Order:
The ground No.1 raised by the assessee being general, is dismissed.

2. Justification of Enhancing the Income by Applying a Net Profit Rate of 12%:
The CIT(A) enhanced the net profit rate to 12% based on the Punjab & Haryana High Court's decision in M/s Prabhat Kumar (ITA No. 293 of 2008). The assessee argued that the business conditions were the same as in previous years where a 7% rate was applied. The Tribunal found no merit in the CIT(A)'s order to apply a 12% rate without evidence of higher profits and upheld the Assessing Officer's application of a 7% rate.

3. Ignoring the CBDT Circular:
The Tribunal did not specifically address this issue in the judgment.

4. Denial of Deductions for Depreciation, Interest, and Other Expenses:
The CIT(A) held that no further deduction is to be allowed against the income estimated by applying a net profit rate, following the Tribunal's decision in Shivam Construction Company (ITA No.383 and 384/Chandi/2004). The Tribunal upheld this view, stating that no further deductions are allowable once the income is determined by applying a net profit rate.

5. Non-Reduction of Payment Made to Subcontractors from Gross Receipts:
The Tribunal upheld the Assessing Officer's method of determining income by applying a net profit rate of 7% to the total contract receipts, less the cost of material supplied by the Department, and dismissed the ground raised by the assessee.

Additional Issue in ITA No.865/Chd/2009:
The assessee, a partnership firm, had its net profit rate enhanced from 8% to 12% by the CIT(A). The Tribunal directed the Assessing Officer to apply an 8% net profit rate, consistent with the earlier years and the father's business.

Ex-Parte Order Without Reasonable Opportunity:
The Tribunal dismissed the ground regarding the ex-parte order, upholding the application of an 8% net profit rate.

Conclusion:
The appeals in ITA Nos. 818, 819 & 865/Chd/2009 are partly allowed, with the Tribunal setting aside the CIT(A)'s enhancement to a 12% net profit rate and directing the application of a 7% rate for the individual assessee and an 8% rate for the partnership firm.