2014 (1) TMI 1762 - AT - Income Tax

Allowable deduction from the estimated income - CIT(A) allowing depreciation, interest to bank and remuneration to partner out of net income estimated by applying net profit rate of 8% by the AO - Held that - There is no difference in the quantification of the relief to the assessee. However, the objection of the assessee is that consecutively in assessment years as discussed above, year after the year, a net profit rate of 8% further subject to depreciation, interest and remuneration paid to partners have been held to be justified in assessee s own case and by adopting net profit rate only and not mentioning further deduction on account of depreciation, interest and remuneration paid to partners. It is likely to set a wrong precedent in assessee s own case which may lead to complexities sometimes in future. Since there is no difference between the findings of the ld. CIT(A) in this year vis-a-vis earlier assessment years. However, the objection of the assessee seems to be justified. Therefore, we amend the later part of the findings of the ld. CIT(A) where he adopted the net profit rate of 5.12% on total contract receipts allowing depreciation, interest and remuneration paid to partners. In our considered opinion, the law demands consistency to avoid any future misunderstanding and to keep the findings in the same manner we hold that net profit rate of 8% further subject to depreciation, interest and remuneration paid to partner could be final finding. Accordingly, we hold as above and allow the appeal of the assessee to that extent.

Summary

Issues involved:
Cross appeals regarding assessment year 2009-10 against the order of the ld. CIT(A) dated 01-05-2012.

Analysis:
The assessee challenged the assessment order on the grounds that the ld. CIT(A) applied a net profit rate of 5.12% of total contract receipts after allowing depreciation, interest, and partner's remuneration, resulting in an addition of Rs. 63,85,192. The Revenue, on the other hand, questioned whether the ld. CIT(A) erred in granting further relief by allowing depreciation, interest to the bank, and remuneration to the partner based on a net profit rate of 8% determined by the AO. The Tribunal noted that the issue raised by the Revenue was already decided in favor of the assessee in previous years. The Tribunal confirmed the application of a net profit rate of 8%, subject to depreciation, interest, and remuneration to partners. However, the ld. CIT(A) calculated the net profit rate as 5.12% by deducting depreciation, interest, and remuneration paid to partners from the net profit, deviating from the consistent approach followed in earlier years. The Tribunal emphasized the importance of consistency in tax assessments to avoid future disputes and set a precedent. Therefore, the Tribunal held that the net profit rate of 8%, subject to depreciation, interest, and remuneration to partners, should be the final finding to maintain consistency. Consequently, the appeal of the assessee was allowed to that extent, dismissing the appeal of the Revenue.

This judgment highlights the significance of consistency in tax assessments and the need to avoid setting incorrect precedents that could lead to complexities in future cases. The Tribunal's decision to uphold the net profit rate of 8% subject to specific deductions ensures fairness and uniformity in tax assessments, preventing potential disputes and misunderstandings. The judgment serves as a reminder of the importance of following established principles and maintaining consistency in legal decisions to uphold the integrity of the tax system and provide clarity for taxpayers and authorities alike.