2011 (3) TMI 165 - HC - Income Tax

Dtermination of net profit @ 10% or 12% - Maintenance of books of accounts - Addition - The Tribunal on appreciation of the factual situation that in assessment year 2004-2005, the net profit rate of 8% was applied which had been accepted by the Department and for the assessment year 2005-2006, the net profit rate of 1.45% was applied after allowance of salary and interest paid to the partners, had held that the net profit rate of 10% for this assessment year was reasonable and justified. - Accordingly decided against the revenue

Summary

Issues:
1. Determination of net profit rate on contract receipts for assessment year 2006-2007.

Analysis:
The High Court heard an appeal filed by the Revenue against the order passed by the Income Tax Appellate Tribunal relating to the assessment year 2006-2007. The substantial question of law raised was whether the Tribunal was correct in directing to determine the net profit by applying a 10% rate on contract receipts, instead of the 12% rate adopted by the Assessing Officer based on a previous judgment. The respondent, a civil contractor firm, had its books of accounts rejected by the Assessing Officer, leading to an assessment at a net profit rate of 12% on total contract receipts. The CIT(A) partly allowed the appeal, sustaining the 12% rate but holding the firm liable to be assessed as a firm based on a Tribunal judgment. The Tribunal, however, accepted the appeal partly and directed the income to be computed at a 10% net profit rate based on a different High Court decision.

The main issue for consideration was whether the 10% net profit rate accepted by the Tribunal was justified compared to the 12% rate adopted by the Assessing Officer. The Tribunal based its decision on a High Court judgment from a different case, where a 10% net profit rate was deemed reasonable. The Tribunal also considered past assessment years where different rates were applied, concluding that a universal flat rate did not have to be applied in all cases. The High Court found no substantial question of law in the appeal and dismissed it, stating that the decision relied upon by the Revenue did not support their case.

In conclusion, the High Court upheld the Tribunal's decision to compute the income using a 10% net profit rate on contract receipts for the assessment year 2006-2007, dismissing the appeal filed by the Revenue.