2018 (3) TMI 1667 - AT - Income Tax

N.P. determination - section 44AD applicability - Held that - The average net profit rate comes to 2.65%. The assessee is a private limited company and so, the provisions of section 44AD of the IT Act are not applicable. In accordance with, amongst others, CIT and others vs. M/s PNC Construction Company Ltd. (2014 (8) TMI 491 - ALLAHABAD HIGH COURT), i.e., the Jurisdictional High Court, the past history needs to be followed in such cases. As such, the net profit rate of 2.65% is directed to be applied and the addition is directed to be reduced accordingly.

Summary

Issues:
1. Discrepancy in Net Profit Rate applied by Assessing Officer and CIT(A) for assessment year 2010-11.
2. Consideration of past history and relevant case laws in determining the Net Profit Rate.
3. Application of Net Profit Rate for assessment year 2012-13 and comparison with appellant's declared rate.

Analysis:
1. The primary issue in the judgment revolves around the disagreement in the Net Profit Rate applied by the Assessing Officer and the CIT(A) for the assessment year 2010-11. The AO initially applied a rate of 3.5%, resulting in an addition to the declared net profit. However, the CIT(A) reduced the rate to 3%, thereby decreasing the addition. The appellant contested this discrepancy, arguing for the original rate of 2.86% as per their records. The Tribunal analyzed the past and subsequent years' net profit rates and directed the application of an average rate of 2.65%, aligning with the appellant's position and reducing the addition accordingly.

2. The judgment emphasizes the importance of considering past history and relevant case laws in determining the Net Profit Rate. Referring to the 'CIT and others vs. M/s PNC Construction Company Ltd.' case, the Tribunal highlighted the need to follow past trends in such assessments. By analyzing the average net profit rate of 2.65% and citing precedents, the Tribunal justified the adjustment in the Net Profit Rate for the appellant for the assessment year 2010-11.

3. For the assessment year 2012-13, a similar dispute arose regarding the Net Profit Rate applied by the AO compared to the appellant's declared rate. The AO set the rate at 3%, while the appellant presented a rate of 2.64%. Despite the CIT(A) confirming the assessment order, the Tribunal, considering consistency with the past history of the appellant, directed the AO to apply a net profit rate of 2.65% for this year as well. Consequently, both appeals were allowed, emphasizing the significance of maintaining consistency and basing assessments on relevant material and past trends.

This detailed analysis of the judgment illustrates the meticulous consideration of Net Profit Rates, past history, and legal precedents in resolving the disputes for the assessment years 2010-11 and 2012-13, ultimately resulting in a favorable outcome for the appellant.