2011 (3) TMI 1806 - AT - Income Tax

Summary

Issues involved: Estimation of net profit ratio, rejection of books of account, denial of depreciation, invocation of Section 145(3), legal implications of profit estimation.

Estimation of net profit ratio: The assessee, a transport contractor, challenged the estimation of profit at 5% of gross contract receipts by the lower authorities, arguing it was excessive and contrary to law. The Tribunal found that the Assessing Officer rejected the books of account as major expenses were unsupported by vouchers, invoking Section 145(3). The Tribunal held that the estimation of profit at 5% was incorrect and substituted it with 3%, aligning with similar cases in the same vicinity. The Tribunal emphasized that no separate claim for depreciation was necessary as net profit already accounted for it.

Rejection of books of account and denial of depreciation: The Assessing Officer rejected the assessee's books of account due to lack of supporting vouchers for major expenses. The assessee contended that denial of depreciation was against legal precedent, citing a decision of the Hon'ble P & H High Court. The Tribunal noted that the Assessing Officer failed to consider the percentage of profit estimated by the CIT(A) for similar contractors in the vicinity, leading to an incorrect estimation of profit. The Tribunal emphasized the importance of factual aspects in allowing statutory claims like depreciation.

Invocation of Section 145(3) and legal implications: The Assessing Officer invoked Section 145(3) to estimate profit at 5% of gross contract receipts, leading to a dispute regarding the correctness of this estimation. The Tribunal found that the reasons given by the Departmental authorities for not following legal provisions and precedents were not tenable under the law. The Tribunal concluded that the estimation of profit at 5% was incorrect and substituted it with 3% based on similar cases in the vicinity, ensuring compliance with legal principles and precedents.

This judgment by the Appellate Tribunal ITAT CUTTACK addressed the issues of profit estimation, rejection of books of account, denial of depreciation, and the invocation of Section 145(3) in the context of a transport contractor's appeal against the orders of the Commissioner of Income-tax (Appeals). The Tribunal's decision to substitute the profit estimation from 5% to 3% aligned with legal principles and previous decisions, highlighting the importance of factual aspects and compliance with statutory claims.