2015 (7) TMI 1403 - AT - Income Tax

Rejection of books of accounts u/s 145 - reasonable rate of profit @12% on contract receipt - HELD THAT - We find considerable cogency in the assessee s counsel submission that on similar facts the judicial courts have allowed a lower rate upto maximum of 8% on gross receipts which is reasonable in the circumstances of the case. The rate applied should be based on valid basis such as past history of the case nature of business past years profits. As further find that force in the assessee s counsel version that the assessee Sh. Nand Kishore Pundir is a contractor engaged in supply of machines JCB Construction of roads buildings. So he is giving multivaried services. Whereas the case law relied upon by the AO titled as PARBHAT KUMAR SIRSA Parbhat Kumar Sirsa was civil contractor engaged in civil construction. So nature of work done is not same in both the cases. Therefore to compare both cases levy high estimated rate of 12% is not just. End of justice would be served if profit rate @8% gross receipt is adopted. Accordingly we direct the AO to adopt profit rate @8% on Gross receipts and re-compute the income of the assessee accordingly. Appeal filed by the assessee stands allowed for statistical purposes.

Summary

Issues:
Assessment of profit rate at 12% on gross receipts, validity of rate based on past history and nature of business, comparison with similar cases, appeal against assessment order, justification of profit rate, consideration of nature of services provided, application of profit rate based on valid basis.

Analysis:
The appeal before the ITAT Delhi concerned the assessment year 2009-10 where the Assessee, a contractor engaged in various services, challenged the high profit rate of 12% applied by the Assessing Officer (AO) on gross receipts. The Assessee argued that judicial courts have allowed lower rates, up to 8%, based on factors like past history, nature of business, and past profits. The Assessee highlighted differences in services provided compared to a case cited by the AO, emphasizing the need for a just comparison. The AO had rejected the books of account and applied the 12% profit rate, citing lack of supporting documents for expenses. The CIT(A) upheld the AO's decision, leading to the Assessee's appeal.

During the hearing, the Assessee's counsel reiterated the grounds for challenging the profit rate, emphasizing the need for a reasonable rate based on valid factors. The Department, represented by the DR, supported the lower authorities' orders. The ITAT Delhi, after considering submissions and records, agreed with the Assessee's arguments. The ITAT found merit in applying a lower profit rate of 8% on gross receipts, considering the nature of services provided and the lack of just comparison with the cited case. The ITAT emphasized the importance of basing the profit rate on valid factors and directed the AO to recompute the income using the 8% profit rate. Consequently, the appeal was allowed for statistical purposes, with the ITAT's order pronounced on 9/7/2015.

This judgment highlights the significance of justifying profit rates based on valid factors like past history and nature of business. It underscores the need for a reasonable approach in assessing income, especially in cases involving diverse services. The ITAT's decision to lower the profit rate to 8% showcases the importance of fair and reasoned assessments in tax matters, ensuring justice and equity in determining taxable income.