2016 (7) TMI 809 - AT - Income Tax

Rejection of books of accounts - A.O. estimated net profit of 12.5% on main contracts - Held that - It is an admitted fact that estimation of net profit from civil contract receipts is consistently followed by the department on various rates depending upon the facts and circumstances of the each case. The ITAT, also upheld the estimation of net profit ranging from 8 to 12.5% on main contracts. It is an admitted fact that the profit ratio cannot be a constant factor for each and every contractor in all cases. It varies from place to place depending upon the type and nature of works contract executed by the contractor. In the present case on hand, the assessee contended that he had executed works contract in various places, wherein he has procured material locally depending upon the business expediency. The assessee contends that he had admitted a net profit of 7.5% which is reasonable when compared to the nature of works executed by him. The CIT(A) after considering the relevant details and also taken into account the ratio of the jurisdictional ITAT, in the case of M/s. Srinivasa Lakshmi Constructions (2011 (1) TMI 1437 - ITAT HYDERABAD) has scaled down the estimation of net profit to 9% on main contract works net of all deductions including deduction towards depreciation. We do not see any error or infirmity in the order of CIT(A). Hence, we inclined to upheld the order of the CIT(A) and dismiss the appeal filed by the revenue. - Decided in favour of assessee

Summary

Issues:
Assessment of net profit on main contract works and sub contract works based on self-made vouchers and estimation under section 145 of the Income-Tax Act, 1961.

Analysis:
The appeal pertained to the assessment year 2009-10, where the assessee, engaged in works contract business, filed a return declaring total income. During scrutiny, the Assessing Officer (A.O.) noted deficiencies in vouchers supporting expenditure, leading to a show cause notice under section 145 of the Act. The A.O. rejected the books of accounts and estimated net profit at 12.5% on main contract works and 8% on sub contract works, citing lack of proper vouchers.

The assessee appealed to the CIT(A), arguing for the genuineness of expenses and challenging the A.O.'s estimation. The CIT(A) acknowledged the case-specific nature of profit estimation, referring to precedents with varied profit ratios upheld by the ITAT. Considering the facts, the CIT(A) reduced the net profit estimation to 9% on main contract works, maintaining the estimation for sub contract works and royalties.

The Revenue contended that the A.O.'s estimation was justified, emphasizing the lack of substantiating documents from the assessee. Conversely, the assessee's representative supported the CIT(A)'s decision to reduce the net profit estimation.

Upon review, the ITAT found merit in the assessee's arguments, recognizing the variability in profit ratios based on contract specifics and locations. Noting the CIT(A)'s detailed analysis and alignment with precedents, the ITAT upheld the reduced net profit estimation of 9% on main contract works, dismissing the Revenue's appeal.

In conclusion, the ITAT affirmed the CIT(A)'s order, emphasizing the absence of errors and the reasonable adjustment in net profit estimation based on the circumstances of the case. The appeal filed by the Revenue was therefore dismissed.