2016 (7) TMI 967 - HC - Income Tax

Taxable profits of the Project Prime Mall by adopting net profit of 17.08% of the total gross sales - Held that - We find that the Revenue seeks to substitute the estimated net profit arrived at by the Tribunal with a new figure of net profit. This without in any manner showing that the estimate arrived at by the Tribunal in the impugned order is perverse. It is a settled position of law that in estimated net profit arrived at by the authorities is a question of fact and if the material on record does support the estimate arrived at by the Tribunal then it does not give rise to any substantial question of law (see CIT v/s. Piramal Spinning and Weaving Mills Ltd. 1979 (10) TMI 45 - BOMBAY High Court). In this case, we find that the net profit estimated at 17.08% is a very possible view on the facts found. No substantial question of law Tribunal directing the Assessing Officer to allow deduction towards remuneration and interest, even in case of estimated net profit - Held that - There can be no quarrel with the submissions of Mr. Kotangale. In any event, the Assessing Officer would need to redetermine the book profits of the respondent-assessee as a consequence of the impugned order of the Tribunal. At that stage the ceiling provided under Section 40(b) of the Act would also be considered while allowing deduction on account of remuneration and interest paid to the partners. No substantial question of law

Summary

Issues:
1. Challenge to the order of the Income Tax Appellate Tribunal for Assessment Year 2004-05.
2. Questions of law raised regarding the taxable profits of the Project 'Prime Mall' and deduction towards remuneration and interest.

Analysis:

Issue 1: Challenge to the Tribunal's Order
The respondent-assessee, engaged in construction, did not disclose profits from the 'Prime Mall' project in the return of income for the subject assessment year, following the Project Completion Method. A search revealed that 65% of total sales consideration was received as 'on money'. The Assessing Officer disregarded the Project Completion Method and taxed the entire 'on money' amount. The CIT(A) modified the order, taxing 40% of the total consideration. Both Revenue and respondent appealed to the Tribunal. The Tribunal, considering seized documents and books of accounts, determined a net profit of 17.08% as reasonable, contrary to the Revenue's proposed 65%. The High Court found the Tribunal's estimate valid, citing precedent that a factual estimate does not raise substantial questions of law. Thus, the challenge to the Tribunal's order was dismissed.

Issue 2: Questions of Law Raised
Regarding the first question, the Revenue sought to substitute the Tribunal's net profit estimate of 17.08% with 65%. The High Court upheld the Tribunal's estimate, emphasizing the factual basis for the decision. The second question concerned deductions under Section 40(b) of the Act for remuneration and interest paid to partners. The Revenue requested restoration to the Assessing Officer for re-determination, considering the cap under Section 40(b). As no substantial legal questions were raised, the High Court did not entertain the second question. Consequently, the appeal was dismissed, with no order as to costs.

This detailed analysis of the judgment from the Bombay High Court provides insights into the legal issues surrounding the assessment of taxable profits and deductions in the context of income tax laws.