2020 (1) TMI 869 - HC - Income Tax

N.P. determination - Tribunal holding that the net profit rate @ 8% was applied on the contract receipts but no deduction was allowed on account of depreciation - whether once the Appellate Tribunal had determined profit on the basis of net profit basis @ 8% of the contract value, it was no longer open for the ITAT to re-do computation on the 12.5% of net profit - HELD THAT - Tribunal failed to apply the judgment rendered by this Court in the case of M/s. Shri Ram Jhanwar Lal 2008 (7) TMI 505 - RAJASTHAN HIGH COURT nor the judgment rendered in the case of Jain Construction 1999 (9) TMI 26 - RAJASTHAN HIGH COURT Present appeal is allowed to the extent of modifying the order of the Tribunal for determining the profit rate @ 8% instead of 12.5% on gross contract receipt as earlier determined by the Tribunal subject to allowing depreciation, interest and remuneration to partners. Accordingly, the appeal is allowed and the matter stands remitted back to the Income Tax Authorities concerned for recomputing the amount of tax.

Summary

Issues:
1. Challenge to judgment and order of Income Tax Appellate Tribunal.
2. Application of net profit rate and deduction of depreciation.
3. Interpretation of earlier court judgments.
4. Determination of profit rate by the Tribunal.
5. Compliance with court directions by the Tribunal.
6. Justification of Tribunal's order by Revenue.

Analysis:

1. The appeal sought to challenge the judgment of the Income Tax Appellate Tribunal dated 03.8.2009. The appellant contended that the Tribunal had earlier determined the net profit rate at 8% without allowing a deduction for depreciation, which was the subject of dispute.

2. The appellant had previously succeeded in an appeal before the High Court, where it was directed to reconsider the matter in light of specific judgments. The court had relied on a previous judgment that allowed for the adjustment of profits arrived at by applying the net profit rate through the allowance of depreciation.

3. The court referred to a Division Bench judgment that addressed whether further adjustments for depreciation were permissible when the Assessing Officer had adopted a net profit rate. The court had previously directed the Tribunal to consider this issue in line with specific observations and directions from earlier judgments.

4. Despite the High Court's earlier directions, the Tribunal in the present case determined the net profit rate at 12.5% instead of the previously determined 8%, and directed the allowance of depreciation, interest, and remuneration to partners.

5. The appellant argued that the Tribunal should not have recalculated the profit rate to 12.5% after the High Court's specific direction. The court found that the Tribunal failed to apply the judgments cited by the appellant, leading to the modification of the profit rate to 8% and remitting the matter back to the tax authorities for recomputation.

6. The Revenue attempted to justify the Tribunal's order based on factual determinations. However, the court held that in light of the previous judgments and the specific directions given, the Tribunal's decision to increase the profit rate was not justified. The court emphasized the importance of following court directions and allowed the appeal, remitting the matter for proper recomputation of tax liability.