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TMI Blog2012 (12) TMI 718X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of the assessee. As the assessment order is very cryptic and there is nothing in it to show that the AO has verified the correctness of the claim of the assessee towards the recoveries made by the principal contractor or for supply of materials or other recoveries from gross receipts the CIT was correct in exercising his jurisdiction u/s 263 in setting aside the order of assessment CIT was not correct in directing the AO to estimate profit at 8% on the gross receipts simply on the view that the assessee is a sub-contractor to the main contractor and supply of materials or recoveries are not properly verifiable and therefore, an element of profit cannot be ruled out. When no enquiry has been made by the AO regarding the claim of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... native ought to have directed the ld. AO to allow royalty paid to the principal contractor as a separate deduction while estimating the income @ on gross receipts. 3. Facts of the case, in brief, are that the assessee is engaged in civil contract works which are mainly road works. During the relevant previous year, the assessee entered into sub-contract with M/s Sadbhav Engineering Limited to execute the road works of part construction, widening and strengthening of existing road from Humnabad to Bidar in the State of Karnataka. Written agreement was also executed between the parties with effect from 20-2-2005 and as per the scope of the work envisaged in the sub-contract agreement the assessee is required to only provide plant and mach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The CIT after considering the contentions raised on behalf of the assessee came to a conclusion that Circular No.684 of 1994 issued by the CBDT is only applicable to the assessee s where gross receipts are less than Rs. 40 lakhs and therefore not applicable to the facts of the assessee. The CIT has further observed that the assessee is a sub-contractor to the main contractor who is also a private contractor and supply of material are not properly verifiable. As rates and bills are not verifiable, an element of profit cannot be ruled out. The CIT after examining the records and considering the assessee s contentions came to a finding that the AO accepted the assessee s view without making any verification. He therefore set aside the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... materials supplied by the principal contractor. The ld. AR further contended that in the assessment proceedings, all material facts were brought to the notice of the AO which were contained in the assessee s letters dated 8-9-2008 and 3-10-2008 and the AO having completed the assessment after taking all these facts into consideration, it cannot be said that the assessment order passed is erroneous and prejudicial to the interests of revenue. The learned AR further contended that though the CBDT s Circular No.684/1994 has been issued in connection with the provisions of section44AD of the Act, it has persuasive value for other assesses. It was contended by the learned AR that when two views are possible and one of the views is followed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k allotted shall be deducted from the net amount calculated i.e. (a-b as noted hereinabove. The amount so calculated and arrived at i.e. a-b-c shall be the consideration payable to the firm for the job work carried as per this agreement. It is seen from the aforesaid definition clause that from the gross amount of work awarded to the assessee as sub-contractor recoveries towards raw materials and consumables and 14% rebate had to be deducted and the assessee will be paid balance amount. The recoveries made from the bills of the assessee as claimed by the assessee comprised of the following items. 1) Diesel Rs.77,63,61545 2) Aggregate material Rs. 1,18,88,917 3) Bitumen Rs. 73,38,893 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r consideration. However, we are of the view that the CIT was not correct in directing the AO to estimate profit at 8% on the gross receipts of Rs.5,00,14,972/- simply on the view that the assessee is a sub-contractor to the main contractor and supply of materials or recoveries are not properly verifiable and therefore, an element of profit cannot be ruled out. When no enquiry has been made by the AO regarding the claim of the assessee, the CIT was not justified in coming to a conclusion that the supply of materials, consumables are not properly verifiable. When the sub-contract agreement expressly provides for deduction from the gross amount towards materials and consumables and other recoveries, it cannot be said that such income has accr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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