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TMI Blog2017 (5) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... et the ends of justice, we direct the A.O. to estimate net profit of 10% on main contract works and 7% on sub contract works, net of all expenditure including depreciation, but subject to further deductions towards interest on capital and remuneration to partners u/s 40(b) of the Act - ground raised by the revenue is partly allowed. Validity of re-assessment proceedings - A.O. has re-opened the assessment merely on ‘change of opinion’ without there being any new material or information which suggests escapement of income within the meaning of section 147 of the Act - Held that: - Since, we have directed the A.O. to estimate net profit by following the assessee’s own case for the assessment year 2011-12, subject to a modification in respect of net profit on sub contract works, we dismiss ground raised by the assessee challenging the validity of re-assessment proceedings as not pressed. Estimation of net profit on contract works given to others - Held that: - the assessee has failed to advance any reasons for estimation of 3% net profit on sub contract works given to others. We further observed that the A.O. has adopted net profit of 4% which is quite reasonable when compared t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent proceedings, the assessee was asked to produce all the documentary evidences for the expenditure claimed under various heads such as labour charges, administration expenses, transport charges, work expenses, vehicle maintenance, machinery maintenance, etc. Since, the assessee has failed to substantiate the expenses claimed with proper supporting evidences and also most of the expenditure were supported by selfmade vouchers, the A.O. rejected books of accounts u/s 145(3) of the Act and estimated income following the ratio in the case of M/s. KNR Constructions Limited and adopted net profit rate of 12.5% on main contract works, 8% on sub contract works and 4% on sub contract works given to third parties, subject to further deductions towards interest on capital and remuneration to partners u/s 40(b) of the Act. Further, the A.O. made separate additions towards income from other sources being interest income and miscellaneous receipts under the head income from other sources . 4. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee challenged the validity of re-assessment on the ground that the A.O. re-opened th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions towards interest income and other miscellaneous receipts under the head income from other sources , the CIT(A) confirmed the additions made by the A.O., as the assessee did not press the ground raised challenging the additions. Aggrieved by the CIT(A) order the revenue is in appeal before us. 6. The ld. D.R. submitted that the Ld. CIT(A) erred in directing the A.O. to estimate net profit of 8% on main contract works and 6% on sub contract works. The direction of the CIT(A) is neither based on any material nor on valid basis. The D.R. further submitted that the perversity of the Ld. CIT(A) order stares at the face when effect is given to her appeal order as the resultant income is goes below the returned income. The Ld. CIT(A) has not taken relevant material factors for determining the rate of profit, whereas, the net profit adopted by the A.O. for estimation of income is based on the decision of jurisdictional ITAT, which should be upheld. The Ld. D.R. further submitted that the Ld. CIT(A) was erred in scaled down net profit estimated by the A.O. from 12.5% to 8% in respect of main works and 8% to 6% in respect of sub contract works without appreciating the fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, estimated net profit of 12.5% on main contract works and 8% on sub contract works by relied upon the decision of ITAT, in the case of M/s. KNR Constructions Limited. It is the contention of the assessee that the net profit estimated by the A.O. is quite high when compared to the nature and type of works contract executed. The assessee further contended that it has executed works contract in a place where the cost of labour is quite high, therefore, the A.O. was not correct in adopting net profit of 12.5% and 8% on main works contracts and sub contracts. 9. We find that while estimating net profit of 12.5% on direct works and 8% on sub contract works, A.O. has relied upon the decision of ITAT, in the case of M/s. KNR Constructions Limited. On the other hand, the assessee has relied upon the decision of ITAT, in the case of Easwar Reddy Company Vs. ACIT (supra), wherein the ITAT has directed to estimate net profit of 8% on main contract works and 5% on sub contracts. It is an admitted fact that estimation of net profit from civil contracts business is consistently followed by the department on various rates depending upon the facts and circumstances of each case. But, while e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a turnover of more than ₹ 90 crores. Therefore, keeping in view of the facts and circumstances of the case and also considering the assessee s own case for the earlier period, to meet the ends of justice, we direct the A.O. to estimate net profit of 10% on main contract works and 7% on sub contract works, net of all expenditure including depreciation, but subject to further deductions towards interest on capital and remuneration to partners u/s 40(b) of the Act. Accordingly, the ground raised by the revenue is partly allowed. 11. The next issue that came up for our consideration from assessee s cross objection is validity of re-assessment proceedings on the ground that the A.O. has re-opened the assessment merely on change of opinion without there being any new material or information which suggests escapement of income within the meaning of section 147 of the Act, therefore, the re-assessment proceedings are illegal and voidab-initio. During the course of hearing, the Ld. A.R. for the assessee submitted that, if the bench is considered the plea of the assessee for estimation of net profit by following assessee s own case for the assessment year 2011-12, then he would ..... X X X X Extracts X X X X X X X X Extracts X X X X
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