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TMI Blog2013 (4) TMI 882X X X X Extracts X X X X X X X X Extracts X X X X ..... shown by the assessee was substantially low as compared to the net profit shown in the immediately preceding year giving rise to net profit rate of 6.45%. The Assessing Officer further stated that during the course assessment proceedings the assessee produced the agreements with the sub-contractors. From the agreement it is seen the profit charged by the assessee from its sub-contractors ranges between 5% to 7%. Thus, it is clear that the assessee after keeping its margin ranging from 5% to 7% and deducting TDS @1.02% the balance amount was given to subcontractor, which makes the net profit percentage enjoyed by them on hire. In most of the case the profit is either 6% or 7%. The Assessing Officer further observed that during the course of search assessment proceedings for the assessment year 1999-2000 to 2005-06, it was also examined that the sub-contractors of the assessee firm have shown net profit in the range of 4% to 8%. If the margin/profit sharing of sub-contractor of the assessee firm is considered, the profit margin in respect of all these receipts of work allotted to assessee firm works out to 9% to 12%. Therefore, the profit margin ratio in the case of work allotted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144 of the Act. Accordingly, provisions of section 145(3) of the Act were invoked and the Assessing Officer rejected the books of account and estimated net profit at 8% on own work and 6% on work done by sub-contractor. This observation of the Assessing Officer was as under: "In view of the discussion made in above paras it is reasonable enough to estimate the profit @8% on the work done by the assessee itself and @6% on the work allotted to the sub-contractors. The working of the profit will be as under:- Estimating the net profit @8% on work done by the assessee itself of ₹ 60,26,85,585 Rs.4,82,14,868 Estimating the net profit @6% on work done by the sub-contractors of ₹ 1,02,41,64,969 Rs.6,14,49,898 Total estimated net profit Rs.10,96,64,766 Less:Net profit as shown by the assessee ₹ 5,54,19,410 Balance ₹ 2,42,45,356 5. Against the above order the assessee approached the CIT(A). After discussing the discrepancies pointed out in the books of account, the CIT(A) confirmed the action of the Assessing Officer for rejection of bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igning proper agreements and the list of sub-contractor was filed at the time of assessment. d) I find that the assertion of the Assessing Officer with regard to profitability from sub-contracted business is not by virtue of any reference drawn from the agreement with the sub-contractors. It is not the case of the Assessing Officer that the appellant has shown excessive payment to any sub-contractor over and above what was mentioned in the agreement. e) I do find force in the submission of the appellant that the percentage of work given on sub-contract is comparatively much higher than in comparison to earlier years. I am in agreement with the submissions of the appellant that net profit ratio on the work done by own is much higher than the net profit ration on work given on sub-contract basis and I find that the Assessing Officer has also accepted the version of the appellant as he has adopted differential net profit rates for two types of work. It is seen that the proportion of sub-contract work, during the year under consideration, was substantially higher at 63% and only 37% of the total receipts were attributable to own work, whereas, in the preceding years, the proportion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and which has been enhanced by CIT(A) to the extent of 5.75%. The contention of Learned A.R. was as under: "At the outset the analysis of net profit chart is tabulated hereunder: Net profit offered by Appellant A.Y. 04-05 05-06 06-07 07-08 08-09 Own work (%) 6 2.96 8.79 9.37 7.37 Contract work (%) 4 4 4 4 4 Overall N.P.** 5.85% 3.39% 5.47% 6.45% 5.25% **varies with the proportion of work and subcontract work Net profit rate applied/upheld by I.T.A.T. for earlier year A.Y. 04-05 05-06 06-07 07-08 Own work 6% 6% 6% Overall N.P.6.50% (6.45% offered) Contract work 4% 4% 4% It may be appreciated that as against 6% N.P. rate held by Hon'ble I.T.A.T. in earlier years on own work, actual net profit is higher at 7.37% therefore any addition in respect of own work is unwarranted and the appellant prays that it be deleted. It is also evidence that net profit in respect of sub contracted work is offered at 4% which is in line with the rate upheld by Hon'ble I.T.A.T. in its earlier years. Accordingly, it is humbly submitted that the order of Learned Assessing Officer and CIT(A) be quashed and additions be deleted." 10. On t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Learned CIT(A) found that on the similar facts in earlier year, the Tribunal in assessee's own case has upheld the net profit rate of 6% in the assessment year 2004-05. Since during the year under consideration, the assessee himself has shown net profit rate of 6.45%, the CIT(A) applied net profit rate of 6.5% and computed profit at ₹ 9,37,17,380/-, as against net profit of ₹ 9,30,00,580/- shown by the assessee. As the CIT(A) has already taken into consideration the order of the Tribunal in assessee's own case on the similar facts and also taken the fact of rejection of books of account under consideration, applied the more appropriate rate of net profit at 6.5%, thereby retaining addition of ₹ 7,16,800/-, we do not find any infirmity in the order of CIT(A)." 12. The facts and circumstances during the year under consideration are the same as in the assessment year 2007-08 decided by the Tribunal, except the fact that during the year under consideration there was increase in turnover by ₹ 18.50 crore and slight change in the work undertaken as main contractor and subcontractor. Increase in turnover can be achieved by the assessee only on sacrifice of mar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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