Commissioner of Income Tax-I vs California Design and Construction INC India Ltd.

Ajay Kumar Mittal, J.—This order shall dispose of ITA Nos. 400 and 555 of 2009 as learned counsel for the parties are agreed that they raise identical issues. For brevity, the facts are being taken from ITA No. 400 of 2009.

This appeal has been filed by the revenue u/s 260A of the income tax Act, 1961 (in short "the Act") against the order dated 27.11.2008 passed by the Income Tax Appellate Tribunal, Chandigarh Bench "A", Chandigarh, (hereinafter referred to as "the Tribunal") in ITA No. 433/Chandi/2008, relating to the assessment year 2001-02, raising the following substantial question of law:-

Whether on the facts and in the circumstances of the case the Hon''ble Tribunal was right in law in scaling down of net profit rate to 5 per cent against 8 per cent on the work done by the assessee?

Put shortly, the facts necessary for adjudication as narrated in the appeal are that upon notice u/s 148 of the Act dated 26-3-2003, the assessee-company filed its return on 30-10-2003 declaring an income of Rs. 1,98,380, whereas it was required to file the same within a period of 30 days from the date of service but as the assessee failed to do so, notice u/s 142(1) of the Act was issued on 22.10.2003. The assessment was completed by applying the provisions of section 44AD of the Act in the case of a Civil Contractor computing the profit at the rate of 8 per cent of the total receipt for the work done by the assessee at Rs. 4,56,880. Feeling aggrieved by the assessment framed, the assessee filed an appeal before the Commissioner of income tax (Appeals) [in short "the CIT(A)"] who vide order dated 4-3-2008 dismissed the appeal. On further appeal by the assessee, the Tribunal vide order dated 27-11-2008 directed the Assessing Officer to apply the rate of 5 per cent as against 8 per cent applied by it. Hence, the present appeal by the revenue.

We have heard learned counsel for the parties.

The issue that arises for consideration in this appeal is whether the net profit rate of 5 per cent applied by the Tribunal was justified.

The Assessing Officer had taken the rate of profit to be 8 per cent which was affirmed by the CIT(A) but on appeal the Tribunal while reducing the net profit rate to 5 per cent had recorded as under:-

We have considered the rival submissions and perused the material available on the file. Brief facts are that the assessee-company was engaged in the contract work of Govt. of Haryana. The assessment was completed u/s 144 on 3-3-2003 and the order was duly served upon the assessee. The Assessing Officer rejected the accounts of the assessee and determined the profit from the contract work at the rate of 10 per cent of the gross work done by it. The assessment, so framed, was challenged before the first appellate authority where it was partly allowed and after giving appeal effect, the net profit was worked out at 1.236 per cent vide order dated 5-8-2003. The order of the first appellate authority was challenged before the first appellate authority wherein vide order in ITA No. 576/Chandi/2003, the net profit was determined at 1.5 per cent of the total work done. On the basis of the aforesaid order for assessment year 2000-01, the assessee for the impugned assessment year, is claiming that the same percentage of profit may be applied. However, the claim of the assessee is that the accounts of the assessee are audited one and the assessment has been framed without rejecting the books of account and by taking the profit at the rate of 8 percent against the returned income of Rs.1,98,380. The total work done by the assessee was to the tune of Rs.58,95,571 on which the assessee has claimed expenses on account of payment made to sub-contractors for execution of work. In the present assessment year, the ld. counsel for the assessee contended that the net profit was declared at 3.07 per cent, therefore, the ratio of the aforesaid decision, in our opinion, will not be applicable as there is a difference of material facts. However, without going into much deliberation specially when both the learned representatives agreed that the net profit may be 5 per cent of the total work done, we are holding so. Therefore, the Assessing Officer is directed to apply the rate of 5 per cent against 8 per cent applied in the impugned order, consequently, this ground of the assessee is partly allowed. This order was pronounced in the open court in the presence of both the learned representatives.

A simple reading of the aforesaid finding clearly shows that the Tribunal had reduced the net profit rate to 5 per cent on the premises that counsel for both the parties had agreed for the same. However, a copy of the order of the Tribunal dated 11.2.2011 has been produced wherein the department had filed MA Nos. 117 & 118/Chd/2009 in ITA Nos. 433 and 434/Chd/2008 bringing the fact to the notice of the Tribunal that the departmental representative had never agreed for the concession as recorded by the Tribunal in its order dated 27-11-2008. The Tribunal rejected the said application by observing that the case was decided on merits and not on the basis of concession of the departmental representative. However, that is not the factual position, discernible from the reading of the aforesaid finding.

In view of the above, the appeals are allowed and the order dated 27-11-2008 is set aside. The matter is remitted to the Tribunal to decide the same afresh on merits, in accordance with law.