DHALEWAN CO-OPERATIVE L & C SOCIETY v. INCOME TAX OFFICER
[Citation -2005-LL-0907-3]

Citation 2005-LL-0907-3
Appellant Name DHALEWAN CO-OPERATIVE L & C SOCIETY
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 07/09/2005
Assessment Year 2001-02 to 2002-03
Judgment View Judgment
Keyword Tags reasonable opportunity • estimation of income • civil construction • labour contract • net profit rate • stock register • contract work • audit report • co-operative • nil income • civil work
Bot Summary: 3.1 In the case of the Ubha Co-Operative LC Society Ltd., returns for the assessment years 2001-02 and 2002-03 were filed declaring therein income of Rs. 70,100 and Rs. 3,600 respectively after claiming deduction under section 80P(2)(a)(vi) of the Act. Being aggrieved, the assessees impugned the additions in appeals before the CIT(A) who upheld the action of the Assessing Officer for applying the provisions of section 145(3) and estimation of income by applying net profit rate of 8 per cent by relying on his order in the case of Nangal Khurad Co-operative L C Society Ltd., Nangal Khurad for the assessment year 2002-03. In the case of The Ubha Co-operative L C Society Ltd., the contract receipts for the assessment year 2001-02 exceeds Rs. 40 lakhs i.e. Rs. 41,20,796. The provisions of section 44AD are not applicable to this case for this assessment year and the case is covered by the aforesaid this case for this assessment year and the case is covered by the aforesaid decision of ITAT, Amritsar Bench in the case of The Nangal Khurad Co-op. L C Society, Mansa for assessment year 2002-03 the contract receipts are Rs. 10,21,919 and in the case of The Ubha Co-operative L C Society Ltd., the contract receipts for the assessment year 2002-03 are Rs. 14,25,627. If the activities of the assessees do not fall in these categories, the cases would be covered by the decision of Tribunal in the case of The Nangal Khurad Co-operative L C Society Ltd. v. AO, Ward-1, Mansa and income would require to be computed by applying net profit rate of 6 per cent. In the light of these facts and circumstances of the cases, 1 consider it appropriate to set aside the orders of CIT(A) and restore the appeals to his file with a direction to modify the earlier orders only if it is found that nature of contract work done by the assessees is other than supply of labour for Civil contracts or the cases falling under explanationto section 44AD. Otherwise the earlier orders would stand confirmed.


1. This is bunch of three appeals filed by two assessees against orders dated 3-1-2005 of CIT(A), Bhatinda for assessment years 2002-03 (in ITA No. 51 of 2005) and 2001-02 and 2002-03 (in ITA Nos. 85 & 86/Asr./2005). Since issues involved in these appeals are identical, these were heard together and are being disposed of by this consolidated order for sake of convenience. 2. At outset Ld. A.R. submitted that first two grounds in each appeal relating to application of provisions of section 145(3) were not pressed. Therefore, same are dismissed as not pressed. 3. Now only common issue in all appeals which require to be decided by this Bench is upholding application of net profit rate of 8 per cent for estimating income of assessees. facts of cases are that assessees were co-operative labour and construction societies engaged in contract work. In case of Dhalewan Co-operative Labour & Construction Society Ltd., return was filed declaring therein Nil income after claiming deduction under section 80P(2)(a)(vi) of Income-tax Act, 1961. Assessing Officer noticed that assessee had not produced bills and vouchers for various expenses. He, therefore, invoked provisions of section 145(3) of Act and estimated income at Rs. 81,750 by applying net profit rate of 8 per cent on contract receipts (as per TDS certificates) at Rs. 10,21,919. After allowing deduction under section 80P(2)(a)( vi) of Rs. 50,000, net income was computed at Rs. 31,750. 3.1 In case of Ubha Co-Operative L&C Society Ltd., returns for assessment years 2001-02 and 2002-03 were filed declaring therein income of Rs. 70,100 and Rs. 3,600 respectively after claiming deduction under section 80P(2)(a)(vi) of Act. Assessing Officer however, rejected book results and applied provisions of section 145(3) of Act for defects noted in assessment orders and thereby estimated income at Rs. 3,29,660 and Rs. 1,11,770 by applying net profit rate of 8 per cent on contract receipts of Rs. 41,20,790 and Rs. 14,25,627 for assessment years 2001-02 and 2002-03 respectively and thereafter allowed deduction of Rs. 50,000 each under section 80P(2)(a)( vi) of Act. 4. Being aggrieved, assessees impugned additions in appeals before CIT(A) who upheld action of Assessing Officer for applying provisions of section 145(3) and estimation of income by applying net profit rate of 8 per cent by relying on his order in case of Nangal Khurad Co-operative L & C Society Ltd., Nangal Khurad for assessment year 2002-03. assessees are aggrieved by orders of CIT(A). Hence, these appeals before me. 5. Ld. A.R. submitted that grounds relating to rejection of book results and applying provisions of section 145(3) are not pressed. However, he submitted that while deciding present appeals, Ld. CIT(A) has relied on decision in case of Nangal Khurad Co-Operative L & C Society Ltd., Nangal Khurad for assessment year which came up in appeal before Tribunal. ITAT, Amritsar (SMC) Bench vide order dated 10-6-2005 in ITA N o . 293 (Asr.)/2004 for assessment year 2002-03 has held that income should be estimated by applying net profit rate of 6 per cent instead of 8 per cent applied by Assessing Officer. copy of this order was also placed before me. 6. Ld. D.R., on other hand, relied on orders of authorities below. 7. I have heard both parties and given my thoughtful consideration to rival submissions with reference to facts, evidence and material placed on record. I have also referred to order of ITAT, Amritsar (SMC) Bench in case of Nangal Khurad Co-operative L & C Society Ltd., Nangal Khurad v. A.O., Ward-1 (4), Mansa where it was held as under: "7. As regards ground relating to estimation of income by invoking provisions of section 145(3) and by applying N.P. rate of 8 per cent Ld. CIT(A) has already upheld action of Assessing Officer for invoking provisions of section 145(3) of Act. This is not being contested before me as no such ground was taken. Further, even in Audit report Auditors had mentioned that Stock Register and records for work done by Members of Society and Payments made to them were not supplied. During course of assessment proceedings, assessee failed to furnish details and bills and vouchers for various expenses claimed at Rs. 61,77,256. These facts justify estimation of income by invoking provisions of section 145(3). next aspect is rate at which income is to be estimated. Even if book results are rejected, Assessing Officer is duty bound to make fair and reasonable estimate based on evidence material placed on record. Now in this case it was admitted by Ld. Counsel that in earlier years, assessee itself declared income by applying net profit rate of 8 per cent. No doubt for this year, contract receipts aggregated to Rs. 61,38,716 and, therefore, provisions of section 44AD were not applicable. But fact remains rate of 8 per cent was in conformity with past history of case. same rate of 8 per cent was also upheld in cases of Amar Shakti Co-op. L & C Society Ltd., Abohar v. AO, Ward-II(3), Abohar (Supra) and others. However, turnover in their cases is not known and also whether nature of contracts undertaken by them is also now known. In this case amount of receipts was at Rs. 61,38,716. It is also fact that assessee produced books of account which were examined by Assessing Officer, and test checked. assessee had also furnished information alongwith bank account and these facts are noted by Assessing Officer on page 1 of assessment order. It is also fact that margin of profit in case of labour contract is slightly lower than Civil Contracts. Thus, taking into account all these facts, I am of view that net profit rate of 6 per cent would meet ends of justice. This ground of appeal is, therefore, partly allowed by setting aside orders of CIT(A)." Now in these cases also, issue regarding rejection of book results and application of provision of section 145(3) is not subject-matter of dispute before me. Now only issue which is to be decided in application of net profit rate. In case of Nangal Khurad Co-operative L & C Society Ltd., Nangal Khurad v. AO, Ward-I(4), Mansa, contract receipts were Rs. 61,38,716. Since these exceeded Rs. 40 lakhs, it was held that provisions of section 44AD were not applicable. In case of Ubha Co-operative L & C Society Ltd., contract receipts for assessment year 2001-02 exceeds Rs. 40 lakhs i.e. Rs. 41,20,796. Therefore, provisions of section 44AD are not applicable to this case for this assessment year and case is covered by aforesaid this case for this assessment year and case is covered by aforesaid decision of ITAT, Amritsar Bench in case of Nangal Khurad Co-op. L & C Society Ltd. v. AO, Ward-I(4), Mansa (supra). Following same, order of CIT(A) is set aside and Assessing Officer is directed to compute income for assessment year 2001-02 by applying net profit rate of 6 per cent instead of 8 per cent applied by Assessing Officer. appeal for this assessment year is partly allowed. 8. As regards remaining two appeals i.e. in case of Dhalewan Co-op. L & C Society, Mansa for assessment year 2002-03 contract receipts are Rs. 10,21,919 and in case of Ubha Co-operative L & C Society Ltd., contract receipts for assessment year 2002-03 are Rs. 14,25,627. Thus, in both cases, receipts are less than Rs. 40 lakhs. provisions of section 44AD are applicable to contracts of Civil Construction or supply of labour for Civil Construction for contract receipts below Rs. 40 lakhs. Explanation to section 44AD further provides expression "Civil Construction" includes construction or repair of any building, bridge, dam or other structure or of any canal or road. Now it is not clear from orders of authorities below whether, activities undertaken by assessees were contracts of Civil Work, supply of labour to Civil Constractors or Contracts falling under Explanationto section 44AD. If activities of assessee fall in above categories provisions of section 44AD would be applicable and order of CIT(A) for upholding net profit rate of 8 per cent would not warrant any interference. However, if activities of assessees do not fall in these categories, cases would be covered by decision of Tribunal in case of Nangal Khurad Co-operative L & C Society Ltd. v. AO, Ward-1 (4), Mansa and income would require to be computed by applying net profit rate of 6 per cent. In light of these facts and circumstances of cases, 1 consider it appropriate to set aside orders of CIT(A) and restore appeals to his file with direction to modify earlier orders only if it is found that nature of contract work done by assessees is other than supply of labour for Civil contracts or cases falling under explanationto section 44AD. Otherwise earlier orders would stand confirmed. Needless to say assessee shall be allowed reasonable opportunity before deciding these appeals. Therefore, grounds of appeal in these two cases are treated as partly allowed for statistical purposes. 9. In result, appeal in ITA No. 85 of 2005 for assessment year 2001-02 is partly allowed and remaining two appeals are partly allowed for statistical purposes. *** DHALEWAN CO-OPERATIVE L & C SOCIETY v. INCOME TAX OFFICER
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