Commissioner of Income-tax, Patiala v. Harbhajan Singh and Co. Sangrur
[Citation -2014-LL-1113-1]

Citation 2014-LL-1113-1
Appellant Name Commissioner of Income-tax, Patiala
Respondent Name Harbhajan Singh and Co. Sangrur
Court HIGH COURT OF PUNJAB & HARYANA
Relevant Act Income-tax
Date of Order 13/11/2014
Judgment View Judgment
Keyword Tags civil construction • net profit rate • gross receipt • depreciation allowance
Bot Summary: RAJIVE BHALLA, J The revenue is before us challenging order dated 15.4.2013 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'B'. Counsel for the revenue submits that as Section 44 AD of the Income Tax Act, 1961 provides that where income is calculated at net profit rate no further deduction shall be allowed to an assessee, the Tribunal is not justified in allowing deduction on account of depreciation. The judgments in CIT Vs. Chopra Brothers, ITR 412 and CIT Vs. Bhullar Construction ITR 686 ITA No. 31 of 2014 2 relied by the Income Tax Appellate Tribunal do not apply to the present case as they pertain to assessment years before Section 44 AD was introduced into the Act and therefore, are not a precedent for allowing depreciation to the assessee despite the fact that income has been calculated at net profit rate. The first question that calls for an answer, is whether the Income Tax Appellate Tribunal has erred in granting depreciation to the assessee, as his income was calculated at a net profit rate Section 44 AD of the Income Tax Act, if read in isolation of a circular issued by the Central Board of Direct Taxes would, require us to answer this question, in favour of the revenue. A relevant extract from the circular issued by the Central Board of Direct Taxes is as follows:- The Estimated Income Method of assessment for certain categories of businesses is prevalent in several countries. The Tax Reforms Committee has also recommended gradual introduction of the Estimated Income Method in certain areas to facilitate better tax compliance. Accordingly, a new Section 44 AD has been inserted to the Income-tax with a view to providing for a method of estimating income from the business of civil construction or supply or labour for civil construction work. The income from the above mentioned business will be estimated at 8 per cent of the gross receipts paid or payable to an assessee.


ARCHANA ARORA ITA No. 31 of 2014 1 2014.12.08 17:37 I attest to accuracy and authenticity of this document IN HIGH COURT OF PUNJAB & HARYANA, CHANDIGARH ITA No. 31 of 2014 Date of decision: November 13, 2014 Commissioner of Income Tax, Patiala ....... Appellant Versus Harbhajan Singh and Co. Sangrur ........ Respondent CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA AND HON'BLE MR. JUSTICE AMIT RAWAL Present:- Ms. Savita Saxena, Advocate for appellant. Mr. Ravi Shankar, Advocate for respondent. **** RAJIVE BHALLA, J (ORAL) revenue is before us challenging order dated 15.4.2013 passed by Income Tax Appellate Tribunal, Chandigarh Bench 'B' . Counsel for revenue submits that as Section 44 AD (2) of Income Tax Act, 1961 provides that where income is calculated at net profit rate no further deduction shall be allowed to assessee, Tribunal is not justified in allowing deduction on account of depreciation. judgments in CIT Vs. Chopra Brothers, (252) ITR 412 and CIT Vs. Bhullar Construction (286) ITR 686 ITA No. 31 of 2014 2 relied by Income Tax Appellate Tribunal do not apply to present case as they pertain to assessment years before Section 44 AD was introduced into Act and therefore, are not precedent for allowing depreciation to assessee despite fact that income has been calculated at net profit rate. It is also argued that net profit rate of 10%, has been wrongly set aside by Income Tax Appellate Tribunal. Counsel for respondent, however, submits that as per circular issued by Central Board of Direct Taxes, Section 44 AD of Act applies to assessees whose receipts do not exceed `40 lacs but as assessee's receipts admittedly exceed `10 crores, Section 44 AD of Act does not apply to present case. net profit rate of 10% was rightly reduced to 6% and as there was no reason to apply such high gross profit percentage. We have heard counsel for parties and perused impugned order. first question that calls for answer, is whether Income Tax Appellate Tribunal has erred in granting depreciation to assessee, as his income was calculated at net profit rate (question Nos. 2 and 3 framed by revenue)? Section 44 AD (2) of Income Tax Act, if read in isolation of circular issued by Central Board of Direct Taxes would, require us to answer this question, in favour of revenue. perusal of circular, however reveals that it is clarified, that Section 44 AD (2) of Act applies to assessees whose gross receipts do not exceed `40 lacs. assessee's gross receipts, as, referred to in ITA No. 31 of 2014 3 assessment order, admittedly exceeded `10 crores. relevant extract from circular issued by Central Board of Direct Taxes is as follows:- Estimated Income Method of assessment for certain categories of businesses is prevalent in several countries. Tax Reforms Committee has also recommended gradual introduction of Estimated Income Method in certain areas to facilitate better tax compliance. Accordingly, new Section 44 AD has been inserted to Income-tax with view to providing for method of estimating income from business of civil construction or supply or labour for civil construction work. new section is applicable to all assessees whose gross receipts from above mentioned business do not exceed Rs.40 lakhs. Gross receipts are amount received from clients for contract and will not include value of material supplied by client. income from above mentioned business will be estimated at 8 per cent of gross receipts paid or payable to assessee. taxpayer can voluntarily declare higher income in his return. circular having clarified that it applies to assessee whose gross receipts do not exceed `40 lacs,we have no hesitation in holding that ITAT has rightly allowed depreciation to ITA No. 31 of 2014 4 assessee. As regards first question namely reduction of net profit rate from 10% to 6% suffice is to state that Tribunal has determined net profit rate after considering past net profit rate applied to assessee and that there is no perceptible change, in assessment year under consideration. findings of fact being devoid of arbitrary exercise of discretion or any perversity in reasoning does not give rise to substantial question of law. Consequently questions of laws are answered against revenue and appeal is dismissed. (RAJIVE BHALLA) JUDGE (AMIT RAWAL) JUDGE November 13, 2014 archana Commissioner of Income-tax, Patiala v. Harbhajan Singh and Co. Sangrur
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