CIT PATIALA vs. M/S PRAN NATH GUPTA CHD.

ITR/85/1999HC Punjab & HaryanaPHHC01038776199930 April 2007Author: MR. JUSTICE M.M. KUMAR,MR. JUSTICE RAJESH BINDAL2 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that for assessment periods prior to April 1, 1994, when a best judgment assessment is made by fixing a net profit rate, the claim for depreciation cannot be deemed to have been automatically considered. Depreciation must be taken into account separately, provided the assessee has furnished the prescribed particulars. The Court noted that the Tribunal's decision in Chopra brothers' case, which allowed separate depreciation, was upheld by this very Court in Commissioner of Income-Tax Vs. Chopra Bros. India (P.) Ltd. (2001) 252 ITR 412. Therefore, following its own precedent, the High Court found no reason to deviate from the view that depreciation is allowable separately even when a net profit rate is applied. The question was answered against the revenue and in favor of the assessee. The reference was disposed of accordingly.

What were the facts?

The assessee, M/s Pran Nath Gupta (Pattan Works), a contractor, declared income for assessment year 1989-90 at Rs. 1,96,840 on total receipts of Rs. 52,11,124, representing a net profit rate of 3.95%. The Assessing Officer, finding that proper books of account were not maintained, invoked Section 145(1) of the Income Tax Act, 1961, applied a gross profit rate of 10%, and disallowed depreciation. The Commissioner of Income-Tax (Appeals) estimated the net profit rate at 8% of gross receipts but rejected the claim for depreciation. The Income-Tax Appellate Tribunal, however, allowed depreciation separately, relying on its Special Bench decision in Chopra brothers' case and a High Court judgment in Commissioner of Income-tax Vs. Vinod Kumar Bhatia. This led to the present reference to the High Court.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in separately allowing depreciation on machinery when a lower net profit rate of 8% on contract receipts had been upheld and no account books have been maintained? (Question of law) Assessee's Contention: The judgment does not record specific arguments made by the assessee. The Tribunal's decision, which favored the assessee on this point, was based on its Special Bench decision in Chopra brothers' case and a High Court judgment in Commissioner of Income-Tax Vs. Vinod Kumar Bhatia. Revenue's Contention: The revenue argued that when a net profit rate is estimated under Section 145(1) due to lack of proper books, the claim for depreciation should be considered as part of that estimation and not allowed separately. The revenue's stance was that the ITAT erred in allowing depreciation separately.

Which sections of the Income-tax Act were involved?

Section 145(1)

AI-generated summary — verify with the full judgment below

-1- *** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH DATE OF DECISION : April 30, 2007 Commissioner of Income-tax, Patiala ....... Petitioner VERSUS M/s Pran Nath Gupta (Pattan Works) SCO No. 1132-33/22B, Chandigarh ...... Respondent CORAM : HON'BLE MR. JUSTICE M.M KUMAR. HON'BLE MR. JUSTICE RAJESH BINDAL. Present: Mr. Sanjiv Bansal, Advocate for the revenue Mr. S.K. Mukhi, Advocate with Mrs. Naveendir P.K. Singh, Advocate for the assessee.

RAJESH BINDAL, J. The following question of law has been referred for opinion of this Court by the Income-Tax Appellate Tribunal, Chandigarh Bench, Chandigarh, ( for short, 'the Tribunal') arising out of its order dated 11.10.96 passed in ITA No. 598/Chandi/91, for the assessment year 1989-90:- “Whether on the facts and in the circumstances of the case, the ITAT was right in law in separately allowing depreciation on machinery when a lower net profit rate of 8% on contract receipts had been upheld and no account books have been maintained?” Briefly the facts are that the assessee, who is a contractor, declared his income at Rs. 1,96,840/- against total receipts of Rs. 52,1

The order continues below.

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