PURNA CHANDRA BISWAL,CUTTACK vs. ITO, CUTTACK

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ITA 174/CTK/2015Status: DisposedITAT Cuttack08 March 2017AY 2009-106 pages
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What did the Tribunal hold?

The Tribunal held that depreciation should be allowed as a deduction against the estimated net profit, not from the gross turnover. However, it upheld the CIT(A)'s decision to treat 'other receipts' as undisclosed income due to lack of supporting evidence from the assessee.

What were the facts?

The Assessing Officer estimated the assessee's profit at 8% of gross receipts. The CIT(A) directed that depreciation should be deducted from gross turnover before estimating profit, and also treated certain other receipts as undisclosed income. The assessee appealed these decisions.

What were the issues?

Whether depreciation should be deducted from gross turnover or estimated profit when income is estimated at a percentage of gross receipts, and whether 'other receipts' constitute undisclosed income.

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

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Income Tax Appellate Tribunal, CUTTACK

Before: SHRI N.S SAINI

For Appellant: Shri R.K.Das, AR
For Respondent: Shri D.K.Pradhan, DR
Pronounced: 08/03

This is an appeal filed by the assessee against the order of CIT(A)-

Cuttack, dated 19.1.2015, for the assessment year 2009-2010 .

2.

Ground No.1 of the appeal reads as under:

“Under the facts and circumstances, considering the nature of work executed by the appellant the 8% estimation of profit on gross turnover is excessive.”

3.

At the time of hearing, ld Authorised Representative of the assessee

did not press this ground of appeal and, therefore, same is dismissed for

want of prosecution.

2 ITA No. 174/CT K/ 2015 Asse ssment Year :20 09- 201 0

4.

Ground No.2 of the appeal reads as under:

“The ld CIT(A) erred in law as well as in facts allowing the “depreciation from the gross turnover rather than the estimated profit. Depreciation is an allowance which is to be charged against profit and not from the gross turnover.”

5.

I have heard the rival submissions and perused the orders of lower

authorities and materials available on record. In the instant case, the

Assessing Officer estimated the profit from contract work of the assessee

after rejecting book results of the assessee at 8% of the gross receipts.

6.

On appeal before the CIT(A), the assessee contended that the

Assessing Officer did not allow deduction for depreciation from the income

of the assessee estimated at 8% of the gross contract receipts.

6.1. The CIT(A) directed the Assessing officer to deduct depreciation of

Rs.19,46,166/- from the gross contract bills of Rs.3,11,28,314/- and

estimate net profit @ 8% on the balance amount.

7.

Being aggrieved against this order of the CIT(A), the assessee is in

appeal before me.

8.

Ld Authorised Representative of the assessee relied on the decision

of Hon’ble Rajasthan High Court in the case of M/s. Shri Ram Jhanwar Lal

vs ITO, Bikaner in Income Tax Appeal No.10 of 2006 order dated 3rd July,

2008, wherein, it was held that where the Assessing Officer adopted net

profit rate in making assessment to the best of his judgment, allowance

3 ITA No. 174/CT K/ 2015 Asse ssment Year :20 09- 201 0

of depreciation therefrom is required to be made. He also relied on CBDT

Circular No.29D dated 31.3.1965 and submitted that in the said circular, it

has been provided that for estimating the income, deduction for interest

and depreciation should be separately allowed.

9.

On the other hand, ld Departmental Representative relied on the

decision of Visakhapatnam Bench of the Tribunal in the case of G.Raja

Gopala Rao vs DCIT (2017) 78 taxmann.com 61 (Visakhapatnam) ,

wherein, it was held that since the Assessing Officer adopted a reasonable

rate of 8% on gross contract receipts, further deduction towards

depreciation could not be allowed as it would result into determination of

total income below income returned by the assessee.

10.

After considering the rival submissions and perusing the materials on

record, I find that the assessee had filed the return of income showing total

income of Rs.14,18,244/- after claiming deduction under chapter VIA at

Rs.1,00,000/-. The Assessing Officer determined the income at 8% of the

total receipts of Rs.4,11,06,911/- at Rs.32,88,553/-. The Hon’ble Rajasthan

High Court in the case of M/s. Shri Ram Jhanwar Lal vs ITO, (supra) has

held that where the Assessing Officer adopted net profit rate in making

assessment to the best of his judgment, allowance of depreciation

therefrom is required to be made. Ld D.R. has relied on the decision of

Visakhapatnam Bench of the Tribunal in the case G.Raja Gopala Rao

(supra), wherein, it has been held that when the Assessing Officer adopted

4 ITA No. 174/CT K/ 2015 Asse ssment Year :20 09- 201 0

a reasonable rate of 8% on gross contract receipts, further deduction

towards depreciation could not be allowed as it would result into

determination of total income below income returned by the assessee. Ld

D.R. has brought no material on record to show that by deducting

depreciation from the estimated net profit of 8% on gross contract receipts

of the assessee would result in income being assessed below the returned

income of the assessee. Therefore, the decision of Visakhakapatnam Bench

of the Tribunal in the case of in the case of G.Raja Gopala Rao(supra) is

not applicable in the present case. Hence, I set aside the orders of lower

authorities and direct the Assessing Officer to allow depreciation against

the net profit estimated by applying rate of 8% and not from the gross

turnover and allow this ground of appeal of the assessee.

11.

Ground No.3 of the appeal reads as under:

“That the CIT(A) erred in law as well as in facts, by considering the “other receipts amounting to Rs.53,68,597/- as income from other sources undisclosed or other income and not as receipts from works contract.” 12. I have heard the rival submissions and perused the orders of lower

authorities and materials available on record. In the instant case, the brief

facts are that the Assessing Officer after rejecting the book results of the

assessee estimated the income by applying profit rate at 8% to the gross

contract receipts of Rs.4,11,06,911/-.

5 ITA No. 174/CT K/ 2015 Asse ssment Year :20 09- 201 0

13.

On appeal before the CIT(A), the assessee contended that this

amount included Rs.53,68,597/-, which are other receipts from different

persons for executing work of small jobs through labourers and machinery

and payment for which is received in cash.

14.

The CIT(A) held that the statement of receipts of Rs.53,68,597/- from

different persons against execution of contract works did not contain

address or PAN of the persons and the nature of work performed. There

was no deduction of TDS from such receipts. Therefore, the CIT(A) held

that the amount is to be treated as income from other sources undisclosed

or other income, which should be added to the net profit arrived at from

contract works.

15.

Being aggrieved against the said order of the CIT(A), the assessee is

in appeal before me.

16.

Ld Authorised Representative of the assessee reiterated the

submissions made before the CIT(A). He could not file any material before

me to demonstrate that the amount of Rs.53,68,597/- was the receipts

from small jobs done by the assessee. In absence of the same, in my

considered view, no interference with the order of the CIT(A) is called for.

Hence, same is confirmed and ground of appeal of the assessee is

dismissed.

17 In the result, the appeal filed by the assessee is partly allowed.

6 ITA No. 174/CT K/ 2015 Asse ssment Year :20 09- 201 0

Order pronounced in the open court on 08/03/2017 in the presence of parties. Sd/- (N.S Saini) ACCOUNTANT MEMBER Cuttack; Dated 08/03/2017 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : Sri Purna Chandra Biswal, Jakhapura, Jajpur 2. The Respondent. ITO, Ward 1(2), Cuttack 3. The CIT(A) Cuttack Cuttack 4. CIT, Cuttack 5. DR, ITAT, Cuttack 6. Guard file. //True Copy// BY ORDER,

SR.PRIVATE SECRETARY ITAT, Cuttack

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