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2014 (11) TMI 766 - AT - Income TaxEstimation of rate of NP @ 4% of gross contractual receipt or @ 8% - Held that:- The assessee company is a sub-contractor to execute the civil construction works awarded by the principals, which is a small part of the projects executed by the principals - On the contract receipts, the principals had also deducted the tax u/s 194C of the Act - Besides, the assessee company is also engaged in the business of trading of sarees - the assessee filed duly audited profit and loss account and balance sheet along with its annexure - It also produced the audited books of account, bills/vouchers and bank statements before the AO as admitted by him ín the assessment order - it further produced all the details and explanations called for by the AO from time to time - It also produced labour registers before the AO - assessee contended that the estimation of net profit @ 8% by relying on provisions of section 44AD of the Act is totally incorrect and without any basis for the reason that the assessee company is subcontractor and its profět margin is low in comparěson to the contractors. The AO has compared the profit of the assessee with the companies whose turnover and business paraphernalia is huge in comparison to the assessee company - the assessee company had executed the part of work of civil construction for these companies and, therefore, it is not correct to compare the profit of those companies with the profit margin of the assessee - the profit margin of those companies is also less than the margin which has been estimated by the AO in the case of assessee - assessee argued that the AO has failed to appreciate that the profit margins of contractors and sub-contractors cannot be same - the net profit is ranging from 5.19% to 6.15%, definitely there will be lower profit in the case of sub contractor i.e. the assessee and hence, the CIT(A) has rightly estimated the net profit rate at 4% - thus, the order of the CIT(A) is upheld – Decided against revenue.
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