TMI Blog2014 (11) TMI 766X X X X Extracts X X X X X X X X Extracts X X X X ..... comparėson 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. - I.T (SS). A Nos. 44 to 46/Kol/2012, I. T (SS).A Nos. 47 to 49/Kol/2012 - - - Dated:- 5-11-2014 - Shri Mahavir Singh, JM And Shri Shamim Yahya, AM,JJ. For the Appellant: None For the Respondent: Shri Subhas Agarwal, Advocate ORDER Per Shri Mah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents of the payment and in term of the above, AO rejected the books of account and estimated the net profit at 8% of gross contract receipt of ₹ 11,44,53,341/- and estimated the net profit at ₹ 91,56,267/-. Aggrieved, assessee preferred appeal before CIT(A), who after considering the submissions of the assessee restricted the net profit rate @ 4% of the gross contractual receipts instead of 8% done by AO vide para 5 of his appellate order as under: 5. I have considered the submiss on of the appellant and perused the assessment order. The facts of the case have already been discussed as above. On perusal of assessment order, it is apparent that in the course of assessment proceedings, the appellant company produced audited books of account, bills and vouchers as well as the bank statements etc. The appellant submitted other details called for by the AO except some specific details and documents required by him. The appellant Company also produced the labour register before the AO. On examination of said register the AO was of the opinion that the same has not been maintained in conventional manner. However, he did not state that in which manner the Appellant was requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Allied Infrastructure cannot be compared with the margin of the appellant company because all these companies are contractors whereas the appellant company is a subcontractor. Further, the magnitudes and infrastrucutres of those companies are huge than the appellant company. That the appellant company has worked as a subcontractor of those companies whose profit margins have been compared by the AO with the profit margin of the appellant. It is also argued by the appellant that in the case of a sub-contractor, the profit margin is always less than a contractor. On careful consideration of the facts, I am of the opinion that that the AO was not justuified in estimating profit @ 8% in the case of appellant company by invoking provisions of section 44AD of the Act. In the course of appellate proceedings, though, the appellant has not disputed the application of section 145, but disputed the rate at which prof t has been estimated by the AO. On perusal of assessment order it is apparent that initially the AO compared the net profit of the apellant with the profits of its principals but later on applied the profit rate in the hands of appellant at 8% as per section 44AD. In fact, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O that the gross contract receipt was ₹ 5,01,05,398/- and the cost of contract shown by the company was ₹ 4,92,62,877/-which include one of the major expenditure on account of labour charges. On examination of the labour register, the AO was of the opinion that it was not maintained in a conventional manner as it did not contain the signature or thumb impression of all the recipients and the names of labourers were written repeatedly. Further, according to the AO, the assessee company produced only the computerized ledger account of other expenses and did not produce the bills/vouchers in support of its claim. The assessee company also failed to produce the party-wise details of materials purchased and its bills and vouchers. By making aforesaid observations, the AO rejected the books of account of the assessee company by invoking provisions of section 145 of the Act to estimate the net profit of the assessee company. The AO also reproduced the figures of net profit for various years of the comparative cases. As per the AO, the net profit in the case of Tantia Construct ons Ltd, from A.Y. 2004- 05 to A.Y. 2010-11 was in the range of 4.31% to 7.67% and the average net pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contractors. Further, 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. Further, 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. In fact the profit margin of those companies is also less than the margin which has been estimated by the AO in the case of assessee. In the case of assessee as per audited books of account, the net profit margin for A.Ys. 2007-08, 2008-09, 2009-10 and 2010-11 was 1.94%, 0.67%, 0.20% and 0.09% respectively. Now, before us, Ld. counsel for the assessee argued that the AO has failed to appreciate that the profit margins of contractors and sub-contractors cannot be same. In the assessment order he has worked out the average profit margins in the case of Tantia Constructions Ltd, GPT Infraprojects Ltd. and Allied Infrastructure Projects Pvt. Ltd at 5.93%, 6.15% and 5.19% respectively and in the case of assessee he has estimated the profit @ 8%, whereas, in the case of assessee the profit marg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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