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2016 (7) TMI 936 - PUNJAB AND HARYANA HIGH COURT

2016 (7) TMI 936 - PUNJAB AND HARYANA HIGH COURT - [2017] 392 ITR 561 - Application of Section 44 AD - Determination of Net Profit Rate - Held that:- Section 44AD would not apply in the case of the respondent assessee. Resultantly, the challenge to the claim of depreciation having been allowed by the Tribunal must fail. - So far as the challenge by the Revenue to the application of Net Profit Rate @ 7% is concerned, the same has been ordered to be applied by the Tribunal after considering th .....

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44AD (1) of the Act, as reproduced above, would not be attracted in the case of the respondent-assessee. - I. T. A. No. 30 of 2016 (O&M) - Dated:- 14-7-2016 - J. VAZIFDAR, ACTING CHIEF JUSTICE AND MR. DEEPAK SIBAL, JJ. For The Appellant : Mr. Zora Singh Klar, Senior Standing Counsel DEEPAK SIBAL, J. : C. M. No. 1817-C-II of 2016 : Through this application, condonation of delay of 183 days in re-filing the present appeal is sought for. Allowed as prayed for. CM stands disposed of. Main Appeal : A .....

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the Tribunal dated 15.07.2014 (Annexure A-3). At the time of hearing of the matter, the afore-referred order dated 15.12.2015 (Mark-A) was produced and also assailed. The present appeal pertains to the assessment year 2010-11 and seeks to raise the following substantial questions of law :- 1. Whether in the facts and circumstances of the case, the ITAT was right in law in directing the AO to apply the gross profit rate of 7% instead of 10% adopted by the AO, without appreciating the numerous and .....

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ld in the case of Surinder Pal Nayyar vs. CIT, Ludhiana reported in 177 Taxmann 207 that the profit having been arrived at on the basis of gross receipts by taking into consideration all allowable expenses, no deduction on account of depreciation can be separately allowed. ? The factual matrix of the matter, which, in brevity needs to be noticed is that the respondent-assessee is a Civil Contractor. After he had filed his return for the assessment year in question, his case was selected for scru .....

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er) who ordered substitution of the Net Profit Rate @ 6.5% in place of 10%. The other relief granted to the assessee was with regard to the claim of depreciation. The Revenue challenged the order of the Commissioner by preferring an appeal against the same before the Tribunal, in which Net Profit Rate was ordered to be applied @ 7% instead of 6.5%, as applied by the Commissioner. The issue with regard to the claim of depreciation was not opined upon and for a decision on this issue, an applicati .....

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et Profit Rate @ 7%, learned counsel for the appellant submitted that the same should be 10%, as assessed by the Assessing Officer and in any case, at least 8%, as per Section 44AD (1) of the Act, as it existed at the relevant time. On the issue of the assessee having been allowed to claim depreciation, relying upon the provisions of Section 44AD (2) of the Act (as it existed at the relevant time), it was submitted by the learned counsel for the appellant that there was a complete bar to the sam .....

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lied, no depreciation could separately have been allowed. Before proceeding further with the matter, we deem it appropriate to refer to the provisions of Section 44AD (1) and (2) of the Act, as it existed at the time of the assessment year in question and the same is as under :- 44AD. Special provision for computing profits and gains of business of civil construction, etc. - (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an assessee engaged in the bu .....

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ubsection shall apply in case the aforesaid gross receipts paid or payable exceed an amount of forty lakh rupees. (2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed : Provided that where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under subsection (1) su .....

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x 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 new section is applicable to all assessees whose gross receipts from the above mentioned business do not exceed ₹ 40 lakhs. Gross receipts are the amount received from the clients for the contract and will not include the value of material supplied by the cli .....

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ipts were exceeding ₹ 40 lacs. On a query posed by us, it was admitted by the learned counsel for the appellant-Revenue that the gross receipts in the case of the respondent-assessee exceeded the amount of ₹ 40 lacs. That being so, in view of the afore-quoted proviso to Section 44AD (1), read with Circular No. 737 dated 23.02.1996 of the Central Board of Direct Taxes, as extracted above, we unhesitantly hold that Section 44AD would not apply in the case of the respondent assessee. Re .....

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ofit Rate of 8% as provided under Section 44AD (1) of the Act is also required to be rejected as in view of the proviso to Section 44AD (1) of the Act, since the gross receipts paid or payable in the case of the assessee are over ₹ 40 lacs, the provisions of Section 44AD (1) of the Act, as reproduced above, would not be attracted in the case of the respondent-assessee. The afore-referred view of ours on both the issues finds support from a Division Bench judgment of this Court in Commissio .....

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acs. The assessee's gross receipts, as, referred to in the assessment order, admittedly exceeded ₹ 10 crores. 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 .....

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e mentioned business will be estimated at 8 per cent of the gross receipts paid or payable to an assessee. A taxpayer can voluntarily declare a higher income in his return. 7. The circular having clarified that it applies to an assessee whose gross receipts do not exceed ₹ 40 lacs,we have no hesitation in holding that the ITAT has rightly allowed depreciation to the assessee. 8. As regards the first question namely reduction of the net profit rate from 10% to 6% suffice is to state that Tr .....

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