TMI Blog2023 (7) TMI 1204X X X X Extracts X X X X X X X X Extracts X X X X ..... ract receipt without allowing any double deduction for indirect expenses. We therefore find that there is no double deduction of indirect expenses while determining net profit rate of 3.45% and given that the assessee has already offered net profit rate of 10% on total contract receipts, no further addition is required to be made in the hands of the assessee. Thus, the addition so sustained by the ld CIT(A) is hereby directed to be deleted. Assessee appeal allowed. - ITA Nos. 86 to 92/Chd/2023 - - - Dated:- 26-7-2023 - Shri. Aakash Deep Jain, VP And Shri. Vikram Singh Yadav, AM For the Assessee : Shri Tej Mohan Singh, Advocate For the Revenue : Shri Rohit Sharma, CIT D.R ORDER PER BENCH : These are seven appeals filed by the Assessee against the respective orders of the Ld. CIT(A)-3, Gurgaon each dt. 27/12/2022 pertaining to A.Y s 2013- 14 to 2019-20. 2. Since the issues involved in all the appeals were similar, they were heard together and are being disposed off by this consolidated order for the purpose of convenience. 3. With the consent of both the parties, the case of the Assessee in ITA No. 86/Chd/2023 pertaining to Assessment Year 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act are not open to verification. Further, site-wise position of stock has not been maintained by the assessee company, hence, the trading results shown by the assessee company is not very reliable. Further, your rate of margin is 15-20% in most of the cases. Therefore, considering all facts and circumstances of the case, you are hereby required to show cause as to why the trading results shown by you in your books of accounts should not be rejected as per provisions of section 145(3) of the Act and show cause as to why the income of the assessee company may not be assessed by applying net profit rate of 15% on the gross turnover of the assessee company. 5. In response to the show cause, the assessee filed its written submission on 20/04/2021 which were considered but not found fully acceptable to the AO and the trading result shown by the assessee company were rejected invoking provisions of Section 145(3) of the Act and profit rate of 13% was determined as against 10% shown by the assessee and an addition of Rs. 32,52,441/- was made. The relevant findings of the AO are contained in para 7.1 7.2 and 8 of the assessment order and the same reads as under: 7.1 Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different projects undertaken by it. Further, the assessee company has submitted that on profit margin of 10%, its effective profit rate comes to 9.09%; on profit margin of 15% its effective profit rate comes to 13.04% and on profit margin of 20% its effective profit rate comes to 16.67%. Further, the assessee company has submitted that if the average of all these three profit rates is considered, the effective average net profit rates) comes to 12.93%. The reply of the assessee company has been gone through and the same has been found partly convincing. Since, the project wise complete details of profit margin taken by the assessee is not fully verifiable from the books of accounts or the seized material, the net profit margin rate of 13%, is hereby taken in this order on the gross work done by the assessee company to determined the profit of the assessee from its business. Since the books of accounts of the assessee have been rejected, thus no further benefit of any expenses is given to the assessee. 8. The assessee company has taken the total work done of Rs. 10,84,14,721/- during the year under consideration and has shown profit margin of Rs. 1,08,41,472/- thereupon at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct receipts. Thus there is no difference between the quantification of total contract receipts between the AO and the appellant. Therefore the only issue to be adjudicated is net profit rate to be applied on total contract receipts. The AO has applied net profit rate of 13% as against 10% adopted by the appellant. From the perusal of assessment order as discussed by the AO, it is evident that the appellant has earned margin @ 10-20% of the total cost of project from different projects undertaken for different clients depending upon specification of project undertaken. Thus the gross margin rate of the total contract receipts which was earned by the appellant needs to be worked out; for example if the the cost of construction is Rs. 100/- resulting into margin Rs. 10/-(@ 10%) and total receivable from such project would be Rs. 110/- resulting into gross profit margin ratio @ 9.09%(10/110). Similarly where margin is in range of 15%, the gross margin would be 13.04%( 15/115) and in case margin is 20% gross margin would be 16.67% (20/120)). If average of these gross margins is taken, it would work out average gross margin @12.93% or roughly 13%. Thus as per the contracts with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR]. Ground of appeal no. 2 is hereby partly allowed. 7. Against the aforesaid findings and the order of the ld CIT(A), the assessee is in appeal before us. 8. During the course of hearing, the Ld. AR submitted that there is no dispute on the quantum of receipts taxable in the hands of the assessee company and the limited dispute relates to application of net profit rate. It was submitted that as per the findings of the Ld. CIT(A), which are not under challenge by the Revenue, after considering the indirect expenses and reducing the same from gross margin of 13%, the ld CIT(A) has held that the net profit rate for the year under consideration work out to 3.45% whereas the assessee has already declared net profit rate of 10%. It was submitted that in light of the said finding, there is no basis for the Ld. CIT(A) to uphold the action of the AO in applying 13% net profit rate on part of the contract receipts in the hands of assessee. 9. In this regard, our reference was drawn to submissions made by the assessee before the ld CIT(A) which forms part of the impugned order and the contents thereof read as under: 25. These grounds are regarding the addition of 32,52,441/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same net profit earned by the appellant whereas the appellant offered the income @ 10% of the total construction cost /Work done as the net Profit of the appellant for the year under consideration on the basis of the seized material. 29. In view of the above as well as the assessment order it is clear beyond any shadow of doubt that the Ld. AO himself agreed that in the case of the appellant only net profit has to be added and neither the gross profit nor the total receipts can be added in the case of the appellant. The only issue remains is that the Ld. AO did not compute the net profit correctly. The amount computed by the Ld. AO @ 13% is the gross profit and not the net profit. 30. Gross profit represents the income or profit remaining after the production costs have been subtracted from revenue. On the other hand, net income is the profit that remains after all expenses and costs including production cost, administration cost, selling cost, general overheads, employees cost, business promotion cost, borrowing cost, Depreciation etc. have been subtracted from revenue. 31. In the case of the appellant, it is an undisputed fact that out of total construction cost/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its P L A/c. This further proves that the Ld. AO himself was satisfied with the genuineness and allowability of the above-stated expenses of Rs. 1,03,51,418/- claimed in the P L A/c of the appellant. 35. Therefore, for the purpose of computing the net income of the appellant, the above-stated expenses of Rs. 1,03,51,418/- have to be reduced from the gross margin/profit. Accordingly net profit/income of the appellant is computed as under: Particulars Amount(Rs.) Total construction cost/work done by the appellant during the year under consideration including margin (as per books and as per seized material) A 10,84,14,721 Gross Margin on such construction cost/work done @ 13% B [A*13%] 1,40,93,914 Gross Profit for the year B 1,40,93,914 Less: Expenses claimed in P L A/c other than the direct cost (as discussed above) C 1,03,51,418 (Net Profit / Loss) of the company D[B-C] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )and therefore given the facts and circumstances of the present case, no further relief is warranted in the instant case. It was accordingly, submitted that the grounds of appeal so taken by the assessee be dismissed and the order of the Ld. CIT(A) be confirmed. 12. We have heard the rival contentions and purused the material available on record. On perusal of the order so passed by the ld CIT(A), it is noted that there is no difference in the quantification of total contract receipts as determined by the AO and as submitted by the assessee as part of its revised return of income. The assessee has disclosed contract receipts of Rs 8,41,07,284/- as per its books of accounts and there are unaccounted receipts of Rs 2,43,07,437/- thus, total contract receipts as per revised return of income has been offered at Rs 10,84,14,721/- and which has been accepted by the AO. 13. In terms of taxability of the aforesaid contract receipts, the assessee has offered the same by applying net profit rate of 10% in its revised return of income whereas the AO has applied profit rate of 13%. Before the ld CIT(A), the assessee has contended that the AO has applied gross profit rate whereas he shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contract receipts outside the books of accounts as the same would amount to double deduction and has thus, upheld the application of profit rate of 13% as against 10% declared by the assessee. 17. Conceptually, there is no dispute that the assessee can be allowed the benefit of indirect expenses only once while working out its taxable income. However, when the same principle is applied to the facts of the present case, we find that the net profit rate of 3.45% has been determined as a percentage of the total contract receipts of Rs 10,84,14,721/- which includes both types of contract receipts which are reflected in the books of account to the tune of Rs 8,41,07,284 and Rs 2,43,07,440/- which are not reflected in the books of accounts. Where the net profit rate is determined as a percentage of the contract receipts of Rs 8,41,07,284, it will shown net profit rate of 0.69% after allowing indirect expenses of Rs 1,03,51,418/- and net profit rate of 13% as a percentage of contract receipts of Rs 2,43,07,440/- without allowing any double deduction for indirect expenses. We therefore find that there is no double deduction of indirect expenses while determining net profit rate of 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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