TMI Blog2007 (11) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... n gross receipts – held that - looking to the normal net profit rate which is applicable to the case of civil construction contracts, the effective rate of profit on gross receipts would work out to less than 1% which would be extremely low and not practical. Moreover, once books of account are rejected then no separate deduction on account of freight charges as claimed by the assessee can be allowed – rejection of books of account upheld - 72 of 1995 - - - Dated:- 6-11-2007 - M.M. KUMAR and AJAY KUMAR MITTAL JJ. Sanjay Bansal, as amicus Curiae. Yogesh Putney, and Pervesh Saini, for the commissioner. JUDGMENT The judgment of the court was delivered by AJAY KUMAR MITTAL, J. - At the instance of the revenue, the Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal. The Commissioner of Income-tax (Appeals) allowed the payments made to the Truck Operators' Union as a deduction but disallowed the other expenditures. The revenue took the matter in appeal before the Tribunal and the Tribunal vide its order dated 10.6.1994 dismissed the appeal holding the net profit rate of 8% on the balance amount of Rs.5,28,347/- to be justified. 3. No one has appeared on behalf of the assessee to oppose the reference made by the Tribunal. On the asking of the Court, Mr. Sanjay Bansal, Senior Advocate assisted the Court as Amicus Curiae. 4. The issue that arises for determination in this reference is, as to whether the freight charges paid by the assessee to the Truck Operators' Union are to be deducted from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable by the assessee or refundable to the assessee on the basis of such assessment." "145. (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall be computed in accordance with the method of accounting regularly employed by the assessee. Provided that in any case where the accounts are correct and complete to the satisfaction of the Income-tax Officer but the method employed is such that, in the opinion of the Income-tax Officer, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Income-tax Officer may determine. (2) Where the Income-tax Officer is not satisfied about the correctness or the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration while making such an estimate. 9. In view of the aforesaid legal principle, the claim of the assessee cannot be accepted. Additionally, if the contention of the assessee is accepted, the net profit in that situation would be reduced to a substantially low figure and looking to the normal net profit rate which is applicable to the case of civil construction contracts, the effective rate of profit on gross receipts would work out to less than 1% which would be extremely low and not practical. Moreover, once books of account are rejected then no separate deduction on account of freight charges as claimed by the assessee can be allowed. 10. The matter came up for consideration before the Andhra Pradesh High Court in Indw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Where the books of account have been rejected, the Revenue cannot rely on the same books for addition of an exact item (of expenditure) in the profit and loss account." 11. The Tribunal had relied upon the judgment of Madras High Court in Commissioner of Income Tax, Madras v. K.S. Guruswami Gounder and K.S. Krishnaraju (Contractors), [1973] 92 ITR 90 on the basis of which, it had decided the issue in favour of the assessee. The issue in the aforesaid case was, whether the cost of material which was supplied to the contractor by the Government for the purpose of construction on their behalf, undertaken by him could be included in the total receipts for the purpose of computing his income. The Madras High Court by placing reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of all, who are engaged in the business of civil construction or supply of labour for that purpose, a sum equal to 8 per cent of the gross receipts paid on payment to the assessee in the previous year on account of such business shall be deemed to be the profits and gains which shall be chargeable to tax. Further, in subsection (2) it has been provided that any deduction allowable under the provisions of Sections 30 to 38 shall be deemed to have been given full effect while applying the provisions of sub-section (1) and no further deduction under those sections shall be allowed. It needs special mention that what was implicit earlier has been made explicit by incorporating Section 44AD by the Parliament w.e.f. 1.4.1994. 13. A referen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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