Surinder Pal Nayyar vs Commissioner of Income Tax

Hemant Gupta, J.—This order shall dispose of ITA Nos. 464 of 2008 and 169 of 2008 in respect of the assessment year 2000-01 and assessment year 1999-2000, arising out of the orders passed by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short "the Tribunal") in ITA No. 381/Chandi./2004 and ITA No. 380/Chandi./2004, respectively. Since, the issues raised are similar, therefore, for facility of reference facts are taken from ITA No. 464 of 2008.

The assessee is a contractor undertaking the construction work on contract. The assessee submitted a return for the assessment year 2000-01 declaring the total income of Rs. 8,24,512 in respect of assessment year 2000-01. The Assessing Officer framed assessment on 31 -3-2003 after rejecting the claim of the assessee that method of accounting is mercantile and returned a finding that it is cash system. The expenses claimed as per the competition chart were disallowed and added to the income of the assessee. Similarly, the interest and salary paid to the partners were disallowed. In the absence of any documentary evidence, claim of the assessee for Rs. 11,97,719 towards depreciation was declined as the appellant failed to produce the bills of assets purchased by him and also failed to produce the evidence to the effect that these assets were put into business during the year under consideration. The Assessing Officer also returned a finding that the appellant has failed to produce the books of account and vouchers and thus, the accounts of assessee were rejected, resorting to best judgment assessment.

In appeal, the learned Commissioner of Income Tax (Appeals) [for short "the CIT(A)"] allowed the appeal of the assessee partly, holding that the gross receipts cannot be termed as profits and gains for the purpose of Section 28 and that the assessable figure of income can only be arrived for this purpose after allowing reasonable expenses. It was found that special provisions were incorporated u/s 44AD of the Act for the purpose of quantification of income about civil construction contractors. The minimum flat rate prescribed for determination of income is 8 per cent of gross receipts paid or payable to the appellant provided these receipts do not exceed Rs. 40,00,000. However, in case of a contractor, whose gross receipts are exceeding Rs. 40 lakhs, it was found that such assessee must produce necessary evidence to prove that he has suffered loss or income other than 8 per cent estimate of income. The relevant extract from the order passed by the CIT(A) reads as under:

5.34 However, special provisions were incorporated u/s 44AD of the Income Tax Act, 1961 for the purpose of quantification of income about civil construction contractors. The minimum flat rate prescribed for determination of income is 8 per cent of gross receipts paid or payable to appellant provided these receipts do not exceed Rs. 40,00,000. These provisions provide for presumptive taxation La, presumption of gross receipts and presumption of expenditure during financial year. According to these provisions contained u/s 44AD, the appellant cannot claim loss, if any. Hence, if the gross receipts exceed Rs. 40 lakhs. The civil contractors can claim loss which otherwise cannot be claimed by them u/s 44AD. Therefore, by applying flat rate of profit, the appellant is not allowed to claim the loss even where gross receipts were more than Rs. 40 lakhs as is the case of this appellant. However, a taxpayer can voluntarily declare higher income in his return. As per Circular No. 684, dated 10-6-1994 issued by the CBDT, the scheme u/s 44AD is optional. However, a system of rebuttal has been provided. A person can claim that his income in respect of Civil Construction business is lower than the 8 per cent estimate of income. In such a case, he must produce necessary evidence to prove his case. Such a case will be scrutinized for regular assessment u/s 44AD.

***

5.37 Respectfully following above judgment of jurisdictional IT AT which is binding in appellant''s case as well as judgments in other cases relied upon by I ,d. Counsel and in order to meet ends of justice on basis of reasons mentioned above, I am of the opinion that it is a fit case for taxing the gross receipts declared by appellant at the rate of 12 per cent. The Assessing Officer directed to tax gross receipts at the rate of 12 per cent flat rate in absence of books of account as declared by the appellant.

The learned CIT(A) also allowed the interest and salary paid to the partners as per the partnership deed and addition on these account were ordered to be deleted. The CIT(A) also set aside the addition of Rs. 47,73,781 u/s 69 of the Act.

Aggrieved against the decision of the CIT(A), the revenue went in appeal before the Tribunal. The Tribunal dismissed the appeal filed by the revenue and also rejected the argument raised by the assessee in respect of allowing depreciation claimed by the assessee. The Tribunal returned a finding that where the income has been derived in the case of a civil contractor by applying net profit rule, the assessee is not entitled to depreciation since the same has been assessed by applying net profit rate on the gross receipts. Aggrieved against the said order passed by the Tribunal, the assessee is in appeal u/s 260A of the Act, before this Court, raising the following substantial questions of law:

(i) Whether the action of the respondent authorities to disallow the depreciation to the assessee appellant without giving any adequate reason, is legally sustainable in the eyes of law?

(ii) Whether the action on the part of the respondent authorities to frame an assessment in the lack of his jurisdiction, is legally sustainable in the eyes of law?

(iii) Whether in the facts and circumstances of the present case the impugned order A. 1 and A.3 are legally sustainable in the eyes of law?

However, during the course of arguments, learned Counsel for the appellant has addressed arguments only in respect of question No. 1.

Having heard learned Counsel for the appellant at some length, we do not find that such question arises for consideration. Firstly, the appellant has not challenged the order passed by the CIT(A) before the Tribunal. Thus, the findings recorded by the CIT(A), cannot be permitted to be agitated by the assessee, when the same were not disputed either by way of an appeal or cross-objections before the Tribunal. Still further, the finding recorded by the Assessing Officer that the appellant has not submitted copies of the bills of the assets purchased by him, nor produced any evidence to prove that these assets were put to use for the purpose of the business during the year under consideration, was also not challenged before the CIT(A).

Learned counsel for the appellant could not refer to any ground taken before the CIT(A) disputing the said finding recorded by the Assessing Officer. Thus, the claim of depreciation sought to be raised by the appellant before this Court is on the basis of non-existent facts. Even otherwise, we do not find any illegality in the finding recorded by the Tribunal that the profit assessed on the gross receipts is arrived at by taking into consideration all allowable expenses and no further deduction on account of depreciation can be separately allowed.

So far as ITA No. 169 of 2008 is concerned, it may be rioted that though the appellant has filed an appeal against the order passed by the CIT(A) in respect of assessment year 1999-2000, before the Tribunal, but the reasons recorded above, except the reason that the assessee has not filed an appeal, are part materia applicable to the said appeal as well.

In view of the above, there is no merit in the present appeals. Hence, the same are dismissed.