CIT Vs. VIJAY CONSTRUCTIONS

JUDGEMENT

(1.) THESE are four appeals filed under Section 260A of the Income Tax Act against the order passed by the Income Tax Appellate Tribunal (in short 'ITAT') on 24 -12 -2004 in respect of different assessment years consisting of 1993 -94, 1994 -95, 1995 -96, 1996 -97 and 1997 -98. The assessee is a registered partnership firm, which is engaged in the work of civil construction in Public Works department. The returns were filed for the relevant assessment years. The books of account were, however, rejected by the assessing officer. Consequently, proceedings under Section 145(3) were taken following the proceedings under Section 144. The following two substantial questions of law have been pressed into service by the learned counsel for the revenue; (i) whether the determination of rate of profit ITAT the rate of 5 per cent by the Commissioner, Income -tax (Appeals) as against the flat rate of 8 per cent, as given by the assessing officer, and further reducing the sanle to 4 per cent by the ITAT was at all warranted under the facts and circumstances of the case; (ii) whether the assessee was entitled to the benefit of Section 40(b)( iv) and (v), namely, on the salary and interest paid to the partners.

(2.) IN regard to the first question, suffice would be to mention that the assessing officer, on the analogy of Section 44AD, after rejecting the books of account, made assessment determining 8 per cent profit ITAT flat rate. This finding became the subject -matter of challenge in appeal and the Commissioner, Income -tax (Appeals), on consideration that since the assessee was performing the work of civil construction as a contractor of the Public Works department, reduced the aforesaid rate of profit from 8 per cent to 5 per cent, mainly on the ground that since the turn -over of the assessee exceeds Rs. 40 lakhs, therefore, it is bound to incur more expenses and rate of profit would be less. On sub -contracts, he has applied the rate of 3.5 per cent on the reasoning that in the sub -contracts, the income is bound to be shared by the sub -contractor. In appeal before the ITAT, the rate of profit has been further reduced to 4 per cent on the ground that 'the assessee was doing the work for PWD. Normally the net profit rate was much less for the work of PWD, as the contract work has to be done under certain specifications and under the supervision of the PWD authorities'.

(3.) SO far as the determination of profit of 5 per cent by the Commissioner (Appeals) and 3.5 per cent for sub -contracts is concerned, the Commissioner (Appeals) has also not given any reason nor any material was placed before the Commissioner, Income -tax (Appeals), or, for that matter, before the assessing officer, for arriving to a conclusion about the rate of profit. Merely on assumption that since the assessee is performing the work for the PWD and as the contract work has to be done under certain specifications and under the supervision of the PWD authorities, therefore, the rate of profit would be low or merely because the turn -over exceeded Rs. 40 lakhs, therefore, it would incur more expenses, the aforesaid rate of profit could not have been arrived at. Neither the Commissioner, Income -tax (Appeals) nor the ITAT have taken into consideration the relevant material or facts, which may be necessary for arriving at such conclusion.