COMMISSIONER OF INCOME TAX Vs. COMPETENT CONSTRUCTIONS COMPANY

JUDGEMENT

(1.) THIS order shall dispose of ITA Nos. 482 and 646 of 2010 as common question of law and facts are involved in both the appeals. ITA No.646 of 2010 has been filed by the revenue whereas ITA No.482 of 2010 has been filed by the assessee under section 260A of the Income Tax Act, 1961 (for brevity, "the Act") against the common order dated 29.12.2009 passed by the Income Tax Appellate Tribunal 'B' Bench, Chandigarh (in short, "the Tribunal") in ITA No.402/CHD/2009 for the assessment year 2005 -06.

(2.) FOLLOWING substantial question of law has been claimed in ITA No.646 of 2010: -

(3.) THE facts have been extracted from ITA No.646 of 2010. These may be briefly noticed. The assessee firm is engaged in the civil construction work. During the course of assessment proceedings, the assessee produced cash book and ledger. However, the purchase file claimed to have been lost, was not produced. The assessee had shown sale and purchase of fixed assets during the year but the bills for verification of the same were not produced by the assessee. The Assessing Officer referred the case for special audit under Section 142(2A) of the Act. In the absence of proper documents and voucher and the report of the special auditor that the assessee had not maintained proper books of account, the Assessing officer vide order dated 11.7.2008, Annexure A.1 rejected the books of account of the assessee under Section 145(3) of the Act and on the basis of gross profit worked out at Rs.4,19,99,172/ - applied 10 percent net profit rate and worked out income at Rs.41,99,917/ -. Besides applying net profit rate of 10 percent, other additions made were on the issue of negative cash of Rs.8,88,195/ -, on account of non submission of proof of sales tax payment of Rs.6,12,124/ - and labour payments pertaining to assessment year 2004 -05 claimed during the year amounting to Rs.2,60,498/ -. Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 5.2.2009, Annexure A.2, the CIT(A) upheld the action of the Assessing Officer in invoking the provisions of Section 145(3) of the Act, following the ratio laid down by the Hon'ble Supreme Court in CIT v. British Paints India, 188 ITR 44. The CIT(A) also applied net profit rate of 6.5 percent to the direct contract receipts and rate of 5 percent to receipts of sub contract and further allowed deduction in respect of interest and salary to the partners, if any. Aggrieved by the order, the revenue went in appeal before the Tribunal. Vide order dated 29.12.2009, Anenxure A.3, the Tribunal adopted consolidated rate of 7 percent to be applied on the total contract receipts to estimate the income from contract business and found no merit in making additions on the issue of negative cash, the issue of sales tax and for payments pertaining to preceding years in a case where books of account had been rejected and net profit rate applied. Hence the present appeals, one by the revenue and the other by the assessee.