SURINDER PAL NAYYAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS order shall dispose of IT Appeal Nos. 464 of 2008 and 169 of 2008 in respect of the asst. yr. 2000 -01 and asst. yr. 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/Chd/2004 and ITA No. 380/Chd/2004, respectively. Since, the issues raised are similar, therefore, for facility of reference facts are taken from IT Appeal No. 464 of 2008.

(2.) THE assessee is a contractor undertaking the construction work on contract. The assessee submitted a return for the asst. yr. 2000 -01 declaring the total income of Rs. 8,24,512 in respect of asst. yr. 2000 -01. The AO framed assessment finding that it is cash system. The expenses claimed as per the computation 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 AO 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.

(3.) 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 s. 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 under 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 under s. 44AD of the IT 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 i.e., presumption of gross receipts and presumption of expenditure during financial year. According to these provisions, contained under 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 under 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 scheme under 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 under s. 44AD. 5.37 Respectfully following above judgment of jurisdictional Tribunal which is binding in appellant's case as well as judgments in other cases relied upon by learned 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 @ 12 per cent. The AO is directed to tax gross receipts @ 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 accounts were ordered to be deleted. The CIT(A) also set aside the addition of Rs. 47,73,781 under s. 69 of the Act.