SHYAM BIHARI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) Heard the parties.The assessee has preferred this appeal against the order passed by the Income-tax Appellate Tribunal, Patna Bench, Patna (hereinafter referred to as "the Tribunal") dated January 31, 2008, whereby I.T.A. No. 58 (Pat) of 2007, relating to the assessment year 2003-04 preferred by the appellant was dismissed along with another I.T.A. No. 107 (Pat) of 2007 relating to the same assessment year, preferred by the Revenue.

(2.) As noted by the Tribunal, the assessee is a civil contractor and his business income is of contract work from Government departments. In the assessment year under consideration, the gross contract receipt of Rs. 4,71,00,968 was the basis on which the Assessing Officer applied the proviso to section 145(3) and calculated the net profit at the rate of 8 per cent, of the gross contract receipt after consideration of expenses debited in the trading and the profit and loss account, depreciation and interest salary paid to the partners. In appeal, the learned Commissioner of Income-tax (Appeals) confirmed the order of the Assessing Officer rejecting the books of account and computing income as per estimate but on the basis of relevant facts and after noticing that the receipt of the assessee is in excess of Rs. 2 crores and the net profit is below 5 per cent, and also considering the provisions of section 44AD of the Income-tax Act, he held that the net profit of 6 per cent, of the net contractual receipt, i.e., gross contractual receipt less the value of material supplied by the contractee, if any, would be the estimated net profit from the contract business. The learned Commissioner of Income-tax (Appeals) has also held that the salary and interest paid to the partners should be deducted out of the net profit subject to the conditions and limits specified in section 40(b) of the Act. The learned Commissioner of Income-tax (Appeals) has further held with regard to the income from interest of Rs. 3,11,956 that the said receipt has to be assessed as "Income from other sources" as in his view, it was not an integral part of the contract.

(3.) Before the Tribunal the appellant-assessee objected to the inclusion of interest income being assessed as "Income from other sources" on the ground that the income was from money deposited in FDRs and NSC which was required to be furnished by way of security for securing the contract work and, therefore, it should have been treated as income from business and not from other sources. The other grievance of the assessee was that he should have been allowed depreciation allowance out of the net contractual receipt finally estimated at the rate of 6 per cent, on account of clear direction to this effect by the Central Board of Direct Taxes, vide circular dated August 31, 1965.