IN THE ITAT, HYDERABAD BENCH
N.R.S. GANESAN, J.M. & CHANDRA POOJARI, A.M.
C. Eswara Reddy & Co. v. Asstt. CIT
ITA Nos. 668, 670, 685, 686/Hyd/2009
A.Y. 2003-04 & 2004-05
31 January, 2011
Petitioner by: S. Rama Rao
Respondent by: V. Srinivas
N.R.S. Ganesan, J.M.
Both the assessee and the Revenue have filed these appeals against the two independent orders of the Commissioner (Appeals)-IV, Hyderabad dated 13-3-2009 pertaining to assessment years 2003-04 and 2004-05. Since common issue arises for consideration in all the above appeals, we heard all the appeals together and disposing of the same by this common order.
2. The only issue arises for consideration in all the appeals is estimation of profit from the contract business. Shri S. Rama Rao, the learned counsel for the assessee submitted that the assessee is in the business of civil contract. During the assessment year under consideration the assessing officer rejected the books of account and estimated the profit at 12.5%. According to the learned counsel for the assessee the assessee is maintaining the books of account properly and no mistake/error was pointed out, therefore, the assessing officer is not justified in rejecting the books of account. Referring to the estimation of profit, the learned counsel for the assessee submitted that when the assessee was maintaining the books of account there is no question of estimation of profit would arise for consideration. Therefore, according to the learned counsel for the assessee the assessing officer ought to have accepted the book results for the purpose of computing the total income.
3. The learned counsel for the assessee further submitted that alternatively the estimation at 12.5% by the assessing officer is on the higher side. Though the Commissioner (Appeals) restricted the estimation of profit at 8%, he has not considered the salary and interest paid to the partner, seiniorage charges and depreciation. According to the learned counsel for the assessee, estimation of profit at 8% is also on the higher side in this line of business. Referring to the judgment of the Apex Court in Brij Bhushanlal Kumar (1978) 115 ITR 524 (SC) : 1978 TaxPub(DT) 1031 (SC), the learned counsel for the assessee submitted that seiniorage charges are in the nature of expenditure incurred by the assessee towards material supplied by the Government for execution of the contract. Therefore, there is no element of profit involved in the cost of the material supplied by the Government. Therefore, according to the learned counsel for the assessee, the seiniorage charges has to be reduced from the net receipt for the purpose of estimating the profit. Similarly after estimating the net profit the interest and salary paid to the partner shall be reduced for the purpose of computing the taxable income. Referring to the depreciation, the learned counsel for the assessee submitted that depreciation is nothing but a notional allowance on the written down value (WDV) of the machinery. This notional allowance shall be given on the net income computed by the assessing officer. According to the learned counsel for the assessee after estimating the net income the interest and salary paid to the partner and depreciation shall be deducted from the net income for the purpose of computing the taxable income. Therefore, the lower authorities, according to the learned counsel for the assessee are not justified in disallowing the claim of the assessee especially when the net income was estimated.