Ajay Kumar Mittal, J. - (1.) THIS appeal has been preferred by the revenue under Section 260A of the Income -tax Act, 1961 (in short, "the Act") against the order dated 21.2.2013, Annexure A. 3 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar in ITA No. 336 (ASR)/2012, for the assessment year 2009 -10, claiming following substantial questions of law: - - "1. Whether the Hon'ble ITAT was correct in law in confirming the order of the learned CIT(A) scaling down the net profit to 8% on the gross receipts as against 12% applied by the AO at the time of assessment?
(2.) WHETHER the Hon'ble ITAT was correct in law in confirming the order of the learned CIT(A) allowing the depreciation out of the net profit - A few facts relevant for the decision of the controversy involved, as narrated in the appeal may be noticed. The assessee is a contractor firm. It is engaged in the business of execution of government contracts. Return declaring income of Rs. 23,94,720/ - was filed on 29.9.2009 and the same was processed under section 143(1) on 28.3.2011. The case of the assessee was selected for scrutiny. During the course of assessment proceedings, while examining the books of account, certain discrepancies were found. The assessee claimed expenditure of Rs. 2,78,88,170/ - which was very much on the higher side as the works executed by the assessee were to the tune of Rs. 7,49,84,804/ - only. The assessee was asked to produce proof of expenditure incurred on wages and labour, wages register and also to correlate wages paid with the projects executed. The assessment under section 143(3) of the Act was made and income was determined at Rs. 91,94,154 vide order dated 22.12.2011, Annexure A. 1 by applying 1296 rate on gross receipt after excluding cost of material supplied by the department. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income -tax (Appeals) [in short, CIT(A)]. Vide order dated 7.6.2012, Annexure A. 2, the CIT(A) partly allowed the appeal and directed the Assessing Officer to apply net profit rate of 896 as against 1296 applied at the time of assessment on the contract receipt and to allow the depreciation and salary paid to partners out of that. Accordingly, the income was reduced by Rs. 36,36,070/ -. Aggrieved by the order, the revenue filed appeal before the Tribunal. Vide order dated 21.2.2013, Annexure A. 3, the Tribunal dismissed the appeal of the revenue and cross objections of the assessee and confirmed the order of the CIT(A). Hence the instant appeal by the revenue. 2. On 9.10.2013, the motion bench while issuing notice of motion had recorded as under: - - 'The revenue challenges order dated 21.2.2013 passed by the Income Tax Appellate Tribunal, Amritsar and order dated 7.6.2012, passed by the CIT(A) by raising the following substantial questions of law: - - "1. Whether the Hon'ble ITAT was correct in law in confirming the order of the learned CIT(A) scaling down the net profit to 8% on the gross receipts as against 12% applied by the AO at the time of assessment? 2. Whether the Hon'ble ITAT was correct in law in confirming the order of the learned CIT(A) allowing the depreciation out of the net profit - We have heard learned counsel for the appellant and find no reason to interfere with the order passed by the CIT(A), affirmed by the Income Tax Appellate Tribunal, scaling down the net profit to 8% against 12% applied by the Assessing Officer. The reasons assigned by the CIT(A) as well as the ITAT, are clear and cogent and even otherwise no two contractors can have a similar rate of profit. The profit of a contractor would necessarily depend upon various factors like place of execution of the contract, the accessibility of labour, raw material etc. and would, therefore, vary from contractor to contractor. The assessee in the present case, was admittedly laying optical fiber cables etc. in a remote border area of Jammu and Kashmir. We therefore, find no reason to entertain the first question raised by the revenue and reject the same. Notice of motion for 17.12.2013, relating to the second substantial question of law.' Accordingly, the arguments on question No. 2 were heard. Learned counsel for the revenue relying upon the judgments of this Court in CIT v. Gian Chand Labour Contractors : [2009] 316 ITR 127/[2008] 167 Taxman 265 and ITA No. 65 of 2002, CIT v. Shri Som Dutt Gargi decided on 12.8.2010 submitted that the CIT(A) as well as the Tribunal were in error in allowing the depreciation from the net profit rate of 8%.
(3.) ON the other hand learned counsel for the assessee supported the order passed by the Tribunal.;