The judgment of the court was delivered by
1. Rajive Bhalla J.-The Revenue is before us, challenging order dated August 26, 2013 (annexure A-3), passed by the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar, pertaining to the assessment year 2009- 10, on the following substantial questions of law :
"(i) Whether the impugned order of the hon'ble Tribunal is per verse in applying the net profit rate of 5 per cent. while accepting the returned income of the assessee whereas the Tribunal has upheld the action of the Assessing Officer, in invoking the provisions of section 145(3) of the Income-tax Act, 1961 ?
(ii) Whether the hon'ble Tribunal is right in law in reducing the net profit rate to 5 per cent. as against 10 per cent. applied by the Assess ing Officer and also as against 8 per cent. applied by the Commis sioner of Income-tax (Appeals), and, thus, ignoring the judgment delivered by the jurisdictional High Court in the case of Shivam Con struction Co. (I. T. A. No. 167 of 2007 and I. T. A. No. 183 of 2007), relied upon by the Assessing Officer ?
2. Counsel for the Revenue submits that in the absence of any reason for applying the net profit rate at 5 per cent. or reference to the relevant facts like : past history of the assessee, assessment orders that may have attained finality, the nature of the assessee's business, the value of the contract, prevailing economic condition, etc., as set out in I. T. A. No. 269 of 2014 (Telelinks v. CIT decided on November 29, 2014-since reported in [2015] 377 ITR 158 (P&H)), the impugned order is perverse and arbitrary and may be set aside.
3. Counsel for the assessee submits that as the past history of the assessee is referred to by the Assessing Officer and the Commissioner of Income-tax (Appeals), it may be presumed that the Income-tax Appellate Tribunal was conscious of the past history and, therefore, proceeded to assess the net profit rate of 5 per cent. It is also contended that in the previous year, the assessee was assessed at a net profit rate of 4.22 per cent. The assertion by counsel for the Revenue that the net profit rate of 5 per cent. has been applied arbitrarily is, therefore, factually and legally incorrect.
4. We have heard counsel for the parties, perused the impugned order and are inclined to answer the questions of law in favour of the Revenue.
5. The question of principles to be applied for determining a net profit rate came up for consideration before a Division Bench of this court in Telelinks v. CIT (supra). After considering the matter in its entirety, it was held as follows (page 161 of 377 ITR) :
"The second question of law, namely, factors required to be taken into consideration while applying a net profit rate has come up for consideration, as on the same set of facts the Assessing Officer, the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal have applied different rates of net profit. The discretion to determine an adequate net profit rate undoubtedly vests with autho rities under the Act but the discretion so vested is neither unbridled nor unguided as it must be guided by reason, i.e., should be preceded by reasons which, in turn, should be preceded by a perceptible pro cess of reasoning based upon due consideration of all relevant facts. However, the authorities under the Act appear to construe their juris diction as a discretion to apply a thumb rule dependent almost entirely upon the whims of a particular officer.
The discretion to determine a net profit rate must necessarily be exercised on the basis of relevant factors which we shall enumerate but before doing so, would clarify that these factors are neither exhaustive nor a final word on relevant factors that may be consi dered while determining the net profit rate. A few significant factors are the past tax history of the assessee, if available, assessment orders that may have been passed and accepted by the department, the nature of the assessees' business, an appraisal of the value of the con tract, prevailing economic conditions vis-a-vis the assessee's busi ness, the price of raw material, labour, etc., the rise in price index as notified by the Central Government from time to time if applicable and if the Assessing Officer proceeds to rely upon assessments of other assessees engaged in similar business to do so only after deter mining points of similarity, etc. At this stage, it would be appropriate to clarify that the word similar is not synonymous with the word 'identical'. Factors referred to above are merely illustrative and not exhaustive of the circumstances that may or may not be taken into consideration."
6. Reliance was also placed upon a judgment of the Supreme Court in Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 (SC).
7. A perusal of the order passed by the Income-tax Appellate Tribunal reveals that though a reference is made to these principles but while recording its opinion that a net profit rate of 5 per cent. should be applied, the Tribunal has not referred to the relevant factors that formed the foundation of its opinion, applying a net profit rate of 5 per cent. It would be appropriate to point out that on the basis of the same material, the Assessing Officer determined a net profit rate of 10 per cent. the Commissioner of Income-tax (Appeals) at 8 per cent. and the learned Tribunal at 5 per cent. The learned Tribunal was, therefore, required to record reasons by reference to relevant facts before determining the net profit rate of 5 per cent.
8. Consequently, without expressing any opinion on the merits of the controversy and while affirming the rejection of account books, the matter is restored to the Income-tax Appellate Tribunal, Amritsar Bench. Amritsar, for determining net profit rate in terms of the ratio in Telelinks v. CIT (supra).
9. Parties are directed to appear before the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar, on February 5, 2015.