N.K. Saini, Accountant Member. - This appeal by the department is directed against the order dated 29-5-2006 of Ld. CIT(A)-I Ludhiana.

2. Following grounds have been raised in this appeal :—

"1 That the Ld CIT(A)-I has erred in law and facts in directing the Assessing Officer to apply Net Profit rate of 7 per cent of gross receipts instead of 10 per cent adopted in the assessment order ignoring the decision of the ITAT. Amritsar Bench. Amritsar in ITAs No 177 & 178(ASR)/2003 in the case of Aggarwal Engg. Co. Jalandhar v. ITO IV(2) Jalandhar.

‘2. That the Ld. CIT(A)-I has erred in law and facts in giving the finding that rate of 7 per cent will meet ends of justice without taking note of the fact that rate ot 10 per cent applied by the Assessing Officer was before granting depreciation and net profit assessed was Rs. 11.29.93 on contract receipts of Rs. 2.89.67.219 which was only 3.9 per cent of gross receipts’.

‘3. That the Ld. CIT(A)-I thus erred in reducing Net Profit rate before depreciation to 7 per cent and he ought to nave taken into consideration the fact that by adopting such rate income after depreciation comes to Rs. 2.60.920 whicn is less man even 1 per cent’.

‘4. That he Ld. CIT(A)-I has erred in not taking imu consideration the facts found and noted in paras 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9 & 3.10 of the assessment order as per which expenses to the tune of Rs. 71.38.718 were not verifiable ana the rate of 107 adopted by the Assessing Officer resulting in assessment of income even below 4 per cent was more than reasonable’.

‘5. That the order of Ld. CIT(A)-I be set aside and that of the Assessing Officer be resitered."

3. From the above grounds it would be clear that the grievance of the department is against the of Ld. CIT(A) to apply Net Profit rate of 7 per cent on gross receipts instead of 10 per cent adopted by the Assessing Officer and to allow depreciation out of the gross profit.

4. The relevant facts of the cas under consideration in pnel are that the assessee is a suo-contractor and had taken sub contract ot construction of road from M/s. Bumi Highway (India) and Birla GTM Enter Pose Ltd. New Delhi. The Assessing Officer rejected tne books of account maintained by the assessee by observing that the assessee had not maintained complete bills/vouchers and even claimed excessive expenses as compared to the corresponding self made vouchers. The Assessing Officer applied Net Profit at the rate 10 per cent of total work done credited in the P & L Account. The Net Profit rate of 10 per cent was applied considering the decisions of ITAT Amritsar Bencn in the case of Aggarwal Engg. Co. Jalandhar v. ITO [ITAs No. 177 & 178 (ASR) of 2003] for the Assessment years 1995-96 and 1996-97 respectively and order case of Dulla Ram v. Labour Contractor [ITA No. 733 (ASR) of 1999 dated 28-4-1999]. However, the Assessing Officer allowed depreciation by considering the decision of ITAT Chandigarh Bench (TM) in the case of Chopra Bros (India) (P.) Ltd. v. ITO [1993] 45 ITD 85.

5. The assessee carried the matter to the ld. CIT(A) and submitted that the margin of profit in its case being sub-contractor had to be low as compared to the mam contractor oecause if mam contractor was parting the contract to sud-contractor tnen the mam contractor would also keep some profit margin whicn normally ranges from 2 per cent to 4 per cent. It was contended that it was the first year of the business carried on by the assessee and because of new business it resulted into sligntly lesser profit then enjoyed the other sub-contractors. It was conhtended that the assessee maintained proper books of account viz., cash book, ledger, bills/vouchers etc., and those books of account had been subjected to audit. It was stated that during the course of assessment proceedings, complete books of account along with vouchers/bills were produced and net profit shown by the assessee before depreciation was 6.19 per cent. It was further stated that depreciation wa