Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI GEORGE GEORGE K. & SHRI LAXMI PRASAD SAHU
Per Laxmi Prasad Sahu, Accountant Member
This appeal is filed by the assessee against the DIN & Order No.ITBA/NFAC/S/250/2022-23/1055192573(1) dated 17.08.2023 of the CIT(Appeals), National Faceless Appeal Centre, Delhi [NFAC], for the AY 2018-19 on the following grounds:-
“1. The order passed by the learned Commissioner of Income Tax, NFAC, under section 250 of the Act in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case.
The appellant denies himself to be assessed at Rs.3,13,27,530/- as against the returned income of Rs.22,59,870/- for the assessment year 2018-19 on the facts and circumstances of the case. Grounds on merits of the matter: 3. a. That the authorities below have failed to appreciate that the income from contract business has been estimated under the head 'income from other sources' as the appellant has not maintained any books of accounts on the facts and circumstances of the case. b. That the authorities below have failed to appreciate that though the provisions of section 44AD of the Act is not applicable in the given case, reference can be drawn from the rate specified under the provisions of section 44AD in order to estimate income from contract business on the facts and circumstances of the case. c. That the appellant has rightly estimated his income at the rate of 6% by relying on the rate specified under the first proviso to section 44AD(1) of the Act as the contract receipts have been received through banking channels after suffering from TDS under chapter XVII-B of the Act on the facts and circumstances of the case. d. That the action of the learned assessing officer in disallowing the deemed expenditure claimed under section 57 of the Act has resulted in profit of i00% on the gross receipts declared under the head 'income from other sources' which is unattainable in any line of business and deserves to be substantially reduced and a reasonable estimate of income has to be made based on similar line of business on the facts and circumstances of the case. e. Without prejudice, the income of the appellant from contract business cannot exceed the rate of 8% on the facts and circumstances of the case. 4. That the learned CIT(A), NFAC has failed to provide the opportunity of hearing though specifically requested, thereby violating the principles of natural justice on the facts and circumstances of the case.
The appellant denies the liability to pay interest under section 234A, 234B and 234C of the Act in view of the fact that there is no liability to additional tax as determined by the learned assessing officer. Without prejudice the rate, period and on what quantum the interest has been levied are not in accordance with law and further are not discernible from the order and hence deserves to be cancelled on the facts and circumstances of the case.
6. The appellant craves to add, alter, amend, substitute, change and delete any of the grounds of appeal
7. For the above and other grounds that may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed and justice rendered and the appellant shall be awarded cost in prosecuting the appeal and also order for the refund of institution fees as part of the cost.”
2. The brief facts of the case are that the assessee filed return of income on 31.12.2018 declaring income of Rs.22,59,870. The assessee is proprietor of M/s. KGN Lucky Electricals. During the impugned assessment year, the assessee has received a sum of Rs.4,19,15,171 from Mysore City Corporation for works contract for which tax has been deducted at source u/s. 194C of the Act. The assessee in the return of income reported Gross receipts of Rs.1,09,92,126 u/s. 44AD and offered Net Profit @ 6%. However, the assessee has declared balance amount of Rs.3,09,23,045 under the head Income from Other Sources on estimation basis and claimed deemed expenditure of Rs.2,90,67,660 u/s. 57 against such income and offered to tax Rs.18,55,355.
3. The case was selected for limited scrutiny on the issue of “Deductions from Income from Other Sources”. Statutory notices were issued to the assessee. During the assessment proceedings, the AO issued notices on different dates, but the assessee did not respond. Accordingly penalty notice u/s. 274B r.w.s. 272A(1)(d) was issued to the asse. Thereafter, for the first time the assessee responded on 16.03.2021 and submitted copy of statement of affairs, Income & Expenditure Account and Statement of Income. But the assessee did not submit other documents as called for. The assessee was given another opportunity on 17.03.2021 to submit requisite documents/information/details with respect to expenses/deductions claimed of Rs.2,90,67,660. However, the assessee did not respond till the date of assessment.
4. The AO noted that the assessee has received payment of Rs.4,19,15,171 as reported by Mysore City Corporation in Form 26AS and assessee has split its business income in two parts i.e. Rs.1,09,92,126 as income u/s. 44AD and rest of the amount of Rs.3,09,23,045 as income from other sources and claimed expenditure of Rs.2,90,67,660 u/s. 57. However, the assessee could not produce any document for justifying the claim u/s. 57. Accordingly, the AO disallowed the entire expenditure as claimed by the assessee u/s. 57 of Rs.2,90,67,660.
5. Aggrieved from the above order, the assessee filed detailed written submissions before the CIT(Appeals) which has been incorporated in his order and he dismissed the appeal of the assessee. Accordingly, the assessee is in appeal before the Tribunal.
The ld. AR reiterated the submissions made before the lower authorities and he submitted that the assessee has not maintained books of accounts as prescribed u/s. 44AA of the Act, therefore, could not get his books of accounts audited as per section 44AB. The assessee was required to file return of income mandatorily u/s. 139(1) and therefore the assessee split the entire receipts in two parts and offered income @ 6% under the head Profits & gains of business or profession as well as Income from other sources. He submitted that during the assessment proceedings, the AO has accepted the entire receipts are from the contractee reported in Form 26AS as business income, then he should have estimated the income under the head Profits & gains of business or profession, but he has disallowed the entire expenditure as claimed by the assessee which is not justified. The AO has accepted the income offered as business income u/s 44AD @6% on the turnover of Rs. 1,09,92,126/- but the AO has not given credit for expenditure of the rest amount of turnover of Rs. 3,09,23,045/- achieved by the assessee whereas it has been considered as business receipts. The AO failed to follow CBDT Instruction No.17/2015 [F.No.225/290/2015-ITA/II dated 09.11.2015 wherein the Board has consistently been advising the field authorities to be fair, objective and rationale while framing scrutiny assessment and has instructed not make high pitched assessment without proper application of mind by the AO.
During the hearing, the ld. AR also accepted that the assessee should have offered income under the head Profits & gains of business or profession and the assessee has not maintained books of accounts and also not received audit report from the CA within the specified date. He also submitted that in the previous AYs 2016-17 & 2017-18, the assessee has offered income @ 8% Net Profit and filed return u/s. 44AD. He further submitted that the AO has accepted business income offered by the assessee @ 6% on the turnover of Rs.1,09,92,126 and for the rest of turnover of Rs.3,09,23,045, he fairly submitted that Net Profit @ 8.5% may be adopted in the absence of books of account and audit report.
The ld. AR placed reliance on the following decisions:-
i. Deluxe Roadlines Pvt. Ltd., (Kar HC) ii. K. Kannan v. ACIT 92014) 220 Taxman 250 (Mad. HC) iii. CIT v. Target Construction Co. Ltd. [2015] 231 Taxman 55 (Allahabad HC) iv. Samurai Techno Trading Co.(P) Ltd. [2011] 197 Taxman 144 (Ker HC) v. CIT v. Subodh Gupta [2015] 229 Taxman 367 (Delhi HC) vi. Chithappa Karthik Yadav, ITA No.536/Bang/2021 (Bang. ITAT) vii. CIT v. P. Sudhakar [2015] 61 taxmann.com 17 (Kar HC) 9. On the other hand, the ld. DR relied on the orders of lower authorities and objected that assessee has wrongly field return of income and split its turnover in two parts. The assessee has offered Income from Other sources showing gross receipt of Rs. Rs.3,09,23,045 and claimed expenditure of Rs.2,90,67,660 u/s. 57, for which the assessee was unable to produce any documentary evidence.
Therefore, the lower authorities are justified in disallowing the entire expenditure claimed by the assessee.
After hearing both the sides, perusing the entire material on record and the orders of the lower authorities, in fact the assessee is a contractor and has received payment from Mysore City Corporation of Rs. Rs.4,19,15,171 for which the contractee has deducted TDS u/s. 194C of the Act of Rs.7,96,002. In the assessment order the AO has noted that assessee has split business income of Rs.4,19,15,171 into Rs.1,09,92,126 and Rs.3,09,23,045, which shows that the AO has accepted that it is business income of the assessee. There is no doubt that the amount received by the assessee from Mysore City Corporation should be considered under Chapter IV – Part D - Profits & gains of business or profession. We further note that on the amount of Rs.1,09,92,126, the assessee has offered it as business income during the impugned assessment year declaring profit @ 6% u/s 44AD to which the AO has accepted. Therefore, the rest of the amount of Rs.3,09,23,045 should have also been considered by the AO under Chapter IV – Part D - Profits & gains of business or profession. During the hearing, the ld. AR fairly offered 8.5% Net Profit rate looking to the past trend of the assessee which is fair enough as profit of the business of the assessee shown under the head Income from Other Sources and accordingly in the peculiar facts of this case, we hold that Net Profit @ 8.5% is to be adopted on the balance turnover of Rs.3,09,23,045.
In the result, the appeal by the assessee is partly allowed.