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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI VIKRAM SINGH YADAV & SHRI ANIKESH BANERJEE
The instant appeal of the revenue and the cross objection of the assessee were filed against the order of the National Faceless Appeal Centre (NFAC), Delhi [in short, ‘Ld.CIT(A)] passed under section 250 of the Income Tax Act, 1961 (in short, ‘the Act’) for Assessment Year 2016-17, date of order 19/06/2024. The impugned order was originated from the order of the Learned Assistant Commissioner of Income-tax, Circle 12(3)(2), Mumbai [in short, “Ld. AO”] passed under section 143(3) of the Act, date of order 30/10/2018.
The brief facts of the case are that the assessee is a contractor and filed the return declaring total income of Rs.36,57,920/-. The return was processed under section 143(1) of the Act and subsequently, the case was selected for scrutiny under CASS and accordingly notice under section 143(2) of the Act was issued and served on the assessee. However, the notice under section 142(1) was issued and assessee was asked to file the explanation related to the discrepancies in receipts declared in the P&L Account amount to Rs.4,15,65,960/- whereas in Form 26AS, the same was shown at Rs.8,99,55,166/-, on which TDS has been deducted under section 194C of the Act. The assessee explained that out of the total receipt in form 26AS the gross receipts related to parties, M/s Ravi Developers amount to Rs.8,35,82,280/- and Mrs. Madhu Doshi, Prop of M/s Shree Developers amount to Rs.63,72,886/-. On perusal of the books of account, the Ld.AO noticed that the assessee only declared Rs.4,15,56,960/- received from M/s Ravi Developers and at Nil from M/s Shree Developers, whereby the amount of Rs.4,83,89,206/- was remained unexplained and the difference of the gross receipt in Form 26AS and the books of account of the assessee amount to Rs. 4,83,89,206/- was added back 3 ITA 4034/Mum/2024 & co 289/Mum/2024 Manbhari Construction Pvt Ltd with the total income of the assessee. The aggrieved assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A), considering the submission of the assessee and following the order of the co-ordinate bench of ITAT, Mumbai, only 9% of gross receipt amount to Rs. 4,83,89,206/- which comes out amount to Rs.43,55,028/- was confirmed out of total addition of Rs.4,83,89,206/- made by the Ld.AO. Being aggrieved, the revenue is in appeal before us, and the assessee filed Cross Objection supporting the order of the Ld.CIT(A).
3. The Ld. DR argued and placed that only 9% of the turnover was duly confirmed by the Ld.CIT(A), but 91% of the turnover was duly deleted. The grievance of the revenue is that the explanation submitted by the assessee is not at all acceptable and the entire difference is not supported by any other expenses. So the addition should be confirmed in full amount and the order of the Ld.AO should be upheld. The Ld. DR filed a written submission. The relevant part of the said submission is reproduced as below:- “2. It is submitted that in the case of Manbhari Constructions Pvt. Ltd. having PAN: AAECM4919K for the A.Y. 20106-17 was listed on 12.06.2025 and during the hearing the appellant has pointed out that based upon the case laws quoted by the assesse and in response to those citations, the Id CIT(A) has directed the AO to adopt 9% of escaped receipts of Rs.4,83,89,206/- relying upon the following citations and for ready reference the same are hereunder discussed for your kind perusal While recommending the 9% of escaped receipts, the Id CIT(A) has referred the following case laws which are not relevant for the present case as: 1. DCIT Central Circle-5(3) vs. Sumer Builders, Mumbai by ITAT, "F" Bench Mumbai.
4 ITA 4034/Mum/2024 & co 289/Mum/2024 Manbhari Construction Pvt Ltd The case is not relevant as this was with regard to the on money consideration was received during the year on account of the sale of Flats made from Prabhadevi Project and the construction of Flats was not completed. That time the project completion method was in raise but later on Percentage of completion of project was introduced and the same is in force. Moreover in this case there was a search and seizure operation carried out and during the search the assesse had disclosed certain amount as additional income and accordingly ITR was also filed. But the assessing officer denied to allow and entire amount of Rs.57,16,72,184/- was disallowed from the Work-in-Progress, representing application of appellant's undisclosed income of Rs.47,16,72,184/- and its sister concern's undisclosed income of Rs.10,00,00,000/-( representing booking advance received for flats by the appellant). The assessee has filed additional grounds of appeal that 10% of the on money received in respect of Prabhadevi Project should be taxed in the current year and remaining should be taxed in the year of Project completed. But the assessing officer has rejected the plea and added entire amount. Hence facts of the assessee case are different that of the above case as not matching with the facts of present case.
2. CIT Vs. President Industries: The facts of the above case is not matching with the facts of present case as in this case there was a survey operation and in that survey from the Excise registers the AD has found that the sales to the extent of Rs.29.01,300/- was not disclosed. Later the AO has added the entire amount but the Hon'ble ITAT restricted the addition to the GP shown by the assessee as it has to meet expenses such as cost of material sold and manufacturing/Trading related cost and MORE IMPORTANTLY THE 5 ITA 4034/Mum/2024 & co 289/Mum/2024 Manbhari Construction Pvt Ltd SURVEY OPERATION WAS CONDUCTED ON 01.12.1994 by that time accounts are not closed as the Hon'ble ITAT held that assesse needs to meet expenses is correct. But here the facts are different. The assesse has suppressed Gross receipts without showing in the return of income and accounts are also closed.
3. In respectfully requesting the Hon'ble members to sustain the addition made by the assessing officer and revert the Id CIT(A)'s order. Further submitted that nowhere the assesse admitted that it has committed mistake while showing the income in the return of income filed for the A.Y. 2016-17. Hence, the Hon'ble Members of D bench may kindly accept this and confirm the order in favour of the department with regard to the addition made at 100% of receipts omitted to show in the books of account. I may kindly be permitted to present before your honor which is as per the following: If the action is not stringent, the people will take it easy and keep on doing the same practice, Hence, the Hon'ble members are requested to sustain the additions made at 100% as the assessee need not to meet the expenses because all the accounts are closed. The assessee has also failed to substantiate the receipts escaped with corroborative evidences.”
The Ld.AR argued and relied on the impugned appellate order. He referred to paragraphs 6.8 to 6.13 of the impugned appellate order, which are extracted as below:- “6.8 I have perused the facts of the case, assessment order & submission made by the appellant after going through the details it is noticed that as per 26AS during the year in question the appellant has entered into transaction of Rs. 8,99,55,166/- from two parties as under: Ravi Developers Rs. 8,35,82,290 M/s Madhu Doshi 6 ITA 4034/Mum/2024 & co 289/Mum/2024 Manbhari Construction Pvt Ltd Prop. M/s Shree Developers Rs. 65,72,806 Rs. 8,99,55,166/- TDS u/s 194C has also been deducted on above contractual receipt. Against of the said contractual receipt, the appellant has credited only Rs. 4,15,56,960/- (Rs. 4,15,56,960/- received from M/s Ravi Developers & NIL from Shree Developers( Prop. Modern Doshi), thereby understated the receipt of Rs. 4,83,89,206/- (Rs.4,18,16,400 from M/s Ravi Developers + Rs. 65,72,806 from Shree Developers Prop M/s Madhu Doshi) 6.9 On being asked to reconcile the said difference of Rs.4,83,89,206/- the appellant has submitted that during the year receipt of Rs. 4,95,73,290/- from Ravi Developers has been reversed as no contract was executed during the year and no service was provided to the concerned party in respect of the said amount of Rs 4,95,73,290/-. It is further submitted that an amount of Rs. 2,17,28,833/- was further received from Ravi Developers in the F.Y. 2017-18 on execution of work contract and duly recorded in the books of account. Regarding the remaining amount, the appellant has submitted that the same has been accounted as closing debit balance in the party, i.e., Ravi Developers’ ledger a/c till the F.Y. 18-19 and shall be recorded in the books as and when contract will be executed. 6.10 As regards to contract receipt of Rs. 65,72,806/- from Shree Developers Prop M/s Madhu Doshi , appellant has claimed that sales booked by M/s Shree Developers Prop M/s Madhu Doshi in the F.Y. 2015-16 was reversed by us as no contract was executed during the year. However, Shree developers has not given the same treatment in her books of A/c 6.11 Here it is pertinent to note that in reply to notice u/s 133 (6) both the parties have confirmed that they had executed the contracts from the appellant firm and also subsequently made the payments as well in appellant bank account. Therefore, the appellant claims that during the year in question the differential amount of Rs 4,83,89,206/- pertain to both the parties has reversed as the extend of the contracts were not executed, is not reliable as the same are nothing but after thought and without any basis. Moreover, it can be seen that during A.Y. 17-18 also, the appellant firm has entered into transaction with Ravi developer by which it has got payment of Rs. 5,50,00,000/- in its bank account whereas it has shown only 2,17,28, 833. Similarly, from Shree developers appellant has got payment of Rs. 4,47,19,496/- on a/c of services rendered. However, the appellant has not shown any such receipt in its books of 7 ITA 4034/Mum/2024 & co 289/Mum/2024 Manbhari Construction Pvt Ltd account. Further, the parties, M/s Ravi Developers & Shree Developers have claimed such payments as expenditure in their respective accounts of the aforesaid contracts. Therefore, the AO is right in concluding that the appellant has understated their contract receipt of Rs. 4,83,89,206/- as claimed reversed in its books of account. 6.12 Now, the question arises whether entire receipt/sale should be considered as income or income arises out of such contract receipt should be considered as income, more particularly when the NP ratio for the year has been increased as compared to previous year means thereby the expenses related to undisclosed contract receipt have not been taken into account. It is a settled position in law that only income embedded in the contract receipt is liable to be taxed, not the entire receipt as held by the jurisdictional ITAT, Mumbai in the case of DCIT Central Cir 5(3) vs Sumer Builders vide its order dtd 08.01.2021. Similarly in the case of CIT vs. President Industries (2002) 124 taxman 654 (Gujarat) Hon’ble Gujarat High Court has approved the view taken by the ITAT that entire sales could not have been added as income of the assessee for assessment year in question but only to the extent the estimated profit embedded in the sales for which the net profit rate was adopted entailing addition of income on the suppressed amount of sales. Accordingly, considering the peculiar facts of the case and also profitability in appellant's own case which is 8.58% for the year and 4.65% in assessment year 2015-16 and 5.32% in the assessment year 2014 15, in the interest of justice addition is estimated at higher rate of 9% of undisclosed receipt of Rs. 4,83,89,206 which comes to Rs. 43,55,028. 6.13 In view of above discussion, addition made on account of suppressed contract receipt is restricted to Rs. 43,55,028 and accordingly, ground of appeal is partly allowed.”
The Ld. AR respectfully relied on the following orders. a. Sohan Lal Aggarwal vs ACIT, Circle 62(1), New Delhi (Delhi-Trib) (2021) 130 taxmann.com 380 for the proposition that - “5. It is a settled proposition of law that in case of difference between the assessees books of account and as per the TDS certificate, then on the said difference, the only embedded portion of the profits is to be taken into consideration and addition is to be made thereon. There are 8 ITA 4034/Mum/2024 & co 289/Mum/2024 Manbhari Construction Pvt Ltd number of judicial pronouncements by which the principle to this effect has been laid down that the total sale cannot represent as the profit of the assessee. The bet profit rate has to be adopted and once the net profit is adopted it cannot be said that there is perversity of approach. Thus, taking into consideration the entire aspect of the matter, we do not find any justification in making the addition of the entire turnover to the income of the assessee. Having regard to the peculiar facts and circumstances of the case, we find it justified to restrict the addition at 5% of the net profit on the gross receipt of Rs. 11,9379,537 The Ld. Assessing Officer is directed to grant relief to the assessee as on the above terms.” b. Purna Chandra Rout vs ITO, Ward-1(4), New Delhi (Delhi-Trib) date of pronouncement 12/04/2022 for the proposition that – “5. We have given thoughtful consideration to the peculiar facts and circumstances of the case and are of the considered view that the case in hand is squarely covered by the judgments of the Hon'ble Coordinate benches as referred above and therefore, we are inclined to accept the said decisions and consequently while taking into consideration the net profit rate of the previous year, in our considered view, the justice would be met by confirming the addition only to the extent of 5% of the undisclosed turnover. Hence, the AO is directed to restrict the addition to such extent only.”
We heard the rival submissions and carefully considered the documents available on record. On examining the factual matrix, we find that there exists a discrepancy between the gross contractual receipts reflected in Form 26AS and those disclosed by the assessee in its books of account. The total difference amounts to Rs.4,83,89,206/-, comprising Rs.4,18,16,400/- from M/s Ravi Developers and Rs.65,72,806/- from M/s Shree Developers.The Ld. AR submitted that credit notes were issued in respect of the said turnover. However, he 9 ITA 4034/Mum/2024 & co 289/Mum/2024 Manbhari Construction Pvt Ltd conceded that the corresponding TDS amount was duly claimed and utilized by the assessee at the time of filing its return of income. The Ld. DR, on the other hand, argued that the amounts in question were received from the parties, and there is no evidence to show that the assessee refunded these amounts after the termination of the contracts.Further, the Ld. DR submitted in writing that the two judicial precedents relied upon by the Ld. CIT(A) are factually distinguishable from the present case. Nevertheless, the Ld. CIT(A) confirmed the addition at 9% of the differential turnover, amounting to Rs.43,55,028/-, by relying on the decision of the Coordinate Bench of the ITAT, Mumbai in the case of Sumer Builders (supra) and the Hon’ble Gujarat High Court’s decision in President Industries (supra). While the Ld. DR could not cite any contrary judicial precedent to rebut the findings of the Ld. CIT(A), we concur with the observation that the decisions referred to by the Ld. CIT(A) are indeed distinguishable on facts. Conversely, the Ld. AR relied on the decisions in Sohan Lal Aggarwal (supra) and Purna Chandra Rout (supra), which bear factual similarity to the present case. The Ld. AR also accepted the Bench’s observation with respect to the legal ratio applied by the Ld. CIT(A) in confirming the addition. Considering the legal principles laid down in the judgments relied upon by the Ld. AR, we are of the view that the observation and conclusion of the Ld. CIT(A) are justified. The addition of Rs.43,55,028/- stands confirmed. Accordingly, we respectfully follow the view adopted by the Coordinate Bench of the ITAT, Delhi in Sohan Lal Aggarwal (supra) and Purna Chandra Rout (supra). Hence, the grounds raised by the revenue are dismissed, and the appeal filed by the revenue is dismissed.
10 ITA 4034/Mum/2024 & co 289/Mum/2024 Manbhari Construction Pvt Ltd C.O. No. 289/Mum/2024 6. During the course of hearing, the Ld. AR submitted that in the event the revenue’s appeal is dismissed, the Cross Objection filed by the assessee may be treated as withdrawn. In view of the same, the Cross Objection is dismissed as withdrawn. 7. In the result, the appeal filed by the revenue bearing