CHEETI LAXMAN RAO,HYDERABAD vs. INCOME TAX OFFICER, WARD-15(1), HYDERABAD

Brief facts of the case are that the assessee, an individual and a contractor doing earth work contracts, filed his return of income for the A.Y 2013-14 admitting total income of Rs.4,02,480/-. Due to selection under CASS, the case was selected for scrutiny and the AO required the assessee to furnish details regarding the assessee’s income.

The assessee furnished the details and on verification of the same, the AO observed that the assessee had admitted income from machinery work at Rs.5.00 lakhs and agricultural

Thereafter, he proceeded to consider the sources for deposits and as regards the cash deposits belonging to the assessee’s wife, the AO verified the record and found that she is having a Bank A/c in her name and that several transactions also were made from the said A/c. Therefore, he treated the said sum also as the income of the assessee. Similarly, he did not accept the assessee’s contention on the agricultural income of the assessee’s and also loans taken from M/s. Omega Impex and M/s.Gavi Constructions. He also did not accept the amount received allegedly from his son staying in USA. Therefore, he arrived at the total turnover of the assessee at Rs.1,72,87,696/- and estimated the income at 8% of the same and brought it to tax. Aggrieved, the assessee preferred an appeal before the CIT (A) who confirmed the order of the AO and the assessee is in second appeal before us by raising the following grounds of appeal: “1. The AO and the CIT (A) erred both on facts and under law in the assessee’s case. 2. The AO and the CIT (A) ought to have treated Rs.47,62,315 (Rs.25,88,130 + Rs.13,00,000 _ Rs.4,00,000 + Rs.4,74,185) as assessee’s additional contract receipts. 3. The AO and the CIT (A) ought to have accepted the returned net profit rate of 5% of contract receipts, instead of 8% adopted by the AO and confirmed by the CIT (A). 4. The AO and the CIT (A) ought to have allowed the claim of deduction u/s 80C of the I.T. Act, 1961 preferred by the assessee.

The learned Counsel for the assessee submitted that the assessee is not the main contractor but a sub-contractor doing only earth work and therefore, as held by the Coordinate Benches of the Tribunal in a number of cases, the income should be estimated at 5% from the gross receipts. Further, he also reiterated the submissions of the assessee before the lower authorities explaining the sources for cash deposits into his Bank A/c.

The learned DR, however, supported the orders of the authorities below.

Having regard to the rival contentions and the material on record, I find that the assessee has not maintained any books of account but evidently the assessee is into the business of doing earth work contracts by using machinery. Therefore, evidently he is not the main contractor but is a sub-contractor. As held by the Coordinate Benches of this Tribunal in a number of cases, the income from the sub contract work is to be estimated at 5% of the gross receipts. The AO is therefore, directed to estimate the net profit at 5% of the gross receipts.

Next come the question as to what should be the gross receipts. According to the assessee, his total income is Rs.95,21,854/-. Since the AO has treated the cash deposits also

As regards Ground of appeal No.4, I find that though, the AO has mentioned that he has disallowed the deduction u/s 80C, he has not made any addition in the computation of income. Therefore, this ground needs no adjudication and it is accordingly rejected.

In the result, assessee’s appeal is partly allowed. Order pronounced in the Open Court on 15th March, 2019. Sd/- (P. Madhavi Devi) Judicial Member