Loading judgment…
Facts
The assessee, engaged in civil contract works, did not file returns for AY 2015-16. Reassessment proceedings were initiated. For AY 2020-21, the assessee declared income on a presumptive basis, claiming deductions under Section 57, which were disallowed by the AO and confirmed by the CIT(A).
Held
The Tribunal held that for AY 2015-16, the grounds raised by the assessee were dismissed. For AY 2020-21, the Tribunal directed the AO to tax only the profit element (8%) on receipts from Karnataka Road Development Corporation Ltd. and confirmed the disallowance of expenses claimed against LIC receipts.
Key Issues
Whether the reassessment proceedings were valid. Whether the disallowance of expenses under Section 57 for AY 2020-21 was justified, and if a lower profit rate should be applied to certain receipts.
Sections Cited
148, 250, 57, 194C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI SS VISWANETHRA RAVI & MS. PADMAVATHY.S
आदेश / O R D E R
PER PADMAVATHY.S, A.M: These two appeals by the assessee are against the separate orders of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, (in short "CIT(A)") passed u/s. 250 of the Income Tax Act, 1961 ( in short "the Act") both dated 26.06.2025 for Assessment Year (AY) 2015-16 & 2020-21.
& 2213/Chny/2025 Thirumal Arun Mohan Dass :- 2 -: ITA No.2212/Chny./2025 for A.Y 2015-16
2. The assessee has raised the following grounds of appeal:
1. “1. The order passed by the Learned CIT(Appeals), National Faceless Appeal Centre, Delhi is bad in law and against the principles of Natural Justice.
The entire assessment proceedings are vitiated as the reassessment notice was issued by the Jurisdictional Assessing Officer (JAO) and not by the Faceless Assessment Officer (FAO), rendering the entire reopening proceedings without jurisdiction and invalid.
This fundamental jurisdictional defect renders the entire reopening proceedings invalid and without jurisdiction. This being a pure question of law going to the root of the jurisdiction, the Hon'ble Tribunal is prayed to admit this ground of appeal, even though this was not specifically argued before the lower authorities, in light of the subsequent authoritative pronouncements by the Hon'ble High Court of Judicature at Madras in WP Nos.22402 of 2024, dated 24.06.2025, which has unequivocally held such notices to be invalid by following the decision of the Hon'ble Bombay High Court in Hexaware Technologies Ltd vs. Assistant Commissioner of Income Tax [162 taxmann.com 225 (Bombay)]
The learned CIT(A) erred in estimating the net profit rate of 8% and failed to fully appreciate that the appellant's historical audited financial statements for previous years, including up to Assessment Year 2014-15, consistently demonstrated a net profit ratio in the range of 5.86% to 6.13%, which is a more accurate and tenable reflection of the business's profitability.
The learned CIT(A) ought to have considered that a 6% net profit rate is reasonable and reflective of the ground realities and industry norms for civil contract works, particularly lot government contracts which are characterized by a lack of pricing discretion, transparent tender processes, and practical financial constraints.
5. The learned CIT(A) erred in relying on profit rates shown in "subsequent assessment years" under presumptive taxation to justify a rate of 8% for the year under appeal.”
& 2213/Chny/2025 Thirumal Arun Mohan Dass :- 3 -: 3. The assessee is an individual carrying on civil contract works to various Departments of the Government of Puducherry and Karnataka. The assessee did not file the return of income for the A.Y 2015-16. The Assessing Officer (AO) based on information available noticed that the assessee had deposited cash in bank and has also received payments from various parties against which TDS was deducted. Since, the assessee did not file a return of income the assessment was reopened by issue of notice u/s. 148 of the Act. The assessee in response filed the return of income declaring a total income of Rs.21,53,864/- on 19.11.2021 in which the assessee has offered 6% of the total receipts as per Form 26AS as business income. The A.O called on the assessee to furnish details pertaining to the payments received from various parties. After considering the submissions of the assessee, the A.O estimated the income of the assessee at 10% of the gross receipts as per the TDS return. Aggrieved, the assessee filed further appeal before the CIT(A). Before the CIT(A), the assessee submitted that while filing the return of income in response to notice u/s. 148 of the Act, the assessee had adopted 6% as the net profit ratio which is reasonable in construction business. Accordingly, the assessee prayed that the addition made by the A.O by applying profit ratio @10% is without any basis and cannot be sustained. The CIT(A) after considering the submissions of the assessee held that the assessee has declared 8% profit ratio under presumptive taxation in subsequent years and accordingly restricted the addition made by the A.O to 8% of the receipts shown as per the TDS statement. The assessee is in appeal before the Tribunal against the order of CIT(A).
4. The Ld.AR reiterated the submissions made before the CIT(A) and further submitted that profit rate adopted by the lower authorities are not reasonable. The ld. AR drew our attention to the findings of the CIT(A)
& 2213/Chny/2025 Thirumal Arun Mohan Dass :- 4 -: where he has considered the fact that in the last three financial years the assessee has declared profit in the ratio of 6%. Accordingly, the Ld. AR prayed that the profit ratio declared by the assessee @ 6% be upheld.
The Ld. Departmental Representative, on the other hand, argued that the assessee in the subsequent years had declared profit on presumptive basis @ 8% which has been rightly adopted by the CIT(A).
We have heard the parties and perused the materials available on record. From the perusal of the order of the CIT(A) we notice that the assessee profit declared by the assessee in earlier years where he has maintained proper books of accounts is around 6%. However, it is noticed that in the subsequent years, where no books of accounts is maintained, the assessee has declared profit @ 8% on the presumptive basis. We also notice that for the year under consideration, the assessee in response to notice u/s. 148 of the Act has declared profit on estimated basis and not based on proper books of accounts. During the course of hearing before us also the ld. AR did not bring anything on record to justify any valid basis for estimation of profit @ 6% as declared for the year under consideration. Considering that the assessee himself has declared profit @ 8% on presumptive basis in subsequent years where no books are maintained which is an admitted fact for the year under consideration, we are of the considered view that there is no reason to interfere with the decision of the CIT(A), who has restricted addition made by the A.O by estimating the profit @8%. The grounds raised by the assessee in this regard are dismissed.
& 2213/Chny/2025 Thirumal Arun Mohan Dass :- 5 -: 7. For the year under consideration, the assessee filed the return of income declaring a total income of Rs. 24,25,500/-. On perusal of the return, the A.O noticed that the assessee has declared income of Rs. 12,10,509/- under the head profits and gains from business or profession, Long Term Capital Gain of Rs. 4,50,754/-, Interest income of Rs. 1,33,722/- and other receipts of Rs. 6,30,513/-. The A.O further noticed that the assessee while computing the income has claimed deduction u/s. 57 at Rs. 72,50,910/- while . The A.O called on the assessee to furnish the details pertaining to the deduction claimed u/s. 57 of the Act. The assessee submitted that he has not maintained books of accounts for the year under consideration and has filed the return of income on presumptive basis by declaring 8% on the total receipts as reported in Form 26AS. The assessee further stated that in the ITR Form, he could not declare receipts in excess of Rs.2,00,00,000/- under relevant column for showing gross business receipts on presumptive basis and therefore, the assessee in order of declare income estimated @ 8% has declared 92% of the certain receipts as deduction u/s. 57 of the Act. The A.O however did not accept the submissions of the assessee and held that when the income has declared on presumptive basis there is no provision for allowing expenditure u/s. 57 of the Act. Accordingly, the A.O disallowed the expenditure claimed by the assessee u/s. 57 of the Act to the tune of Rs. 72,50,910/-. On further appeal, the CIT(A) confirmed the disallowance made by the A.O. The assessee is in appeal before the Tribunal against the order of the CIT(A).
The Ld. AR submitted that the total receipts of the assessee for the year under consideration as per Form-26AS is Rs. 2,31,46,496/- as per the below breakup. S. TAN Name of the Deductor Sec Gross TDS No income deducted & 2213/Chny/2025 Thirumal Arun Mohan Dass :- 6 -: a BLRA00459E Andhra Bank Zonal Office 194A 1,02,662 10,267 b CHEC12971A City Union Bank Ltd. Central 194A 31,060 -- Officer c CHEL02264D LIC of India Pondicherry 194DA 11,72,999 1,34,168 d BLRK01500C Karnataka Road 194C 67,08,424 1,34,168 Development Corp. Ltd., e CHEH02401A Highways and Rural Works 194C 1,04,41376 2,08,034 Villupuram f CHEO03855F O/O The Divisional Engineer 194C 39,55,268 79,107 National Highway, Thiruvannamalai g CHEN04162E National Highway Division 194C 7,34,707 14,694 (PWD) Total 2,31,46,496 4,58,000
The Ld. AR further submitted since the receipts of the assessee is more than Rs. 2 Croes, the assessee could not declare the entire income in the appropriate column in the ITR to declare profit on presumptive basis @ 8%. The Ld. AR also submitted that accordingly, the assessee declared the income at Rs. 24,25,498/- in the ITR in the following manner: Amount (Rs.) Amount Amount (Rs.) (Rs.) 1. Business income Gross Receipts (S.No.(e),(f) &(g) 1,51,31,351 Income offered @8% 12,10,509 2 Capital Gains Sale consideration [S.No.(h)] 75,50,000 Less: Indexed cost of Acquisition 70,99,246 Long Term Capital Gain 4,50,754 3. Other Sources i Interest income [S.No.(a) & (b)] 1,33,722 ii Other Receipts [S.No.(c) & (d)] 78,81,423 Less: Expenses u/s. 57-estimated 72,50,910 6,30,513 @92% Income from other sources 7,64,235 Gross Total income 24,25,498 Rounded off 24,25,500
The Ld. A.R submitted that the other receipts declared by the assessee consists of receipt from LIC India, Puducherry to the tune of Rs. 11,72,999/- & 2213/Chny/2025 Thirumal Arun Mohan Dass :- 7 -: and receipts from Karnataka Road Development Corporation Ltd. amounting to Rs. 67,08,424/-. The Ld. AR further submitted that the receipt from Karnataka Road Development Corporation Ltd. is a business receipts against on which the income is to be estimated @ 8%. since the assessee has been consistently declared profit at 8%. The ld AR also submitted that the lower authorities are not correct in not allowing the claim against the business income since in earlier year the CIT(A) himself has accepted the profit percentage at 8%. The ld AR argued that though in the return the deduction is stated to be claimed u/s.57, the assessee has actually claimed deduction against business receipts and mentioning of the said section is only for the purpose of ITR. With regard to the receipt from LIC the Ld.AR fairly conceded that the said receipt is not the business income of the assessee and therefore the deduction claimed u/s.57 which is not substantiated may be allowed.
The Ld. DR, on the other hand, relied on the orders of the lower authorities.
We have heard the parties and perused the materials available on record. We notice that the assessee has been consistently declaring income @ 8% on presumptive basis where he has not maintained any books of accounts. For the year under consideration, the assessee against other receipts had claimed deduction @ 92% u/s. 57 of the Act, which is denied by the Revenue. Out of the other receipts declared by the assessee, we notice that the receipts from Karnataka Road Development Corporation Ltd. is against contract payments, where tax has been deducted u/s. 194C of the Act. Therefore, there is merit in the claim of the assessee that the amount has been inadvertently declared as income other sources, whereas the same is the business receipts of & 2213/Chny/2025 Thirumal Arun Mohan Dass :- 8 -: the assessee. As already mentioned, since the assessee is declaring 8% on presumptive basis against the business receipts and considering that the CIT(A) himself in the AY 2015-16 has allowed the profit percentage @ 8%, we are inclined to allow the claim of the assessee that against the business receipts from Karnataka Road Development Corporation Ltd. only the profit element to the tune of 8% to be taxed. Accordingly, we direct the A.O to delete addition to the tune of 92% of the receipts from Karnataka Road Development Corporation Ltd. Further, as conceded by the Ld. AR, we confirm the disallowance made by the A.O against the receipt from LIC. The grounds raised by the assessee are partly allowed.
In the result, the appeal of the assessee for A.Y 2015-16 is dismissed and for A.Y 2020-21 is partly allowed.
Order pronounced on 12th day of December, 2025 at Chennai.