VARA INFRAPROJECTS PRIVATE LIMITED,HYDERABAD vs. INCOME-TAX OFFICER, WARD-17(1) , SIGNATURE TOWERS, KONDAPUR

Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before us. The Learned Authorised Representative (“Ld. AR”) contended that, the profit margin of 50% adopted by the Ld. CIT(A) is on higher side. The Ld. AR argued that, as per the presumptive taxation provisions u/s. 44AD of the Act, an 8% profit rate is reasonable and justifiable. The Ld. AR further submitted that, there is no dispute regarding the nature of receipt as both the Ld. AO and Ld. CIT(A) has accepted the same as arising form contract business. Hence, the Ld. AR prayed before the bench to adopt a profit rate of 8% in line with the percentage provided u/s 44AD of the Act.

Per contra, the Learned Department Representative (“Ld. DR”) relied on the decision of revenue authorities.

We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. It is observed that both the Ld. AO and Ld. CIT(A) has accepted the nature of receipt as contract income. Further, no dispute regarding the genuineness and source of the contract receipts of Rs.4,26,15,822/- has been raised before us. The only objection raised by the Ld. AR was the higher profit estimation of 50% on the contract receipts. We are in agreement with the submission of the Ld. AR regarding such higher accumulation of profit on contract receipts. There should be a reasonable basis for estimating income on gross receipts. In our opinion, the estimation of profit @ 50% of the contract receipts is not reasonable. We have also gone through the provision of section 44AD of the Act, where, an estimation of profit at 8% of the turnover has been provided under the Act. Considering the facts and circumstances of the case and in the interest of justice, in our opinion, adopting 8% rate of profit on contract receipts would be just and proper in the case of the assessee. Accordingly, we direct the Ld. AO to compute the income from the contract receipts @ 8%. The grounds of the assessee are disposed accordingly.

In the result, the appeal of the assessee in is partly allowed.

This appeal is related to levy of penalty u/s.271(1)(c) of the Act on the addition made by the Ld. AO in ITA No.1166/Hyd/2024. The Ld. AO has levied a penalty of Rs.1,41,12,117/- by his order dated 21.09.2022.

Aggrieved with the order of Ld. AO, the assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) confirmed the penalty and directed the Ld. AO to recompute the penalty amount in accordance with the relief granted against the addition made.

Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before us. The Ld. AR submitted that, the addition has been made on estimated basis. Therefore, the imposition of penalty u/s.271(1)(c) of the Act is not justified, as estimation of income does not equate the concealment or furnishing inaccurate particulars. The Ld. AR also submitted that, this was the first year of operation for the assessee and in the very first year, dispute arose amongst the directors of the company for which the assessee could not do any business operation in subsequent year. The director who was looking after the accounts and tax matter stopped looking after the same, which causes non- filing of the return and non-appearance before the Ld. AO. However, there was no intention to evade any tax liability on the part of the assessee. In the alternate argument, the Ld. AR submitted that, if the bench accept the estimation of 8% rate of profit, the tax liability would be approximately equal to the TDS already deducted by the contractor. Therefore, there would be no significant tax liability remaining, hence, the penalty should be dropped.

Per contra, the Ld. DR relied on the orders passed by the revenue authorities. He further argued that the assessee failed to file the ROI. Had the case not been selected u/s.147 of the Act, the assessee would have been remain outside the tax net. Accordingly, there is clear case of concealment on the part of the assessee justifying the penalty u/s.271(1)(c) of the Act. Accordingly, the Ld. DR prayed before the bench to uphold the order of levy of penalty u/s.271(1)(c) of the Act.

We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. It has been submitted by the assessee that this was the first year of operation of the assessee and dispute among the directors prevented the filing of return and compliance before the revenue authorities. This fact, in our view mitigates the charge of deliberate concealment. Further, there is no dispute about the fact that the receipt of the assessee pertains to the contract income. The only dispute in the quantum appeal of the assessee was the estimation of profit on such contract basis, which we have already decided the issue in and directed the Ld. AO to estimate profit @ 8% on the contract receipts. We observed that TDS has already been deducted on such contract receipts and after considering the adjustment of TDS credit, the tax liability in the hands of the assessee would be insignificant. Therefore, in our opinion the revenue has not suffered any substantial loss. In view of the facts and circumstances of the case and in the interest of justice, in our opinion no penalty should be leviable on the assessee. Accordingly, we direct the Ld. AO to delete the penalty u/s.271(1)(c) of the Act.