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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI INTURI RAMA RAO & SHRI S. S. VISWANETHRA RAVI
ORDER
PER INTURI RAMA RAO, AM:
This is an appeal filed by the Revenue directed against the order of ld. Commissioner of Income Tax (Appeals)- 1, Nashik [‘the C.O. No.41/PUN/2022 CIT(A)’] dated 23.03.2018 for the assessment year 2014-15. The assessee is in Cross Objection against the appeal of the Revenue.
Briefly, the facts of the case are that the assessee is an individual engaged in the business of execution of civil contracts of the Government. The return of income for the assessment year 2014-15 was filed on 09.04.2015 declaring total income of Rs.1,08,50,204/-. Against the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax, Circle-1, Nashik (‘the Assessing Officer’) vide order dated 07.12.2016 passed u/s 144 of the Income Tax Act, 1961 (‘the Act’) at total income of Rs.8,17,97,441/- by disallowing the following expenditure :- Sr. No. Expenses Amount 1 Site expenses 6,80,68,090/- 2 Tender expenses 15,51,476/- 3 Bank charges 7,49,699/- 4 Others 5,77,972/- Total 7,09,47,237/- 3. Being aggrieved by the above disallowances, an appeal was preferred before the ld. CIT(A), who vide impugned order held that the assessed income resulted @ 40% of the turnover which is impossible and had proceeded to estimate the income @ 10% of the turnover by rejecting the book results.
C.O. No.41/PUN/2022 4. Being aggrieved by the decision of the ld. CIT(A), the Revenue is in appeal before us in the present appeal contending that the ld. CIT(A) ought not to have resorted to estimation of the profits, when the Assessing Officer had made a disallowance of the expenditure. The assessee filed the Cross Objection in the appeal of the Revenue contending that the rate of profit adopted by the ld. CIT(A) is excessive and not based on any past history of the assessee or comparable case.
Now, we shall take up the appeal of the Revenue for adjudication. – By Revenue : 6. The Revenue in the present appeal challenges the decision of the ld. CIT(A) rejecting the book results, estimating the book profits @ 10% of the gross receipts. It is submitted that the decision of the ld. CIT(A) is faulty, inasmuch as, the assessee had failed to prove and establish the genuineness of expenditure incurred. The assessee had violated the provisions of section 40(a)(ia) and section 40A(3) of the Act, resulting in the statutory disallowances, when the assessee had not cooperated during the course of assessment C.O. No.41/PUN/2022 proceedings, the Assessing Officer was constrained to pass the assessment to the best of his judgement.
On the other hand, ld. AR submits that the additions made by the Assessing Officer is not sustainable which, would result in profits @ 40% of the gross receipts which is impossible in the business of execution of Government Civil Contracts. He also submits that without incurring any expenditure, it is not possible to execute the contract work and most of the work was executed through sub-contracts to whom the payment of Rs.5,53,00,000/- was made. Finally, he submits that the assessee could not cooperate during the course of assessment proceedings, owing to the fact that the assessee was busy in preparing the books of accounts. He also submits that the assessment order was passed without giving sufficient opportunity. Thus, it was contended that the assessment order was passed in gross violation of principles of natural justice.
We heard the rival submissions and perused the material on record. The issue in the present ground of appeal relates to the validity of rejection of book results by the ld. CIT(A). The Assessing Officer made addition of Rs.7,09,47,237/- by disallowing the expenditure as the assessee had failed to comply with the notices issued u/s 143(2) of the Act by resorting to best of judgement C.O. No.41/PUN/2022 assessment. It is settled position of law that the Assessing Officer while making the best judgement of assessment must make honest and fair estimate of income of an assessee. The same must not be capricious but should have reasonableness to the available material on record under the facts and circumstances of the case. In the present case, the disallowance of Rs.7,09,47,237/- resulted into profit @ 40% of the contract receipts which is very unreasonable. When the matter carried on appeal before the ld. CIT(A), one of the courses available before the ld. CIT(A) is rejecting the book results, estimating the profits. This action of the ld. CIT(A) is not under challenge before us. Therefore, in our considered opinion, the ld. CIT(A) had rightly exercised one of the possible course of action available before him, when the additions were made by the Assessing Officer are arbitrary, unreasonable etc. Therefore, we do not find any merit in the grounds of appeal
filed by the Revenue.
9. In the result, the appeal filed by the Revenue in for A.Y. 2014-15 stands dismissed. C.O. No.41/PUN/2022 – By Assessee :
10. The Cross Objection filed by the assessee challenges the estimation of profit @ 10% of gross receipts from execution of civil C.O. No.41/PUN/2022 contracts. It is submitted that once book results were rejected by the ld. CIT(A), the estimation of profit should be made either on past history of the assessee or the profits of the comparables in the similar line of business. It is submitted before us that in the preceding 3 years, the net profits percentage of gross receipts are as under :- A.Y. Turnover N.P.% 2012-13 6,03,33,786 6.73% 2013-14 11,41,17,805 3.64% However, during the year under consideration, most of the works were executed through sub-contracts. Thus, it is submitted that estimation of profit @ 10% excessive and unreasonable and profit may be estimated at reasonable percentage.
11. On the other hand, ld. CIT-DR has not controverted the submissions made on behalf of the ld. AR.
12. In these circumstances, we are of the considered opinion that in order to meet the ends of justice, we direct the Assessing Officer to estimate the profit @ 5% of the contract gross receipts. Accordingly, the Cross Objection stands partly allowed.
13. In the result, the Cross Object filed by the assessee in C.O. No.41/PUN/2022 for A.Y. 2014-15 stands partly allowed.