DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 1, NASHIK vs. POONAM DNYANESHWAR MAHAJAN, NASHIK

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.

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