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Facts
The assessee, a PWD contractor, filed income for AY 2017-18 declaring 8% of total contract receipts (Rs.2.97 crore) under presumptive taxation (Section 44AD). CPC Bangalore issued an intimation under Section 143(1), treating the entire gross receipts as income because the turnover exceeded Rs.2 crore, making Section 44AD inapplicable. The JCIT(A) upheld this intimation.
Held
The Tribunal agreed that Section 44AD was inapplicable due to turnover exceeding Rs.2 crore. However, it held that taxing the entire gross receipts as income was not justified. The case was remanded to the Assessing Officer (AO) to allow the assessee to prove expenses and determine the net income, with directions for estimation based on comparable cases if evidence is not provided, and to grant a fair hearing.
Key Issues
Whether the entire gross contract receipts can be taxed as income when presumptive taxation under Section 44AD is inapplicable due to turnover exceeding the threshold, and the validity of such an assessment via an intimation under Section 143(1).
Sections Cited
250, 143(1), 44AD
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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri George George K, Vice- & Shri Inturi Rama Rao
:Asst.Year 2017-2018 Sri.Kunhikoran M.V. The Income Tax Officer PWD Contractor v. Ward 1 M.V.K.House, Udinur, Kannurassessee. Edachakai, Kasaragod – 671 310. PAN : AEVPK7979R. (Appellant) (Respondent) Appellant by : Sri.Suresh Kumar C, CA Respondent by : Smt.Leena Lal, Senior AR Date of Date of Hearing :13.05.2025 Pronouncement : 14.05.2025 O R D E R
Per George George K, Vice-President :
This appeal at the instance of the assessee is directed against the Addl. / Joint Commissioner of Income-tax (Appeals)’s [hereinafter “the JCIT(A)”] order dated 19.04.2024 passed u/s.250 of the Income-tax Act, 1961 [hereinafter “the Act”). The relevant assessment year is 2017- 2018.
The grounds raised
read as follows:-
1. That the order of the learned Additional/ Joint CIT(Appeals)-7, Mumbai, Income Tax Department dated 19.04.2024 sustaining the assessment of Rs.2,98,04,440/- as appellant's total income made by the Assessing Officer, CPC, Bengaluru for A.Y. 2017-18 is contrary to facts and circumstances of the case and infirm in law.
. Sri.Kunhikoran M.V.
2. That the lower authorities erred in properly appreciating the facts and circumstances of the case and there is no justification to assess the gross receipts as the appellant's income under 'Profits and Gains from Business or Profession'.
3. That the First Appellate Authority erred in holding that if the provisions of sec. 44AD is not applicable to the appellant's case, the entire gross receipts is liable for treatment as income of the appellant. This is clearly infirm in law and unjustified and unwarranted.
4. The appellant craves leave to add, alter, modify or amend any of the above grounds of appeal
at the time of hearing of the appeal
5. For the above and other reasons to be urged at the time of hearing of the appeal, it is prayed that the Hon'ble ITAT may kindly be pleased to vacate the additions made and render justice to the appellant.”
Brief facts of the case are as follows: The assessee an individual, is a PWD contractor. For the assessment year 2017-2018, the return of income was filed on 23.05.2018 by declaring total income of Rs.24,03,540. The assessee’s business income was declared at Rs.23,82,692, being 8% of the total contract receipt of Rs.2,97,83,593. The CPC Bangalore issued an intimation u/s.143(1) of the Act (intimation dated 24.08.2018) by treating the entire contract receipts as income instead of 8% declared by the assessee.
Being aggrieved by the intimation issued u/s.143(1) of the Act, the assessee preferred an appeal before the first appellate authority. The JCIT(A) confirmed the intimation issued u/s.143(1) of the Act. The JCIT(A) held that the assessee had filed the return of income in ITR 4 wrongly and declared income on presumptive taxation u/s.44AD of the Act. It was held by the JCIT(A) that the total turnover / gross receipts of the assessee during the relevant assessment year exceeded Rs.2 crore, hence, the presumptive provision u/s.44AD of the Act does not have . Sri.Kunhikoran M.V. application. Further, The JCIT(A) held that no details of the expenditure incurred by the assessee in undertaking the contract work has been furnished. Hence, he concluded that intimation u/s.143(1) of the Act, by bringing to tax the entire contract receipts is correct.
Aggrieved by the order of the first appellate authority, the assessee has filed the present appeal before the Tribunal. The learned AR submitted that the assessee had mistakenly filed return in ITR 4, which is applicable for presumptive taxation u/s.44AD of the Act. However, the learned AR submitted that the JCIT(A) has erred in bringing to tax the entire contract receipts as per Form 26AS and treated the same as income of the assessee. The learned AR submitted that the matter may be restored to the files of the AO, since only the net income can be brought to tax.
The learned Departmental Representative supported the order of the JCIT.
We have heard rival submissions and perused the material on record. The assessee had filed his return of income wrongly in ITR 4, which is applicable for the persons declaring income on presumptive basis u/s.44AD of the Act. Admittedly, the assessee’s turnover exceeds Rs.2 crore, hence, the provisions of presumptive taxation u/s.44AD of the Act does not have application. However, the entire contract receipts as per Form 26AS was treated as income of the assessee and a huge demand of Rs.1,41,82,974 was raised in the intimation issued u/s.143(1) of the Act. We find, there is no justification to assess the gross receipts . Sri.Kunhikoran M.V. of the assessee as income under the head profits and gains from business or profession. If the provisions of sec.44AD of the Act is not applicable, the Revenue cannot bring to tax the entire gross receipts, but only the net income. In the interests of justice and equity, we restore the case to the files of the AO. The assessee shall produce necessary material to prove that he had incurred the expenses for which he has earned the total receipts of Rs.2,97,85,593. In the event, the assessee has not been able to provide necessary evidences to that effect, the AO shall estimate the income of the assessee by taking into account comparable cases. The AO shall afford a reasonable opportunity of being heard to the assessee before a decision is taken on the matter. It is ordered accordingly.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on this 14th day of May, 2025.