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Facts
The Revenue filed appeals against the orders of the CIT(A) for assessment years 2013-14, 2014-15, and 2015-16. The assessee, engaged as a labor and civil contractor, failed to file income tax returns and comply with notices. The CIT(A) had granted relief, treating certain receipts as business income and estimating profit at 10%.
Held
The Tribunal noted that the assessee was non-compliant and did not provide necessary details or evidence. The CIT(A)'s decision to grant relief was considered unwarranted due to a lack of corroborative evidence and a failure to consider the assessee's non-filing status. The Tribunal found the CIT(A)'s reasoning flawed and applied judicial precedents for estimating profit.
Key Issues
Whether the CIT(A) erred in granting relief to the non-compliant assessee without sufficient evidence and by not properly considering the AO's assessment based on available material and judicial pronouncements. The appeal also concerns the estimation of income for contractual receipts and treatment of rent receipts.
Sections Cited
148, 142(1), 44AB, 139(1), 44AD, 194C, 37BA
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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI V. DURGA RAO & SHRI K.M. ROY, ACCOUNTANT, MEMBER
Date of Hearing – 20/01/2025 Date of Order – 27/01/2025
O R D E R PER K.M. ROY, A.M.
Captioned appeals by the Revenue are directed against the impugned orders of even date 09/04/2024, passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2013–14, 2014–15 and 2015–16 respectively.
Since all these three appeals by the Revenue pertain to the same 2. assessee involving common issues, except variation in figures, which arose out of identical set of facts and circumstances, therefore, as a matter of convenience, these appeals were heard together and are 2 Nitin Subhash Sharma A.Y. 2013–14, 2014–15 & 2015–16 being disposed off by way of this consolidated order. However, in order to understand the implication, it would be necessary to take note of the facts of one appeal. We are, accordingly, narrating the facts, as they appear in the appeal in ITA no.362/Nag./2024, for assessment year 2013–14, the decision of which shall apply mutatis mutandis to other appeals as well.
./2024 Revenue’s Appeal – A.Y. 2013–14
The grounds raised by the Revenue in this appeal are as under:– “1. The Ld. CIT(A) has erred on facts and in law by neither appreciating the fact that assessee has not complied with the notice u/s 148 of the Income tax Act which required him to file his ITR nor to notices u/s 142(1) of the Act.
The Ld. CIT(A) has erred in law by not considering that the assessment of income follows filing of ITR, which filing of ITR was not done by the assessee admittedly, leaving no other remedy for the A.O. but to proceed with the completion of the assessment to the best of his judgement on the basis of material available on record.
The Ld. CIT(A) has erred on facts and in law by not appreciating that the assessee had not filed its ITR or carried out mandatory audit u/s 44AB.The Ld.CIT(A) also failed to verify the genuineness of receipts as business receipts inspite of the fact that no ITR was filed u/s 139(1) or in response to notice u/s 148 of the Act, whether before AO or CIT(A).
The Ld. CIT(A) has erred by relying on the grounds of appeal
of the assessee that amount of Rs. 4,16,42,363/- was business receipts and also crred on the facts by concluding that assessee was engaged in the business and treating receipts of Rs. 4,16,42,363/- as contracts receipts and arrived at estimation of income at 10% of total receipts.
5. Any other ground that appellant craves to raise during the course of hearing.”
4. Before the learned CIT(A), the issue of re–opening was challenged which was decided against the assessee. However, on merits, the learned CIT(A) has held as follows:–
3 Nitin Subhash Sharma A.Y. 2013–14, 2014–15 & 2015–16
“7.3 Ground no. 2, 3 and 4: These grounds pertain to the claim that the AO erred in making addition of Rs. 4,21,39,160/- as income of the appellant under the head 'Income from Other Sources'. 7.3.1 On this issue, in statement of facts filed in Form 35 (form of filing this appeal), the appellant mentioned that he was engaged as a labor & civil contractor during the year, that he had done major work for Manikgarh Cement, Century Textiles etc., that only net income and not the entire receipts can be taxable as 'business income' and not income from other sources'. The appellant also stated therein that he had maintained books of account and would submit the same during the appeal proceedings. 7.3.2 On this issue, it is noted that the appellant has remained non-compliant and he has not submitted any response during these appeal proceedings. However, perusal of Form 26AS shows that the majority of receipts of the appellant during this year is from the companies viz. Century Textiles and Industries Ltd who have deducted the TDS on payment to the appellant u/s 194C of the Act. The AO has not brought out that such payers were bogus or did not exist or that such receipts were not genuine. Thus, the sources of such receipts can be taken to be from contractual receipts. It is also noted that the appellant had not filed any returns in any of the previous years and specifically in three previous assessment years viz. AY 2012-13, 2011-12 & 2010-11 so as to compare the same with this AY 2013- 14. It is also seen that in grounds of appeal, the appellant contended that net profit should be taken as the income of the appellant. However, no supporting evidences have been filed to support the quantification of such profits. It is noted that the adoption of profit rate of 8% has been made mandatory in the case of smaller contractors having turnover up to the limit specified in section 44AD of the Act whereas for contractors having higher turnover there is no bar on estimating under profit at a higher rate. As has been held in the judgment of J.J. Associates vs. CIT, of 2006 (Delhi HC), the contractors executing bigger civil contract have certain distinct advantages in the form of infrastructural facilities and better administrable assistance, which is not available to petty contractors. Hence, as has been held in the aforesaid case, adoption of net profit @ 10% of gross receipts seems reasonable for major contractors. Apart from the judgment in the case of J.J. Associates vs. CIT (Supra), it has been held by the Hon'ble Apex Court in the case of Brij Bhushan Lal Parduman Kumar vs. CIT 115 ITR 524 (SC), that profit @ of 10% of gross receipts is reasonable. Considering the above facts & judicial ratios, a net profit rate of 10% of gross contract receipts of Rs.4,16,42,363/- is held to be reasonable estimate of income of the appellant under the head 'profits of business and profession'. 7.3.3 It is also noted that the appellant has not provided the exact nature & details of 'rent receipts' of Rs. 4,96,797/- as to whether these were from rent of a house property or from rent of a land or from rent of machinery etc. Considering the same, the rent receipts of Rs. 4,96,797/- are held to be 4 Nitin Subhash Sharma A.Y. 2013–14, 2014–15 & 2015–16 taxable as 'income from other sources', and no deduction is allowable against the same. 7.3.4 The AO is directed to re-compute the total income of the appellant in above ter ms. AO is also directed to allow the credit for TDS as per Form 26AS as the relevant income reflected in Form 26AS is assessed in this AY 2013-14 and as per Rule 37BA of I.T. Rules' 1962, such TDS credit is allowable to the appellant in this AY 2013-14.”
There was no appearance on the side of the assessee. It may be appreciated that he remained non–compliant before the lower authorities as well. The learned Departmental Representative vehemently submitted that the relief granted is unwarranted in the absence of any details particularly when the assessee is a non–filer and has paid scanty respect to the provisions of the Act.
We have dispassionately heard the argument canvassed by the learned Departmental Representative and meticulously analysed the documents. The relief granted by the cirta is unwarranted since there are no corroborative evidences to support the actual conduct of business. The learned CIT(A) has fallen into error to thrust all responsibility upon the Assessing Officer while keeping a blind eye on the non chalant attitude of the assessee. The learned CIT(A) has no information about the nature of contract. But then it is beyond logic as to how the learned CIT(A) has applied the rates of profit applicable to civil contracts. The orders passed by the learned CIT(A) for all the years under consideration are bereft of any logic and hence reversed. Accordingly, the orders passed by the Assessing Officer for A.Y. 2013–14, 2014–15 and 2015–16 are restored. Thus, the grounds raised by the Revenue in all the years under consideration are allowed.
5 Nitin Subhash Sharma A.Y. 2013–14, 2014–15 & 2015–16
In the result, appeals by the Revenue for the A.Y. 2013–14, 2014–15 and 2015–16 are allowed. Order pronounced in the open Court on 27/01/2025
Sd/- Sd/- V. DURGA RAO K.M. ROY JUDICIAL MEMBER ACCOUNTANT MEMBER NAGPUR, DATED: 27/01/2025 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Nagpur; and (5) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Sr. Private Secretary ITAT, Nagpur
Date Initial 1. Dictated on 20.01.2025 Sr.PS 2. Draft placed before author 27.01.2025 Sr.PS