MAHESHBHAI DAHYABHAI AHIR,SURAT vs. ITO, WARD-2(3)(1), SURAT

During the course of hearing, various notices of hearing were issued to the assessee, but the assessee remained non-compliant in response to various notices issued to him. The Assessing Officer noted that the assessee had total contract receipts of Rs. 5,82,99,204/- from six parties and had also received rental income (by hiring Plant and Machinery) amounting to Rs. 1,20,71,394/- from various parties. The Assessing Officer was of the view that since the assessee had omitted to file return of income and also had not provided necessary explanations with regard to the aforesaid contractual and rental receipts, the source of the aforesaid receipts remained unexplained. With respect to contractual receipts amounting to Rs. 5,82,99,204/- the Assessing Officer applied the provisions of Section 44AD of the Act and estimated the net profit @ 8% of the total contractual receipts and added the same as undisclosed income of the assessee. However, with respect to rental receipts amounting to Rs. 1,20,71,394/- on renting out of Plant and Machinery, the Assessing Officer treated the entire rental receipts as undisclosed income of the assessee. Further, the Assessing Officer also initiated penalty proceedings under Section 271(1)(c) of the Act.

The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A).

Before us, the Counsel for the assessee submitted that this is the first year of business carried out by the assessee. Accordingly, since the assessee was not well-versed with the provisions of the Income Tax Act, admittedly there was non-compliance on the part of the assessee in not maintaining the books of accounts in respect of it’s contractual business and there was also omission on part of the assessee in not filing his return of income, for the impugned assessment year. However, the Counsel for the assessee submitted that in the succeeding assessment years, the assessee had filed his return of income and had declared net profit to the tune of approximately 2% of it’s total turnover for A.Ys. 2012-13 and 2013-14. For A.Y. 2012-13, the assessee had a turnover of Rs. 5.65 crores and for A.Y. 2013-14 the assessee had a turnover of Rs. 7 crores approximately on which next profit @ 2% had been declared by the assessee as his taxable income. Further, it was submitted that the returns of income for both the assessment years had been accepted by the Income Tax Department. For A.Y. 2013-14, there was also a regular assessment which was done in the hands of the assessee in which a minor addition of Rs. 4.95 lakhs was made on account of disallowance of certain expenses claimed by the assessee. Accordingly, the Counsel for the assessee submitted that from the succeeding assessment years, the assessee has been regularly maintaining it’s books of accounts, filing return of income and for Maheshbhai Dahyabhai Ahir vs. ITO Asst. Year –2011-12 - 4– A.Y. 2013-14, the net profit rate of 2% had, in principle, been accepted by the Department, during the course of regular scrutiny assessment carried out on the assessee. However, in order to buy peace of mind, the Counsel for the assessee submitted that the assessee would be willing to settle for a net profit rate of 5% on it’s total turnover for the impugned assessment year.

In response, the Ld. D.R. placed reliance on the observations made by the Ld. Assessing Officer and Ld. CIT(A), in their respective orders. However, looking into the totality of the circumstances, in which the net profit rate of 2% has been accepted by the Department for succeeding assessment years, the Ld. D.R. also did not object to the determination of income for the impugned assessment years, at a net profit rate of 5% of the total turnover of the assessee.

We have heard the rival contentions and perused the material available on record.

We observe that this is the first year of the assessee’s contractual business, in which he has earned income from carrying out contractual work and also rental income on account of hiring of Plant and Machinery. For this year, the assessee did not file return of income and has not maintained any books of accounts, being the assessee’s first year of business. However, we note that for the succeeding assessment years, the assessee has been regularly filing return of income and also maintaining duly audited books of accounts. For A.Y. 2012-13, the assessee has declared net profit rate of 2% approximately on total turnover of 5.65 crores. For A.Y. 2013-14 the assessee has declared approximately 2% net profit rate on total turnover of Maheshbhai Dahyabhai Ahir vs. ITO Asst. Year –2011-12 - 5– Rs. 7.01 crores approximately. Further, for A.Y. 2013-14, there was a regular assessment in the case of the assessee, wherein the aforesaid return of income was accepted by the Tax Department, though there were some minor disallowances on account of certain expenditures, for which the assessee was unable to provide supporting documentation. Accordingly, taking into consideration the totality of the facts of the assessee’s case, and also taking into consideration the fact that this is the first year of the assessee’s business, in the interest of justice, the net profit rate is directed to be restricted to 5% of the total turnover declared by the assessee, for the impugned assessment year.

In the result, the appeal of the assessee is partly allowed. Order pronounced under proviso to Rule 34 of ITAT Rules, 1963 on 25/04/2025