NABAGOPAL KONAR,ASANSOL vs. ITO, WARD - 1(1), ASANSOL, ASANSOL

This appeal filed by the assessee is against the revision order of Pr. CIT, Asansol, dated 29.03.2017 for AY 2010-11.

The only issue in this appeal of assessee is against the order of CIT passed u/s. 263 of the Act revising the assessment framed u/s. 143(3)/147 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) dated 17.03.2015. 3. Briefly stated facts are that the assessee is a civil contractor and declared income from other sources also. The return of income was electronically furnished on 10.02.2014 u/s. 148 of the Act disclosing total income at Rs.6,81,183/-. The return was accompanied by tax audit report. Further, notices u/s. 143(2) and 142(1) along with detailed questionnaire were issued by the AO on 20.06.2014 and duly served on the assessee. On perusal of the statement of contract job furnished by the assessee during the course of hearing, the AO found that the contract receipt with Raniganj Municipal Corporation was disclosed by the assessee amounting to Rs.9,42,349/- only. On examination of TDS details claimed by the assessee in its return of income, the AO found that the gross contract receipt with Raniganj Municipal Corporation appears at Rs.16,41,136/-. So, there was a difference of Rs.6,98,787/- in gross contract receipt arises. When the assessee was confronted it was Naba Gopal Konar., AY 2010-11 accepted that it was a mistake in not taking the said amount of Rs.6,98,787/- in its contract receipts from Raniganj Municipal Corporation. Thereafter, the AO observed that as the assessee is a civil contractor, the total income suppressed was calculated @ 8% of the undisclosed gross receipt i.e. Rs. 6,98,787/- which comes to Rs.55,903/- and he added back the same to the total income of the assessee. The ld CIT in exercise of his revisional jurisdiction found fault in AO applying sec. 44AD of the Act and estimating the income @ 8% of gross receipt, when the gross receipt from business of the assessee exceeded Rs. 40 lacs. According to ld CIT, since in this case, assessee’s gross receipt was more than Rs. 40 lacs, estimation of income @ 8% on undisclosed gross receipts can was erroneous. Moreover he also found fault with the action of AO for not rejecting the books before estimating the income. There after the Pr. CIT issued show cause notice for revising the assessment u/s. 263 of the Act dated. The relevant show cause notice as reproduced in the order of CIT which reads as under: “"Scrutiny of the Profit & Loss Account for the Financial Year 2009-2010 revealed that during the year you had gross receipt of Rs.83,36,821/- as contract job. As per section 44AD of the Income Tax Act, 1961, the income from business of an eligible assessee may be estimated at 8% of gross receipt provided gross receipts from the business do not exceed Rs.40 Lakhs. Since in the instant case, gross receipts exceeded Rs.40 Lakh, application of Sec.44AD and consequent estimation of income by the Assessing Officer can be said to be erroneous. This estimation is also seen to have been done without rejecting books of accounts. Moreover, no enquiry is seen to have been conducted by the Assessing Officer before he resorted to such estimation. The Assessing Officer's lack of enquiry on the above mentioned /undisclosed receipts is apt to render his order prejudicial to the interest of revenue. The lapse observed is seen to render the Assessing Officer's order passed u/s. 147 r.w.s. 143(3) as erroneous and prejudicial to the interests of revenue. In view of that, it is proposed to take up your case for revision u/s. 263 of the Income Tax Act, 1961. Your case is fixed for hearing before the undersigned on 28/01/2016 at 12.30 PM for that purpose. You are hereby required to attend either in person or through a representative duly authorized in writing on your behalf In case of failure to respond to this notice, decision may be taken as per law based on facts on record.”

From the above show cause notice it is clear that the CIT was of the view that the order of AO is to be revised u/s 263 of the Act as the AO has not made proper enquiry/investigation in this case. Therefore, he observed that failure to conduct appropriate enquiry constituted passing of an erroneous order, which is prejudicial to the interest of revenue. Hence, he finally quashed the assessment order and directed the AO to complete

We have heard rival submissions and gone through facts and circumstances of the case. We note that during assessment proceedings the AO confronted the assessee with the discrepancy arising from the TDS details submited by the assessee in its Return of Income, wherein according to AO, gross receipt from Raniganj Municipal Corporation appears to Rs.16,41,136/- whereas assessee has shown only an amount of Rs.9,42,349/-. So the AO treated the difference of Rs.6,98,787/- (gross contract receipt from Raniganj Municipal Corporation) as suppressed contractual receipt. According to AO, since the AR of the assessee, accepted the mistake, he calculated 8% of the undisclosed gross receipt i.e. Rs.6,98,787/- which comes to Rs.55,903/- was added to the total income of the assessee.

Later on the Ld. CIT exercising his revisional jurisdiction u/s. 263 of the Act found fault with the AO in not rejecting the books of account and adopting 8% of suppressed gross receipt as the profit and gains of business. According to Ld. CIT, the deeming provision of computing profit @ 8% of gross contract receipt of business only if gross receipts from the business does not exceed Rs. 40 lakhs. When the assessee was confronted by Ld. CIT, the AR of the assessee replied (which has been reproduced by Ld. CIT at page 2 of the impugned order is as under): “As regards gross receipt taken by the Assessing Officer from Raniganj Municipality the A/R stated that no reply whatsoever is received from Raniganj Municipality by the Assessing Officer and no TDS details have been reflected in form No. 26AS. Further, no TDS certificate was issued nor any information passed to Assessing Officer by Raniganj Municipality from where the Assessing Officer could have arrived at the figure of Rs.16,41,136/- as gross contract receipt.”

Taking note of the submission as recorded by the Ld. CIT above, we note that before the ld CIT, the assessee wondered as to how the AO arrived at the figure of total receipt from Raniganj Municipality at Rs.16,41,135/-. Further, the assessee has submitted that no reply in respect to total receipt to assessee was received from Raniganj Municipality and that no TDS details have been reflected in Form No. 26AS. Taking into consideration, the reply of the assessee as aforestated, the Ld. CIT was of the opinion that AO failed to do the relevant enquiries in respect to the gross receipt received by the assessee from Raniganj Municipality for the year under consideration and he was pleased to restore this issue back Naba Gopal Konar., AY 2010-11 to the file of AO for fresh enquiry and adjudication. From the facts narrated above, it is clear that AO failed to make relevant enquiries on the issue of gross receipt to assessee from Raniganj Municipality which makes the order erroneous as well as prejudicial to the interest of revenue. Therefore, the action of the Ld. CIT u/s. 263 is justified. However, we would like to observe that while the AO is adjudicating on the issue, the AO must keep in mind that assessee being a contractor, and when the profit and gain from contract business is computed, the cost of the material supplied to the assessee by the department concerned should be deducted along with other allowable expenditure for computing the profit and gains from the gross receipt. With the aforesaid observation, we confirm the order of Ld. CIT. Needless to say assessee to be given proper opportunity. Appeal of assessee is dismissed.

In the result, the appeal of assessee is dismissed with the aforesaid observation.

Order is pronounced in the open court on 11th April, 2018. Sd/- Sd/- (J. Sudhakar Reddy) (A. T. Varkey) Accountant Member Judicial Member April, 2018 Dated: 11th Jd.(Sr.P.S.) Copy of the order forwarded to: