M/S. M.B. CONSTRUCTION,PASCHIM MIDNAPUR vs. DCIT, RANGE - 1, MIDNAPUR, MIDNAPUR

PDF · subscribers
ITA 1346/KOL/2017Status: DisposedITAT Kolkata31 October 2017AY 2011-126 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that using the assessee's rejected profit rate of 14.4% was unjustified. It directed the AO to recompute the income from contracting business by applying a net profit rate of 10%, considering the assessee's past profit rates and the fact that Section 44AD was not applicable. Grounds related to partner remuneration and TDS were dismissed as not pressed before the lower appellate authority.

What were the facts?

The assessee, a construction firm, failed to maintain proper books of accounts and declared significantly lower gross receipts than what was reflected in Form 26AS. The Assessing Officer (AO) estimated income based on higher receipts and a profit rate derived from the assessee's rejected books. The CIT(A) upheld the estimated income but deleted an addition on account of undisclosed bank accounts.

What were the issues?

The primary issues were the estimation of income from contracting business due to non-maintenance of books and the applicability of a profit rate. Another issue concerned the disallowance of partner remuneration and interest, and the credit for TDS.

Which sections of the Income-tax Act were involved?

Section 131,Section 144,Section 44AD,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, KOLKATA BENCH (SMC

Before: Hon’ble Shri P.M. Jagtap]

order : October 31, 2017 ORDER This appeal filed by the assessee is directed against the order of Ld. CIT (Appeals) – 11, Kolkata dated 28.02.2017.

2.

The relevant facts of the case giving rise to this appeal are that the assessee is a partnership firm which is engaged in the business of construction on contract basis. The return of income for the year under consideration was filed by it on 05.12.2011 declaring a total income of 50,516/-. During the course of assessment proceedings, the assessee was called upon by the A.O. to produce the books of account and other supporting documents. The assessee however failed to comply with these requirements. In his statement recorded by the A.O. under section 131 of the Act, Shri Himadri Sekhar Barma, partner of the assessee firm admitted that no proper books of accounts were M.B. Construction maintained by the assessee. The A.O., therefore, rejected the book results declared by the assessee and proceeded to estimate the income of the assessee from contracting business to the best of his judgement in the manner provided in section 144 of the Act. In this regard, he found from the details furnished by the assessee in Form No. 26AS that the Gross Receipts from contracting business of assessee firm for the year under consideration were actually Rs. 2,07,52,710/- as against Rs. 39,74,928/- declared by the assessee in its return of income. He also found that the net profit rate from the contracting business declared by the assessee in the return of income was 14.4% and applying the same to the Gross Receipts of Rs. 2,07,52,710/-, the income of the assessee from contracting business was determined by the A.O. at Rs. 29,88,390/-. From the income so estimated, he disallowed the claim of the assessee for deduction on account of partners’ remuneration and interest paid on partners’ capital. He also made further addition of Rs. 15,03,026/- to the total income of the assessee on account of peak credit balance appearing in the two undisclosed bank accounts of the of the assessee during the year under consideration. Accordingly the total income of the assessee was determined by the A.O. at Rs. 44,91,416/- in the assessment completed under section 143(3) vide an order dated 28.03.2014.

3.

Against the order passed by the A.O. under section 143(3), an appeal was preferred by the assessee before the Ld. CIT (A) and after considering the submissions made by the assessee as well as the material available on record, the Ld. CIT (A) upheld the action of the A.O. in estimating the income of the assessee from the contracting M.B. Construction business at Rs. 29,88,390/-. He however deleted the addition of Rs. 15,03,026/- made by the A.O. on account of peak credit appearing in two undisclosed bank accounts of the assessee by giving the benefit of telescoping. The appeal of the assessee thus was partly allowed by the Ld. CIT (A) vide his appellate order dated 28.02.2017 and still aggrieved by the same, the assessee has preferred this appeal before the Tribunal. 4. The grounds raised

by the assessee in this appeal read as under:

1.

1. For that the appellate order u/s 250 of the Act dated 28.02.2017 passed by the Ld. CIT (Appeals) – 11, Kolkata, is arbitrary, erroneous, and is not tenable in law.

2. For that the Ld. CIT (Appeals) – 11, Kolkata is not justified in not accepting the claim of determination of profit @ 8% as laid down in section 44AD as considered reasonable and rational by the board, to determine net profit for non-maintenance of proper books of accounts against the turnover of gross receipts of Rs. 2,07,52,710/-. Gross profit has been assessed at @ 14.4% of the gross receipt.

3. For that the Ld. CIT (Appeals) – 11, Kolkata is not justified in disallowing the claim of Rs. 3,47,000.00 on account of remuneration. For Rs. 2,40,000.00 and interest on capital of Rs. 1,07,000.00 credited to partners’ account which should have been considered and allowed as deduction to arrive at the Taxable Income.

4. For that the Ld. CIT (Appeals) – 11, Kolkata is not justified in not considering and not allowing credit of TDS for Rs. 16,572.00 arising out of receipts of Rs. 7,39,696.00 though covered by the determination of gross receipt. Therefore, TDS for Rs. 16,572.00 should be considered and allowed as credit. The total allowable claim of TDS should be Rs. 4,11,878.00 (Rs. 3,95,306.00 allowed in assessment + Rs. 16,572.00 as disallowed).

5. That your petitioner craves leave of you to file additional ground/grounds of appeal on or before the final date of hearing.

5. I have heard the arguments of both the sides and also perused the relevant material available on record. As submitted by the learned counsel for the assessee, ground no 1 and 5 raised by the assessee in this appeal are general which do not call for any specific adjudication.

6. As regards the issue raised in ground no 2 relating to the estimation of the income of the assessee from the contracting business, the learned counsel for the assessee has not disputed the action of the A.O. in rejecting the books of account of the assessee. He has also not disputed the gross receipts of Rs. 2,07,52,710/- taken by the A.O. on the basis of information contained in Form No. 26AS. He has only disputed the net profit rate of 14.4% adopted by the authorities below to estimate the income of the assessee from the contracting business. In this regard, he has relied on the provisions of section 44AD to contend that the net profit rate of 8% may justifiably be applied to estimate the income of the assessee. However, as rightly contended by the learned DR, the provisions of section 44AD are not applicable in the case of the assessee having turnover of morethan Rs. 2 crores from the contracting business. Moreover the net profit rate of 10% was declared by the assessee himself in the immediately preceding two years i.e. A.Y. 2009-10 and 2010-11. As regards the net profit rate of 14.4% applied by the A.O., it is observed that the same was adopted by him on the basis of book results disclosed by the assessee in the return of income for the year under consideration. As rightly contended by the learned counsel for the assessee, when the book results were rejected by the A.O., there was no justification in

More judgments on Section 131

All 4,706 judgments and leading authorities on Section 131 →

Recent GST High Court judgments

Search GST case law →