JAGADISH YADAV,BANGALORE vs. ITO, BANGALORE

Facts apropos are that assessee, an interior decorator and designer had filed its return declaring income of Rs.3,23,830/-. During the course of ITA.1397/Bang/2015 Page - 2 assessment proceedings, it was noticed by the AO that the assessee had not included a sum of Rs.5,25,026/- received from various parties in the contract receipts of Rs.21,87,579/-. When the assessee was put on notice, its reply was that he had done the work, but the concerned parties had not issued TDS certificates. AO considered the entire amount of Rs.5,25,026/-, as undisclosed income of the assessee and made an addition to that amount.

Assessee’s appeal before the CIT (A) was not successful.

Now before this Tribunal, Ld. AR strongly assailing the orders of lower authorities, submitted that income returned by the assessee was much more than 8% of its contract receipts. This, as per the Ld. AR, was more than the rate stipulated in section 44 A D of the Income-tax Act, 1961 (‘the Act’ in short). As per the Ld. AR, contract receipts returned was Rs.21,87,579/- and the net income, shown by the assessee came to about 12% of such receipts. Further as per the Ld. AR, even if additional contract receipts of Rs.5,25,026/- was considered the net income by applying the 8% rate prescribed u/s.44AD, would only be Rs.2,17,008/- and this was lower than the sum of Rs.3,23,830/-, estimated by the assessee. Thus according to him, the addition was unwarranted.

Per contra, Ld. DR supported the orders of lower authorities. He submitted that all expenditure of the assessee would have been booked against the contract receipt of Rs.21,87,579/- shown by him and therefore the undisclosed receipts of contracts were in the nature of pure income.

We have perused the materials and heard the rival contentions. Assessee a small time contractor whohad shown contract receipts of Rs.21,57,579 in its return. It had returned an income of Rs.3,23,830/-. The rate of profit returned was more than 15%. If we add the additional contract receipt of Rs.5,25,026/-, not shown by the assessee, the total contract receipts would go up to Rs.27,12,605/-. Returned income of Rs.3,23,830/- is still more than 11.5% of the gross receipts. Assessee had estimated his income. When estimation is made by a contractor, who is not maintaining books of accounts, rate of profit prescribed u/s.44AD of the Act is 8% of the contract receipts Thus what the assessee had returned, even if we recasted the contract income, was more than the rate of profit prescribed u/s.44AD of the Act. In such circumstances, I am of the opinion that the addition made by the AO was not warranted. Such addition stands deleted.

In the result, appeal of the assessee is allowed.