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Income Tax Appellate Tribunal, B / SMC BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN
आदेश /O R D E R
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals), Salem, dated 31.03.2015 and pertains to assessment year 2010-11.
2 I.T.A.No.1963/Mds/15
Shri T. Vasudevan, the Ld.counsel for the assessee, submitted that during the course of assessment proceeding, one of the contract receipts to the extent of `11,14,400/- was omitted to be included in the total contract receipts. The Assessing Officer found that the assessee failed to account for the contract receipts and thereby suppressed the contract receipt to the extent of `11,14,400/-. Accordingly, the entire amount of `11,14,400/- was assessed as income of the assessee.
According to the Ld. counsel, when the assessee omitted to include a particular contract receipt in the total receipt, at the best, the profit on the contract receipt, which was omitted to be included in the total receipt, alone has to be considered for addition under Section 44AD of the Income-tax Act, 1961 (in short "the Act"). According to the Ld. counsel, the so-called contract receipt cannot be treated as income in its entirety. Referring to Section 44AD of the Act, the Ld. counsel submitted that only 8% of `11,14,400/- could at the best be estimated as profit of the assessee. Therefore, the addition to the extent of `11,14,400/- is not justified.
On the contrary, Shri Murugabhoopathy, the Ld. Departmental Representative, submitted that the assessee has claimed entire expenditure for carrying out all the projects / contracts. When the 3 I.T.A.No.1963/Mds/15 assessee has claimed all the expenditure for carrying out the projects, the contract receipt, which was omitted to be included in the total receipt, has to be necessarily taken as income of the assessee in entirety. According to the Ld. D.R., since the expenditure claimed by the assessee for all the projects was allowed by the Assessing Officer, therefore, estimation of profit at 8% under Section 44AD of the Act is not justified. Therefore, the prayer of the assessee is that expenditure has to be allowed from the suppressed contract receipt has been rightly rejected by the Assessing Officer. The assessee has not produced any bills and vouchers for the so-called expenditure.
Therefore, the presumption is that the assessee has not incurred any expenditure, hence, the Assessing Officer has rightly treated the entire amount of `11,14,400/- as income of the assessee.
I have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the contract receipt to the extent of `11,14,400/- from Panchayat Union was omitted to be included in the total contract receipts. From the orders of the lower authorities it appears that the gross bill amount was `16,89,753/-, including the cost of material to the extent of `5,75,353/-. The amount of `11,14,400/-, excluding the cost of material to the 4 I.T.A.No.1963/Mds/15 extent of `5,75,353/-, was said to be received on 13.10.2009 from the Block Development Officer, Pennagaram. It is not in dispute that this amount of `11,14,400/- said to be received from Block Development Officer, Pennagaram was not included in the total contract receipts.
The question arises for consideration is when the assessee has not included a contract receipt in the total contract receipts, whether the entire amount has to be taken as income of the assessee or profit embedded in the contract receipt has to be taken for addition? As per scheme of the Income-tax Act, tax has to be levied only on profit / income earned by the assessee. The contract receipt said to be received from Block Development Officer, Pennagaram was for executing the work as per contract. Even though the assessee had three other projects, the works of Pennagaram Panchayat Union is a separate project. Therefore, the expenditure claimed by the assessee for other projects cannot be presumed to be included in the project carried on by the assessee for Pennagaram Panchayat Union project. The assessee apparently received `11,14,400/- in cash and material to the extent of `5,75,353/-. The Assessing Officer has taken the entire cash receipt of `11,14,400/- as income of the assessee. This Tribunal is of the considered opinion that the assessee was expected
5 I.T.A.No.1963/Mds/15 to execute the contract by incurring the expenditure. The expenditure incurred by the assessee for executing the contract has to be necessarily allowed as expenditure. Section 44AD of the Act provides for estimation of income from contract when the assessee was not maintaining the books of account. In the case before us, the assessee has not produced any details of expenditure. Therefore, nothing wrong in estimating the profit on the basis of Section 44AD of the Act.
This Tribunal is of the considered opinion that only the profit embedded in the contract receipt of `11,14,400/- has to be taken for the purpose of making addition and not entire contract receipt of `11,14,400/-. Therefore, 8% on `11,14,400/- has to be estimated as income in the contract from Pennagaram Panchayat Union. This 8% on `11,14,400/- has to be added as income to the total income computed by the Assessing Officer. Accordingly, the orders of the authorities below are set aside and the Assessing Officer is directed to add only 8% of `11,14,400/- to the total income of the assessee.
In the result, the appeal filed by the assessee is allowed.
6 I.T.A.No.1963/Mds/15
Order pronounced on 15th July, 2016 at Chennai.