ITO, WARD-3(1), GAYA vs. SUNNY CONTRACTORS AND ENGINEERS PVT LTD, PATNA

This appeal preferred by the Revenue and the Cross Objection filed by the assessee are against the order passed by Learned Commissioner of Income-tax (Appeals)-1, Patna [hereinafter referred to Ld. ‘CIT(A)’] for the Assessment Year (in short ‘AY’) 2017-18.

The issue raised in ground number 1 is against the order of Ld. CIT(A) restricting the estimation of profit @ 7% of the gross contract receipt instead of 10% applied by Ld. AO. 3. The facts in brief are that the case of the assessee was selected for scrutiny under CASS and statutory notices were duly issued and served upon the assessee which were not complied with by the assessee. Finally, Ld. AO issued a show cause notice dated 17.11.2019 to explain as to why the assessment should not be framed by making addition of 10% of the total gross turnover of Rs. 20,54,66,417/-. But the assessee again failed to reply the said show cause and finally Ld. AO estimated to the income @ 10% and addition was made to the tune of Rs. 80,74,531/- by deducting Rs. 1,24,72,110/- towards expenses as per the profit and loss account. 4. In the appellate proceedings, Ld. CIT(A) partly allowed the appeal of the assessee by directing Ld. AO to apply @ 7% in place of 10%. Ld. CIT(A) recorded the finding that the assessee is engaged in contractual work and after discussing the decisions of I.T.A. No.: 117/PAT/2020 C.O. No.: 4/PAT/2021 Assessment Year: 2017-18 Sunny Contractors and Engineers Private Limited. various judicial Courts, came to the conclusion that 7% would be reasonable instead of 10%.

After hearing rival contentions and perusing the material on record, we find that the estimation of income by Ld. AO @ 10% has been reduced to 7% by holding that various judicial decisions have laid down that a gross profit rate of 6% to 12% would be reasonable and Ld. CIT(A) by taking average gross profit rate of 7% came to the conclusion that it was a reasonable profit in case of contractual work. Accordingly, we do not find any infirmity in the order of Ld. CIT(A) especially the fact that the Revenue could not point out any infirmity in the order of Ld. CIT(A) or bring to our notice similar instances has been invoked and accepted by the Revenue. Accordingly, we uphold the order of Ld. CIT(A) by allowing ground no. 1 raised by the Revenue.

The issue raised in ground no. 2 is against the order of Ld. CIT(A) restricting the disallowance @ 5% of Rs. 1.26 Cr.

The facts in brief are that Ld. AO in the assessment proceedings observed that the assessee has trade payable of Rs. 9,80,55,916/- as per the balance sheet as on 31.03.2017 as has been submitted above. The assessee has not responded to various notices issued during the assessment proceedings and therefore, these could not be verified. Ld. AO therefore, disallowed the 15% of the trade payable Rs. 9,80,55,916/- o which comes to Rs. 14,70,387/- and added the same u/s 68 of the Act.

Ld. CIT(A) recorded the finding that out of the total trade payables Rs. 1.26 Cr were outstanding on account of wages which could not be verified in the appellate proceedings and thus restricted the addition to 5% of the said amount after taking into account the documentary evidences filed by the assessee which were also sent to Ld. AO for examination and verification. Ld. CIT(A) observed that Ld. AO has just made addition on presumption and surmises without giving any complete finding. Finally, Ld. CIT(A) directed Ld. AO to apply 5% of the wages payable as on 31.03.2017 by holding that it would be reasonable and fair.

After hearing rival contentions and perusing the material on record we find that during the assessment proceedings, the assessee has not filed any documents whereas in the appellate proceedings all the evidences were filed before Ld. CIT(A). We note that in the remand proceedings the assessee has furnished all the evidences, documents, papers before Ld. AO and he has not pointed out any defect in the said documents except making a bland statement in the report that the outstanding wages could not be verified. This being the factual issue which has been examined by the ld. CIT(A). Therefore, we have nothing to add than accepting the view taken by Ld. CIT(A). Accordingly, we uphold the order of Ld. CIT(A) and dismiss ground no. 2 raised by the Revenue.