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2020 (2) TMI 447 - AT - Income TaxUndisclosed contract receipts - claim of deduction of remuneration / salary to partners from the estimated income i.e net profit @ 8% - HELD THAT:- Since the assessee itself is showing net profit on contractual receipts before allowing salary and interest on capital to partners ranging between 7-8% in most of the subsequent years, therefore, the modification made by Pr. CIT that the net profit of the assessee should be estimated at 8% on accounted contractual receipts is correct and sustainable. However, we direct the AO to allow salary and interest on capital to the partners out of said estimated net profit. Whether the Pr. CIT was right in modifying the assessment order and directing the AO to add the entire undisclosed receipts as income of the assessee? - HELD THAT:- We are compelled to hold that in view of the proposition rendered by Hon’ble M.P. High Court in the case of Balchand Ajit Kumar [2003 (4) TMI 76 - MADHYA PRADESH HIGH COURT] the entire amount of contract receipts cannot be taxed in the hands of the assessee, only the profit embedded therein can be taxed in the hands of the assessee. Since, in the earlier part of this order, we have confirmed the action of the Ld Pr. CIT to estimate net profit @ 8% of the total contract receipts, but this percentage cannot be completely applied for estimation of net profit embedded in the unaccounted contract receipts. Therefore, explanation of the assessee and the modification order of ld. Pr. CIT, to cover the possible leakage of revenue, we direct the AO to estimate the net profit @ 16% of unaccounted contractual receipts, which would meet the ends of justice. Accordingly, appeal of the assessee is partly allowed.
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