TMI Blog2022 (4) TMI 668X X X X Extracts X X X X X X X X Extracts X X X X ..... dered as fair and reasonable to estimate income from contract business in cases like that of the assessee, where the books of accounts are not maintained and when the details furnished are not found acceptable to the AO. The Hon'ble Delhi High Court in the case of Subodh Gupta [ 2014 (12) TMI 479 - DELHI HIGH COURT] has upheld the estimation of profits at 8% is reasonable when no evidence to the contrary is produced by the revenue. Therefore, considering the judicial precedence and overall facts and circumstances of the case, we are of the considered view that it would be fair and proper that the income from contract business of the assessee be estimated at 8 percent of the gross receipts.- Decided in favour of assessee. - ITA No. 536/Bang/2021 - - - Dated:- 31-3-2022 - Shri George George K, JM And Ms.Padmavathy S, AM Appellant by : Sri. Rampriyadas, CA Respondent by : Smt. Prayadarshini Besaganni, JCIT-DR ORDER Per Padmavathy S., AM This appeal is against the order of the CIT(A), Bangalore-6, dated 29.01.2020 for the assessment year 2016-2017. 2. The assessee raised four legal grounds and grounds on merits, however, during the course of hearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... calling for the details for payment of cash at any point during the course of proceedings before arriving at the conclusion that the appellant has incurred the cash expenses to attracts the rigorous provisions of section 40A(3) of the Act from the facts and circumstances of the case. 22. The learned authorities below merely on surmise and conjunctures arrived at the conclusion that the cash payments are subjected to disallowance under section 40A (3) of the Act, without appreciating the fact that the payments are made to various persons on different dates. 23. Without prejudice, the learned AO at the most ought to have levied penalty for non-maintenance of books of accounts and/or for non-filing of Form 3CD within the stipulated time. Instead, the learned authorities below disallowed the expenses arbitrarily, which is impermissible under the law and the entire additions are liable to be deleted. 24. Appellant denies itself liable to be charged interest u/s. 234A and 2348 of the Act from the facts and circumstances of the case. 25. Without prejudice, it is submitted that the disallowance is highly excessive, irrational and required to be deleted. 26. The ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been estimated and offered to tax. The AO was not satisfied with the explanation offered by the assessee for the reasons that (i) The turnover of the assessee is more than ₹ 1 crore and therefore provision of section of 44AD of the Income Tax Act (the Act) is not applicable to the assessee (ii) The assessee ought to have maintained the books of account and should have also got them audited (iii) The assessee should have furnished the copy of the audit report along with the return of income. (iv) The explanation of the assessee of having estimated the income from the civil work is not tenable The AO concluded the assessment by disallowing the entire expenditure and added the same to the total income returned. 5. Aggrieved, the assessee preferred an appeal before the CIT(A). The assessee submitted before the CIT(A) that the disallowance of entire expenditure was unjustifiable. The assessee also pleaded that for the earning of income of ₹ 1,32,51,268, the assessee ought to have incurred some expenditure and according to section 44AD of the Act, 8% of the turnover may be treated as profit, but disallowing the entire expenditure taking the profit ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in the case of CIT vs Subodh Gupta (2015) 54 Taxmann.com 343 (Delhi) where the court has held that 6. Learned counsel for the Revenue submits that Section 44AD has no application as the turnover of the respondent assessee was ₹ 18.43 crores and the said section prescribes a thumb rule or presumptive net profit rate if the turnover of an assessee is less than ₹ 40 lacs. This is correct and has been noticed by the Commissioner of Income Tax (Appeals) and the Tribunal. The difficulty in the present case is that the Assessing Officer did not conduct any inquiry and ascertain the net profit rate of other comparable contractors. On the other hand, he disallowed expenditure of ₹ 10.61 crores resulting in abnormal gross profit rate of 59.60%, which should not be accepted. The effect thereof was that 70% of the expenditure on account of purchases worth ₹ 10.61 crores out of total purchases of ₹ 14 crores was disallowed. The appellate authorities have taken a holistic and broader view and held that as the books of accounts had not been produced and were not regularly maintained, the book results should be rejected. We agree with the counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellate authorities have not applied Section 44AD as such. Difficulty arose as they had to estimate reasonable rate of net profit. In the absence of any data and details, they applied the net profit rate as mentioned in Section 44AD. As recorded above, we had asked counsel for the Revenue to ascertain whether similar contractors have declared a higher profit rate. Counsel for the Revenue has not been able to point out or state that the other contractors have a higher profit rate, than the net profit rate of 8% as held by the appellate authorities. The said rate was also applied in the assessment year 2010-11. 10. We agree that there is no hard and fast rule for estimating income from the civil construction business. However, section 44AD prescribes estimation from contract business in cases specified there at the rate of 8% of gross receipts. Though the assessee does not fall within the prescription of section 44AD, the presumptive rate of net profit of 8% incorporated in section 44AD reflects a legislative approved rate of net profit, that can be considered as fair and reasonable to estimate income from contract business in cases like that of the assessee, where the book ..... X X X X Extracts X X X X X X X X Extracts X X X X
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