2011 (5) TMI 1024 - AT - Income Tax

Summary

Issues involved: Estimation of Net Profit u/s.144 on contract receipts, disallowance of expenses, taxation of machinery hire charges u/s.44AE, assessment as an AOP u/s.184(5).

Estimation of Net Profit u/s.144 on contract receipts:
The appeal contested the Commissioner of Income-tax (Appeals) order regarding the estimation of Net Profit at 10% of the contract receipts. The Assessing Officer had made adhoc disallowances under various heads and computed income from tippers u/s.44AE. The first appellate authority considered and deleted these disallowances but upheld taxing the contract work income at 10% and machinery hire charges at 5%. The Tribunal found the estimation lacked a cogent basis and directed the Assessing Officer to tax the income at 8% under Section 44AD, as agreed by the assessee's counsel. The Tribunal concluded that the computation of taxable income should align with the provisions of the Income Tax Act when estimation is applied, and partially allowed the appeal on this ground.

Disallowance of expenses:
The Assessing Officer had made adhoc disallowances under various heads such as wages, labour charges, diesel oil, repair & maintenance, and establishment expenses. The first appellate authority meticulously considered and deleted these disallowances. The Tribunal observed that the Assessing Officer's estimation of gross receipts at about 19% lacked a cogent basis, and directed the taxation of income at 8% under Section 44AD, as agreed by the assessee's counsel. The Tribunal held that the disallowances made by the Assessing Officer were not confirmed by the first appellate authority, and the income returned by the assessee should be taxed at 8% of the gross receipts.

Taxation of machinery hire charges u/s.44AE:
The Assessing Officer had computed income from tippers u/s.44AE and sought to tax it at 5%. The first appellate authority upheld this taxation. However, the Tribunal found that the income from tippers estimated u/s.44AE cannot be taxed under Section 144. The Tribunal directed the Assessing Officer to tax the income at 8% under Section 44AD, aligning with the provisions of the Income Tax Act and the agreement of the assessee's counsel.

Assessment as an AOP u/s.184(5):
The Assessing Officer justified assessing the assessee as an Association of Persons (AOP) by denying salary to partners u/s.184(5). The first appellate authority upheld this decision. The Tribunal did not specifically address this issue in the judgment, as the focus was primarily on the estimation of net profit on contract receipts and other related matters.