2012 (12) TMI 411 - AT - Income Tax

Computation of net profit at 8% u/s 144 - estimation of income - application rate prescribed in section 44AD - held that - we feel it reasonable to estimate the income on gross receipts @6% for the Assessment Year 2007-08. However, as per the financial result disclosed for the Assessment Year 2008-09 we do find that the Assessing Officer had made additions on account of disallowance of sundry creditors which had increased not in proportion to the increase in the material cost therefore indicated that the assessee had raised bills on the contractees when the material cost was still to be borne by the assessee. In this view of the matter, the estimation at 8% confirmed by the learned CIT(A) by deleting these additions and disallowances made u/ss.68 and 69 we hold 7% profit as reasonable to be taxable income on the gross receipts disclosed by the assessee in its financial statements. To conclude for the Assessment Year 2007-08 the AO is directed to tax 6% of the gross receipts as taxable income of the assessee and for the Assessment Year 2008-09 he is directed to tax 7% of the gross receipts as taxable income of the assessee. - Decided in favor of assessee.

Summary

Issues involved:
1. Delay in filing appeal for Assessment Year 2008-09.
2. Estimation of income for Assessment Year 2007-08.
3. Estimation of income for Assessment Year 2008-09.

Analysis:

Issue 1: Delay in filing appeal for Assessment Year 2008-09
The appellant filed an appeal for the Assessment Year 2008-09, which was belated by 53 days due to the appellant's health condition. The appellant, being a contractor, was affected by viral Hepatitis and was under medical treatment. The delay was condoned by the Tribunal considering the reasonable cause provided by the appellant, supported by medical evidence. The appeal was admitted for hearing.

Issue 2: Estimation of income for Assessment Year 2007-08
The appellant, a Government Contractor for road construction, challenged the estimation of income at 8% by the Assessing Officer, who based the estimation on gross receipts without considering the detailed financial statements audited by a Chartered Accountant. The appellant argued that a significant portion of the receipts constituted reimbursement for material costs, not actual income. The appellant contended that the estimation was not in line with the actual financial position and requested a lower reasonable estimate. The Tribunal, after considering the submissions, directed the Assessing Officer to tax the income at 6% of the gross receipts for the Assessment Year 2007-08.

Issue 3: Estimation of income for Assessment Year 2008-09
For the Assessment Year 2008-09, the Assessing Officer had made additions and disallowances, which the appellant contested. The appellant argued that the estimation of income at 8% by the CIT(A) was on the higher side and requested a lower percentage. The Tribunal observed discrepancies in the additions made by the Assessing Officer and directed the income to be taxed at 7% of the gross receipts for the Assessment Year 2008-09. The Tribunal considered the financial statements and the nature of expenses to arrive at a reasonable estimation of income.

In conclusion, the Tribunal allowed the appeals of the appellant, dismissed the appeal of the Revenue, and directed the taxation of income at 6% for the Assessment Year 2007-08 and 7% for the Assessment Year 2008-09. The Cross objection of the appellant was disposed of accordingly.