2014 (2) TMI 572 - AT - Income Tax

Admission of additional grounds Held that - Relying upon National Thermal Power Co. Ltd. vs. CIT 1996 (12) TMI 7 - SUPREME Court - there may be several factors justifying raising of a new plea in an appeal and each case has to be considered on its own facts - There should be reasonable cause for furnishing additional evidence belatedly - there is reasonable cause for not raising these grounds on earlier occasion the reasons advanced by the assessee are satisfactory thus, the additional grounds raised by the assessee are admitted for adjudication. Estimation of income at 12.5% of the gross receipts Held that - The Tribunal is consistently holding that in case of estimation of income in respect of contract works, the income is to be estimated at 8% of the receipts of main contract works Relying upon M/s. C. Eswara Reddy & Co. vs. ACIT 2011 (1) TMI 1238 - ITAT HYDERABAD - the profit at 8% for main contract and for sub contract at 5%. It may not be out of place to mention that the Tribunal uniformly estimating the profit from main contract at 8% to 12.5% depending upon the factual situation and 5% to 7% on the sub contract depending upon the factual situation thus, estimation of profit at 8% by the CIT(A) on main contract and at 5% on sub contract is justified - Thus, the AO is directed to estimate income of the assessee at 8% of the gross receipts on contract works Decided partly in favour of Assessee. Addition made u/s 68 of the Act - Held that - It is for the assessee to provide the explanation for cash credits, when the assessee has not pleaded that the cash credits came out of the past intangible additions, it would not be open to the Tribunal to hold that the cash credits would be covered by such additions Relying upon CIT vs. G. M. Chennabasappa 1958 (9) TMI 78 - ANDHRA PRADESH HIGH COURT - The omission to claim set off of past intangible additions against cash credits would give rise to a presumption that the former amounts were not available for set off - When the alternate plea that tangible additions in the past could take care of cash credits of current year is not taken at the earlier stage and no materials are placed on record to substantiate the same, rejection of such plea would be justified - The availability of funds representing the intangible additions should be quantified not with reference to what the assessee offered for taxation but what was actually adopted in assessments for taxation thus, the assessee failed to show how the addition u/s. 68 is related to estimated income thus, the addition made u/s 68 sustained Decided partly in favour of Assessee.

Summary

Issues Involved:
1. Erroneous decision by CIT(A) on facts and law.
2. Ex-parte decision by CIT(A) without providing proper opportunity to the appellant.
3. Estimation of profit at 12.5% of the contract receipts.
4. Adoption of net profit rate without considering recoveries.
5. Unexplained investment and addition under Section 68 of the Income Tax Act.
6. Admission of additional evidence and grounds of appeal.

Issue-wise Detailed Analysis:

1. Erroneous Decision by CIT(A) on Facts and Law:
The assessee contended that the CIT(A)'s order was erroneous both on facts and in law. The Tribunal admitted additional grounds of appeal, relying on the National Thermal Power Co. Ltd. vs. CIT (229 ITR 383) (SC), which allows raising new pleas in an appeal if justified by the facts of the case. The Tribunal found reasonable cause for not raising these grounds earlier and admitted them for adjudication.

2. Ex-parte Decision by CIT(A) Without Providing Proper Opportunity:
The assessee argued that the CIT(A) decided the appeal ex-parte without providing a proper opportunity to the appellant. However, this ground was not pressed during the hearing and was dismissed as not pressed.

3. Estimation of Profit at 12.5% of the Contract Receipts:
The Tribunal noted that the assessee did not file a return of income for A.Y. 2006-07, leading to an assessment u/s. 143(3) r.w.s. 147 of the Income-tax Act, 1961. The AO estimated the profit at 12.5% of the gross receipts, which was confirmed by the CIT(A). The Tribunal, however, consistently held that in the case of estimation of income from contract works, the income should be estimated at 8% of the receipts for main contract works. The Tribunal directed the AO to estimate the income at 8% of the gross receipts and to reduce the seigniorage charges from the total contract receipts, as they do not have a profit element.

4. Adoption of Net Profit Rate Without Considering Recoveries:
The Tribunal directed the AO to consider the judgment of the Supreme Court in Brij Bhushan Lal Parduman Kumar v CIT (115 ITR 524) (SC), which states that material supplied by the contractor should be reduced from gross contract receipts as it does not have a profit element.

5. Unexplained Investment and Addition Under Section 68 of the Income Tax Act:
For A.Y. 2007-08, the AO made additions towards unexplained investment and unsecured loans, which were confirmed by the CIT(A). The assessee filed additional evidence to explain the investment and the unsecured loans. The Tribunal admitted the additional evidence and remitted the matter back to the AO for fresh consideration. The Tribunal emphasized that the AO is at liberty to make additions u/s. 68 or 69 if the assessee fails to explain the credit/investment properly.

6. Admission of Additional Evidence and Grounds of Appeal:
The Tribunal admitted additional evidence filed by the assessee for A.Y. 2007-08, including statements and sale deeds related to the property and confirmation letters from unsecured creditors. The Tribunal remitted the issues related to unexplained investment and unsecured loans back to the AO for fresh consideration in light of the additional evidence.

Conclusion:
The Tribunal partly allowed the appeals for A.Y. 2006-07 and 2007-08. For A.Y. 2006-07, the AO was directed to estimate the income at 8% of the gross receipts and reduce the seigniorage charges. For A.Y. 2007-08, the issues related to unexplained investment and unsecured loans were remitted back to the AO for fresh consideration with the admitted additional evidence. The Tribunal emphasized the need for proper explanation and evidence for any credits or investments to avoid additions under Sections 68 and 69 of the Income Tax Act.