2014 (4) TMI 73 - AT - Income Tax

Estimated Income - Whether, CIT(A) erred in estimating income of assessee by calculating profit at 7% of net receipts as against 8% of gross receipts Held that - Special Bench decision of Tribunal in case of Arihant Builders V/s. ACIT 2006 (11) TMI 253 - ITAT INDORE covers issue - It has been held therein that in case of sub-contractor, rate of 5% for estimating income from construction contract would be reasonable - Considering totality of facts and circumstances of case, particularly fact that assessment in this case was framed ex-parte under S.144 of Act, set aside impugned order of CIT(A) - Restore matter to file of Assessing Officer for framing assessment afresh - Assessing Officer shall give reasonable opportunity of hearing to the assessee and pass fresh assessment order in accordance with law Decided in favour of assessee and against Revenue.

Issues:
1. Condonation of delay in filing cross-objections by the assessee.
2. Estimation of income by the Assessing Officer under Section 144 of the Income Tax Act.
3. Allowance of deduction for diesel expenses and calculation of income by the CIT(A).
4. Disallowance of deduction for interest and remuneration payments to partners.
5. Rate of profit calculation for a sub-contractor in construction business.
6. Setting aside the CIT(A)'s order and restoration of the matter to the Assessing Officer for fresh assessment.

Analysis:
1. The delay of 16 days in filing cross-objections by the assessee was condoned by the ITAT Hyderabad based on a reasonable explanation provided by the assessee's firm partner, leading to the disposal of both the Revenue's appeal and the assessee's cross-objections on their merits.

2. The Assessing Officer estimated the income of the assessee at 8% of the gross contract receipts under Section 144 of the Income Tax Act, invoking Section 145. However, the CIT(A) directed the Assessing Officer to allow deduction for diesel expenses and calculate income at 7% of net contract receipts, partially allowing the appeal of the assessee.

3. The main contractor's deduction of diesel costs from the gross contract receipts payable to the assessee was considered valid based on the decision in Brij Bhushanlal Pradyuman Kumar v. CIT. The ITAT directed the Assessing Officer to examine evidence supporting this claim. The rate of profit calculation was also addressed, citing the decision in Arihant Builders v. ACIT, which deemed a 5% rate reasonable for sub-contractors.

4. The issue of disallowance of deduction for interest and remuneration payments to partners was discussed, referencing a previous decision in favor of the assessee by a coordinate bench of the Tribunal. The ITAT found in favor of the assessee on this matter as well.

5. Considering the totality of facts and circumstances, including the ex-parte framing of the assessment under Section 144, the ITAT set aside the CIT(A)'s order and directed the matter to be restored to the Assessing Officer for a fresh assessment. The Assessing Officer was instructed to verify the claims of the assessee, provide a reasonable opportunity for a hearing, and ensure that the determined income does not fall below the returned income.

6. Ultimately, the Revenue's appeal and the assessee's Cross Objection were treated as allowed for statistical purposes, with the order pronounced on 24.10.2013 by the ITAT Hyderabad.

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