2016 (7) TMI 1474 - AT - Income Tax

Non maintenance of books of accounts - estimation of profit in respect of sub contract works and contract works - CIT(A) has restricted the disallowance in respect of sub contract works at 7% to 5% and in respect of main contracts 12.5% to 9%. - Assessee is a civil contractor and also carried sub contracts - Held that - Both the A.O. as well as CIT(A) stated that the assessee is not able to file full details and proper books of accounts. We find that estimation has to be based on facts and circumstances of the each case. In the present case the estimation restricted by the Ld. CIT(A) as against the order of the A.O. we find it just and reasonable there is no reason to interfere with the order passed by the CIT(A). Thus this appeal filed by the revenue is dismissed.

Summary

Issues:
Estimation of income from subcontract works and contract works based on the books of accounts and relevant details provided by the assessee.

Analysis:
The appeal filed by the revenue challenged the order of CIT(A) regarding the assessment year 2011-12. The assessee, a civil contractor, declared a total income of ?80,37,310. The Assessing Officer (A.O.) observed that the assessee, also a sub-contractor, reflected ?23,43,94,382 as contract receipts. However, during scrutiny proceedings, the A.O. found that the assessee did not maintain proper books of accounts and estimated the profit for sub-contract works at 7% and main contract works at 12.5%. The CIT(A) directed the A.O. to adopt 9% for main contracts and 5% for sub-contracts based on the facts and circumstances of the case.

The A.O. noted that the major expenditure related to wages and asked for details of trade creditors. The A.O. found discrepancies in the details provided by the assessee regarding debtors and creditors. The A.O. concluded that the assessee did not maintain proper books of accounts and estimated profits based on limited information. The CIT(A) considered the explanations provided by the assessee and directed a lower estimation of profits for both main and sub-contracts based on previous tribunal decisions.

The Tribunal heard both parties and reviewed the orders of the lower authorities. The Tribunal noted that the estimation of income should be based on the specific facts of each case. In this case, the CIT(A) had restricted the profit estimation percentages compared to the A.O.'s initial estimates. The Tribunal found the CIT(A)'s decision just and reasonable, leading to the dismissal of the revenue's appeal and the cross-appeal by the assessee.

In conclusion, the Tribunal upheld the CIT(A)'s decision to adjust the profit estimation percentages for sub-contracts and main contracts, emphasizing the importance of considering the facts and circumstances of each case in determining the appropriate profit margins.