2021 (3) TMI 738 - HC - Income Tax

Net profit estimation - turnover on account of main contract ad sub-contract works - While the AO had brought the entire amount to tax, CIT(Appeals) had held that the entire amount cannot be brought to tax and it is only the income portion of the Labour charges which is to be brought to tax and he then levied 9% to the additional income admitted and brought it to tax - Tribunal modified it as 9% of the turnover on the main contracts and 6% on the turnover on account of sub-contract works - HELD THAT - Finding of Tribunal is based on the finding recorded by the Commissioner of Income Tax (Appeals) himself that the Net Profit of the assessee is to be estimated at 9% on main contract works and 6% on sub-contract works. Tribunal specifically observed that the Commissioner of Income Tax (Appeals) could not have adopted 9% net profit on this entire amount and he ignored the fact that the appellant was also working both as a main contractor and a sub-contractor. The finding of the Tribunal appears to be in consonance with the findings of the Commissioner of Income Tax (Appeals), and it did not commit any error in directing the Assessing Officer to recompute the Net Profit at 9% of the turnover on the main contracts and at 6% of the turnover on the sub-contract works. These are finding of facts and no substantial question of law arises for consideration in Appeal under Section 260-A of the Income Tax Act, 1961.

Summary

Issues:
Appeals under Section 260-A of the Income Tax Act, 1961 regarding discrepancies in labour charges leading to undisclosed income and taxation.

Analysis:
The Appeals involved discrepancies in labour charges leading to undisclosed income for Assessment Years 2013-14. The respondent-Assessee, engaged in power plant-related activities, faced a Search and Seizure operation revealing differences in recorded and actual labour charges. The Assessing Officer treated the variance as undisclosed income, adding it to the total income. The Commissioner of Income Tax (Appeals) initially granted partial relief, taxing only the income portion of the labour charges. Displeased parties filed separate appeals: the Assessee to challenge the partial addition and the Revenue to contest the relief granted. The Tribunal, in a common order, allowed the Assessee's appeal and dismissed the Revenue's appeal.

The Tribunal found that the Assessee's Executive Director admitted to undisclosed income but held that not the entire amount could be treated as income. The Commissioner's method of estimating net profit at 9% on main contracts and 6% on sub-contracts was modified by the Tribunal, considering the Assessee's dual role as main contractor and sub-contractor. The Tribunal's decision aligned with the Commissioner's findings, leading to the dismissal of the Appeals.

The Revenue argued that the Tribunal should have dismissed the Assessee's appeal based on the Executive Director's admission of undisclosed income. However, the Court noted discrepancies in the Director's responses under Section 132(4) of the Act, indicating an inability to explain the discrepancies initially. The Court emphasized that the Tribunal's decision was based on factual findings and no legal errors were made. Consequently, the Appeals were dismissed, and pending petitions were closed.

In conclusion, the judgment addressed the issues of undisclosed income arising from discrepancies in labour charges, the Commissioner's method of estimating net profit, and the Tribunal's decision to modify the assessment based on the Assessee's roles. The Court upheld the Tribunal's decision, emphasizing the absence of legal errors and dismissing the Appeals accordingly.