2022 (9) TMI 1092 - AT - Income Tax

Estimating net profit by adopting profit rate of 8% on gross receipts - assessee submitted that only the profit embedded in the contractual receipts can be subject to tax and it would be capricious to tax entire receipts as income of the assessee - HELD THAT - The assessee has not been able to bring forth any supporting evidences in respect of expenses incurred in earning the contractual income. The assessee has cited examples of assessee s in similar line of business and submitted that the profit margin in their case was less than 5%. Since the assessee has been unable to submit any supporting evidences in respect of expenses before us, we are of the considered view that the ld. CIT(A) has been reasonable in estimating profit by apply the rate of 8%. In the result, we uphold the order of ld. CIT(A) in the instant set of facts.

Summary

Issues:
Estimation of net profit on gross receipts under section 144 of the Income Tax Act, 1961.

Analysis:
The appeal was filed against the order of the National Faceless Appeal Centre (NFAC) under section 144 of the Income Tax Act, 1961. The assessee, a civil contractor, executed works contracts during the relevant year. The assessment was completed under section 144 r.w.s 147 of the Act, adding the entire gross receipts as reflected in form 26AS. In the appeal before the Ld. CIT(A), the assessee contended that only the profit embedded in the contractual receipts should be taxed, not the entire receipts. The assessee compared profit rates of other contractors in a similar line of business, ranging between 1.3% to 5% of gross receipts. However, the assessee failed to provide evidence of expenses incurred for the contract work. Consequently, the Ld. CIT(A) estimated the profit at 8% of total receipts under section 44AD of the Act.

The Ld. CIT(A) observed that the assessee did not produce books of accounts or records showing expenses, but substantial expenses were presumed to have been incurred. The Ld. CIT(A) considered the absence of evidence and relied on section 44AD to estimate the income at 8% of the contract receipts. The Tribunal noted that the assessee could not substantiate the claim of lower profit margins based on examples of other contractors. As the assessee failed to provide supporting evidence of expenses, the Tribunal upheld the Ld. CIT(A)'s estimation of profit at 8% of gross receipts.

The counsel for the assessee reiterated that 8% of gross receipts was excessive in the assessee's line of business, citing examples of contractors with lower profit margins. However, since the assessee did not provide any evidence of expenses, the Tribunal found the Ld. CIT(A)'s estimation of profit at 8% to be reasonable. Therefore, the Tribunal upheld the order of the Ld. CIT(A) and dismissed the appeal.