2023 (7) TMI 1204 - AT - Income Tax

GP estimation - quantum of contract receipts taxable in the hands of the assessee company - application of net profit rate - CIT(A) to uphold the action of the AO in applying 13% net profit rate on part of the contract receipts in the hands of assessee - contract receipts which were not part of the books of accounts but very much offered to tax as part of the revised return of income - HELD THAT - There is no dispute that the assessee can be allowed the benefit of indirect expenses only once while working out its taxable income. However when the same principle is applied to the facts of the present case we find that the net profit rate of 3.45% has been determined as a percentage of the total contract receipts which includes both types of contract receipts which are reflected in the books of account which are not reflected in the books of accounts. Where the net profit rate is determined as a percentage of the contract receipts it will shown net profit rate of 0.69% after allowing indirect expenses and net profit rate of 13% as a percentage of contract receipt without allowing any double deduction for indirect expenses. We therefore find that there is no double deduction of indirect expenses while determining net profit rate of 3.45% and given that the assessee has already offered net profit rate of 10% on total contract receipts no further addition is required to be made in the hands of the assessee. Thus the addition so sustained by the ld CIT(A) is hereby directed to be deleted. Assessee appeal allowed.

Issues Involved:
1. Confirmation of addition of Rs. 7,29,223/- by CIT(A).
2. Application of net profit rate on gross amounts of work done.
3. Rejection of trading results under Section 145(3) of the Act.
4. Allowability of indirect expenses against gross profit.
5. Determination of net profit rate for unaccounted contract receipts.

Summary:

Issue 1: Confirmation of addition of Rs. 7,29,223/- by CIT(A)
The learned CIT(A) confirmed an addition of Rs. 7,29,223/- made by the AO, which was originally Rs. 32,52,441/-. The CIT(A) restricted the addition after considering the indirect expenses incurred by the assessee, reducing the gross profit rate from 13% to 10%.

Issue 2: Application of net profit rate on gross amounts of work done
The assessee declared a net profit rate of 10% on gross receipts, while the AO applied a 13% net profit rate, leading to an additional income of Rs. 32,52,441/-. The CIT(A) accepted the indirect expenses and adjusted the net profit rate accordingly.

Issue 3: Rejection of trading results under Section 145(3) of the Act
The AO rejected the trading results shown by the assessee under Section 145(3) due to discrepancies in cash receipts and lack of verifiable bills and vouchers for expenses. The AO applied a 13% net profit rate based on seized material indicating profit margins between 10% to 20%.

Issue 4: Allowability of indirect expenses against gross profit
The CIT(A) accepted the indirect expenses of Rs. 1,03,51,418/- as genuine and not disputed by the AO. The CIT(A) calculated the net profit rate to be 3.45% after deducting indirect expenses from a gross margin of 13%. However, the CIT(A) upheld the 13% net profit rate for unaccounted cash receipts to prevent double deduction of indirect expenses.

Issue 5: Determination of net profit rate for unaccounted contract receipts
The Tribunal found no double deduction of indirect expenses and determined that the net profit rate of 3.45% applies to the total contract receipts, including unaccounted cash receipts. Since the assessee already declared a net profit rate of 10%, no further addition was required. The Tribunal directed the deletion of the sustained addition of Rs. 7,29,223/-.

Conclusion:
The appeals for A.Y's 2013-14 to 2019-20 were allowed, and the net profit rate of 10% on total contract receipts was accepted. The additional amounts challenged for each assessment year were directed to be deleted.

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