2023 (11) TMI 1193 - AT - Income Tax

Estimation of income from contract business - splitting of turnover/business income - declaring profit @ 6% u/s 44AD - whether reference can be drawn from the rate specified under the provisions of section 44AD in order to estimate income from contract business ? - as submitted that the AO has accepted business income offered by the assessee @ 6% on the part turnover and for the rest of turnover he fairly submitted that Net Profit @ 8.5% may be adopted in the absence of books of account and audit report - DR objected that assessee has wrongly field return of income and split its turnover in two parts - assessee has offered Income from Other sources showing gross receipt and claimed expenditure u/s. 57, for which the assessee was unable to produce any documentary evidence HELD THAT - Assessee is a contractor and has received payment from Mysore City Corporation for which the contractee has deducted TDS u/s. 194C. In the assessment order the AO has noted that assessee has split business income which shows that the AO has accepted that it is business income of the assessee. There is no doubt that the amount received by the assessee from Mysore City Corporation should be considered under Chapter IV Part D - Profits gains of business or profession. We further note that on the amount the assessee has offered it as business income during the impugned assessment year declaring profit @ 6% u/s 44AD to which the AO has accepted. Therefore, the rest of the amount should have also been considered by the AO under Chapter IV Part D - Profits gains of business or profession. During the hearing, the ld. AR fairly offered 8.5% Net Profit rate looking to the past trend of the assessee which is fair enough as profit of the business of the assessee shown under the head Income from Other Sources and accordingly in the peculiar facts of this case, we hold that Net Profit @ 8.5% is to be adopted on the balance turnover of Rs. 3,09,23,045. Appeal by the assessee is partly allowed.

Summary

Issues Involved:
The appeal filed by the assessee against the order of the CIT(Appeals) regarding the assessment year 2018-19 raised various grounds including estimation of income from contract business, disallowance of deemed expenditure, denial of opportunity of hearing, and challenge to the interest levied under sections 234A, 234B, and 234C of the Income Tax Act.

Estimation of Income from Contract Business:
The assessee, a proprietor of a business, declared income under different heads for the assessment year 2018-19. The AO disallowed the claimed expenditure under section 57 as the assessee failed to provide supporting documents. The assessee contended that the AO should have estimated the income under the head Profits & gains of business or profession instead of disallowing the entire expenditure. The Tribunal held that the income received should be considered under Profits & gains of business or profession, and based on past trends, a Net Profit rate of 8.5% was deemed appropriate for the balance turnover.

Denial of Opportunity of Hearing:
The assessee argued that the CIT(A) failed to provide an opportunity of hearing despite a specific request, violating principles of natural justice. However, the Tribunal did not find merit in this ground as detailed written submissions were made before the CIT(A), and the appeal was duly considered before dismissal.

Interest Levied under Sections 234A, 234B, and 234C:
The appellant contested the liability to pay interest under the mentioned sections, claiming that there was no additional tax liability. The Tribunal observed that the interest levied was not in accordance with the law and lacked clarity in terms of rate, period, and quantum. Consequently, the interest levied was deemed unjustified and deserving of cancellation based on the facts and circumstances of the case.

Conclusion:
The Tribunal partially allowed the appeal by the assessee, emphasizing the proper categorization of income from contract business, addressing the denial of a hearing opportunity, and canceling the interest levied under sections 234A, 234B, and 234C due to lack of clarity and compliance with legal provisions. The decision was pronounced on November 28, 2023.