2012 (8) TMI 705 - AT - Income Tax

Best judgement assessment - estimation of profit @ 8% u/s 44AD - further addition made of concealed contract receipts not reflected in the regular books of account maintained and unexplained investment u/s 69B utilized to pay wages to workers/labourers - Held that - W.r.t. addition on ground of concealed contract receipts, assessee contended that same has been received in the following year after deduction of tax at source. TDS certificates and bank statements placed on record. Therefore, the AO is directed to accept the gross contract receipts as declared by the assessee. Further, once the NP rate having been applied no other addition on account of wages or contract receipts as mentioned hereinabove can be a subject matter of addition. AO is directed to exclude the said amounts - Decided in favor of assessee

Summary

Issues Involved:
1. Addition of undisclosed income from concealed contract receipts.
2. Addition of unexplained investment utilized to pay wages to workers/labourers.
3. Application of net profit rate and disputed additions.

Issue 1: Addition of undisclosed income from concealed contract receipts:
The case involved the Revenue appealing against the deletion of an addition of Rs.5,14,727, part of concealed contract receipts not reflected in the assessee's regular books of account. The AO proposed this addition based on information obtained from a department where the assessee had executed work-contracts. The AO made further additions under section 69B of the Income Tax Act, 1961, for unexplained investments. The CIT(A) observed that the AO's actions were not sustainable and directed the deletions based on the application of net profit rate and relevant legal precedents.

Issue 2: Addition of unexplained investment utilized to pay wages to workers/labourers:
Another aspect of the case involved the addition of Rs.18,25,400 under section 69B of the Act for unexplained investment used to pay wages to workers/labourers. The AO made this addition as the assessee could not explain the source of this expenditure. However, the CIT(A) held that once the net profit rate was applied, no further additions could be made on account of wages or contract receipts. The order of the CIT(A) was considered reasoned, and the Tribunal dismissed the Revenue's grounds related to this issue.

Issue 3: Application of net profit rate and disputed additions:
The Tribunal noted that while the AO had estimated the net profit rate at 8%, there was a discrepancy in the computation where the AO ignored this rate. The Tribunal found the arguments of the assessee's counsel convincing regarding the disputed amount received in the following year. The Tribunal directed the AO to accept the gross contract receipts as declared by the assessee. Additionally, the Tribunal emphasized that once the net profit rate was applied, no further additions could be made, thereby dismissing the Revenue's grounds related to the disputed additions.

In conclusion, the Tribunal dismissed the Revenue's appeal and allowed the assessee's Cross-Objection, emphasizing the application of the net profit rate and the lack of justification for additional additions beyond this rate. The judgment provided a detailed analysis of the issues involved, considering legal precedents and the specific circumstances of the case.