2015 (5) TMI 782 - AT - Income Tax

Trading addition - estimating income from business of contracting by applying a net profit rate of 10% - CIT(A) allowed part relief - Held that - The relevant bills/vouchers to support and substantiate his claim for various expenses could not be produced by the assessee before the A.O. for verification and since in the absence of such vouchers, it was not possible for the A.O. to verify the various expenses claimed by the assessee, we are of the view that the A.O. was fully justified in resorting to estimation of the income of the assessee from contracting business by applying the net profit rate. As regards the net profit rate of 10% applied by the A.O. for estimating the business income, it is observed that in assessee s own case for A.Y. 2007-2008, a net profit rate of 8% was applied by the A.O. to estimate the business income of the assessee and all the relevant facts including the nature of the business of the assessee remaining the same in the year under consideration, we are of the view that the Ld. CIT(A) was fully justified in directing the A.O. to estimate the income of the assessee by applying net profit rate of 8%. Thus no infirmity in the impugned order of the Ld. CIT(A) giving part relief to the assessee - Decided against revenue. Determination of income of the assessee from long term capital gain including his claim for exemption under section 54EC - Held that - It is observed that the case made out by the assessee before the Ld. CIT(A) on this issue was entirely different from the case putforth before the A.O. A perusal of relevant portion of the respective orders of the A.O. and Ld. CIT(A) shows that altogether new facts and figures were furnished by the assessee before the Ld. CIT(A) and the issue was decided by him taking into consideration the said facts and figures without giving any opportunity of being heard to the assessee. We therefore, find it fair and reasonable and in the interest of justice to set aside the order of the Ld. CIT(A) on this issue and restore the matter to the file of the A.O. for deciding the same afresh after giving the assessee a proper and sufficient opportunity of being heard. - Decided in favour of assesse for statistical purposes.

Issues Involved:
1. Restriction of the addition made by the Assessing Officer (A.O.) to the total income of the assessee by estimating his income from the contracting business.
2. Determination of income from long term capital gain and the claim for exemption under section 54EC of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Restriction of the Addition Made by the A.O.:
The Revenue challenged the action of the Commissioner of Income Tax (Appeals) [CIT(A)] in restricting the addition made by the A.O. by estimating the assessee's income from the contracting business at a net profit rate of 10%. The assessee, engaged in the business of civil contracts, failed to produce relevant bills and vouchers to support the expenses claimed. Consequently, the A.O. estimated the income by applying a net profit rate of 10% on the gross receipts, leading to a substantial trading addition.

The CIT(A) found justification in the A.O.'s estimation due to the absence of supporting bills/vouchers. However, considering that a net profit rate of 8% was applied in the assessee's case for the Assessment Year (A.Y.) 2007-2008, the CIT(A) held that a 10% rate was excessive and reduced it to 8%. The Tribunal upheld the CIT(A)'s decision, noting that all relevant facts and the nature of the business remained consistent with the previous year. Therefore, the Tribunal dismissed Ground No. 1 of the Revenue's appeal.

2. Determination of Income from Long Term Capital Gain and Claim for Exemption under Section 54EC:
Ground Nos. 2 and 3 of the Revenue's appeal and Ground Nos. 1 and 2 of the assessee's cross objection pertained to the determination of income from long term capital gain and the assessee's claim for exemption under section 54EC of the Act.

The assessee declared income from short term capital gain from the sale of two flats but could only produce the sale deed for one flat. The A.O. took the sale consideration for the other flat at Rs. 22,50,000 as against Rs. 14,50,000 shown by the assessee, resulting in a short term capital gain of Rs. 44,82,344. The assessee claimed an exemption of Rs. 50 lakhs under section 54EC for investment in Rural Electrification Corporation bonds. The A.O. disallowed this claim, noting that the corresponding capital gain arose from a sale on 25.11.2006, while the investment was made on 22.12.2008, exceeding the statutory period.

The CIT(A) considered the assessee's submissions and found that the capital gains should be treated as short term, arising from the development agreement dated 25.11.2006. The CIT(A) also noted discrepancies in the A.O.'s calculation of the sale consideration and directed the A.O. to adopt a figure of Rs. 35,83,950 for computing short term capital gains. The CIT(A) upheld the disallowance of the exemption under section 54EC, as the gains were short term.

The Tribunal observed that the assessee presented new facts and figures before the CIT(A) that were not considered by the A.O. Consequently, the Tribunal set aside the CIT(A)'s order on this issue and remanded the matter to the A.O. for a fresh decision, providing the assessee a proper opportunity to be heard. Thus, Ground Nos. 2 and 3 of the Revenue's appeal and Ground Nos. 1 and 2 of the assessee's cross objections were treated as allowed for statistical purposes.

Conclusion:
The appeal of the Revenue was partly allowed for statistical purposes, and the cross objection of the assessee was allowed for statistical purposes. The Tribunal pronounced the order in the open Court on 29.04.2015.

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