2018 (6) TMI 545 - AT - Income Tax

Best judgment assessment u/s 144 - Estimation of profit - whether the works are executed as a contractor or a sub-contractor? - Held that - Very work order mentions that the work is that of the State of Nagaland and the assessee got the work from UAN Max Infra Ltd - this shows that assessee is only sub-contractor - as per CIT(A) assessee executed all the works in the capacity of sub-contractor, the income returned by the assessee i.e. 5.99% appears to be reasonable since assessee itself submitted that 6% of profit is acceptable, the CIT(A) directed the AO to reduce the estimation of profit at 6% as against 8% - Decided in favor of assessee. Sale of scrap - Held that - Generally, scraps are generated in the normal course of business and it should be treated as part of business income only - since assessee has already offered 6% of profit, which includes scrap sales - thus appeal of revenue is dismissed.

Summary

Issues:
1. Estimation of business income at 6% instead of 8% by the CIT(A).
2. Treatment of income from sale of scrap separately.
3. Grounds of appeal raised by the revenue before the Appellate Tribunal.

Estimation of Business Income at 6%:
The case involved an appeal by the Revenue against the CIT(A)'s order for AY 2012-13. The AO had estimated the income of the assessee at 8% of gross subcontract receipts due to non-compliance by the assessee. However, during the appellate proceedings, the assessee submitted that 6% profit on subcontract works was reasonable, citing relevant ITAT decisions. The CIT(A) observed that the works executed were mainly as a subcontractor, and hence, directed the AO to reduce the profit estimation to 6% from 8%, which was accepted as reasonable. The Appellate Tribunal upheld this decision, noting that the CIT(A) followed the principles laid down by the ITAT, Hyderabad, and dismissed the Revenue's appeal due to the lack of comparable cases presented.

Treatment of Income from Sale of Scrap:
Regarding the treatment of income from the sale of scrap separately, the CIT(A) held that since scrap was generated from the civil works executed, no separate addition was necessary once the income was estimated. The Appellate Tribunal agreed with this reasoning, stating that scrap generated in the normal course of business should be considered part of the business income. Therefore, the ground raised by the Revenue on this issue was also dismissed.

Grounds of Appeal Raised by the Revenue:
The Revenue raised multiple grounds of appeal before the Appellate Tribunal, including challenging the CIT(A)'s estimation of income at 6% instead of 8%, and questioning the treatment of income from scrap sales. However, the Tribunal found that the CIT(A)'s decision was in line with established principles and dismissed the Revenue's appeal on both grounds. The Tribunal emphasized that the CIT(A) had correctly applied the principles regarding profit estimation for subcontract works and the treatment of scrap income, leading to the dismissal of the Revenue's appeal.

In conclusion, the Appellate Tribunal upheld the CIT(A)'s order, affirming the estimation of business income at 6% instead of 8% and the treatment of income from scrap sales as part of the overall business income. The Revenue's appeal was dismissed, and the decision was pronounced on 8th June 2018.