2021 (4) TMI 842 - AT - Income Tax

Estimation of profits from contractual receipts and sale of plots - CIT(A) estimating the assessee s profits from contractual receipts and sale of plots @8% and @5% respectively, than that @15% of wholesale basis adopted by AO - HELD THAT - We are of the opinion that the CIT(A) s estimation for assessee s contractual receipts hardly calls for any interference since he has been guided by various judicial precedents as well as the nature of the taxpayer s contractual works performed. There can be hardly any dispute that a contractual assignment does not carry business risk at higher rate since involving asserted returns and all expenses relevant thereto. We thus find no merit in the former grievance. Estimation of assessee s profits from sale of plots @5% - It is not in dispute that it had not placed on record all of the corresponding details of plots sold in both rounds of the instant lis. AR pressed very hard in support of the CIT(A) s conclusion that 5% profit rate on sale of plots is indeed just and proper. We find no reason to accept learned counsel s arguments in entirety. The fact remains that contrary to the assessee s contractual receipts, is this segment of sale of vacant plots has of course not undergone the other inputs of labour and construction expenditure heads. These plots have been sold on as and where basis in other words. It can therefore be sufficiently presumed that in absence of any value addition or improvement or improvement, the sale of these vacant plots must have resulted in higher margin than mere profit rate 5%. We therefore exercise our inherent jurisdiction u/s.254 of the Act to re-estimate the profit rate on this latter segment as 8% only. It is made clear that the same would not be treated as precedent in any other assessment year or in any other case; whatsoever. Necessary computation as per law to follow.

Summary

Issues:
Estimation of net profit on gross receipts @15% instead of 8% for contractual receipts and 5% for sale of plots.

Analysis:
The Revenue's appeal for AY.2011-12 contested the CIT(A)'s order estimating the assessee's profits from contractual receipts and sale of plots at 8% and 5%, respectively, instead of the 15% adopted by the Assessing Officer. The CIT(A) based the estimation on judicial precedents and the nature of the taxpayer's contractual works. The Tribunal found the CIT(A)'s estimation for contractual receipts reasonable, as contractual assignments involve lower business risk and assured returns. The appeal on this issue was dismissed.

Regarding the estimation of profits from the sale of plots at 5%, the Tribunal noted that the assessee did not provide all corresponding details of plots sold. The authorized representative argued in favor of the 5% profit rate, but the Tribunal disagreed. It observed that the sale of vacant plots did not involve additional labor or construction expenses, resulting in higher margins than 5%. Thus, the Tribunal exercised its jurisdiction to re-estimate the profit rate for plot sales at 8%, clarifying that this decision would not set a precedent for future cases. The appeal was partly allowed on this issue.

In conclusion, the Tribunal upheld the CIT(A)'s estimation of profits at 8% for contractual receipts but revised the profit rate for the sale of plots to 8% from the initial 5%. The decision was pronounced on 22nd January 2021.