2021 (11) TMI 87 - AT - Income Tax

Limited scrutiny or limited scrutiny - HELD THAT - After vehemently arguing for some time, learned counsel stated very fairly that the assessee no more wishes to press for the instant additional ground(s) as it emerged from a perusal of the case file that it was indeed a case of complete scrutiny assessment only. Estimating 10% of her sub-contract receipts as her business income - HELD THAT - As assessee has been assessed at very high rate of 10% deposits the fact that she is only a sub-contractor wherein the margin does not cross maximum rate of 3 to 4% - no merit in the assessee's instant arguments since both the lower authorities have already granted her substantive relief in estimating the impugned profit element @10% despite the fact that she has not maintained any books, details of sub-contracts (project-wise) corresponding and all other overhead expenses. We sought to know from the learned counsel about the assessee's alleged regular business activity in civil construction business wherein he failed to throw any light. We therefore hold that the assessee does not deserve any further relief over and above the impugned profit estimation @10%. Disallowing bad debts, interest expenses followed by un-explained cash credits - HELD THAT - When there is no indication in the case file regarding the learned lower authorities to have specifically issued any show cause notice regarding verification of the instant twin claims of bad debts interest disallowances, we deem it appropriate to restore the same back to the Assessing Officer for his afresh adjudication as per law within three effective opportunities of hearing. Un-explained cash credits - HELD THAT - Assessee during the course of hearing that assessee had not only submitted the list of the creditor parties but also their confirmations before the Assessing Officer and the sums in issue had come from the banking channel only. There can hardly be any dispute that it is the assessee's onus only to prove identity, genuineness and creditworthiness of such cash credits wherein she cannot simply take recourse to filing list thereof followed by mechanical confirmations. We therefore deem it appropriate to restore the install issue as well back to the Assessing Officer with a clear-cut direction that it shall be the bounden duty/risk of the assessee only to produce the corresponding parties in issue; as and when required to do so, in consequential proceedings within three effective opportunities of hearing in order to prove their genuineness and creditworthiness. The instant last substantive ground is accepted for statistical purposes in above terms.

Issues Involved:
1. Delay in filing the appeal.
2. Estimation of income from sub-contract receipts.
3. Classification of interest income.
4. Disallowance of bad debts.
5. Disallowance of interest expenditure.
6. Addition of unexplained cash credits under Section 68.

Detailed Analysis:

1. Delay in Filing the Appeal:
The assessee's appeal suffered from a delay of 446 days, which was attributed to reasons beyond her control as per the condonation petition/affidavit. Since there was no rebuttal from the departmental side, the delay was condoned.

2. Estimation of Income from Sub-Contract Receipts:
The assessee contested the CIT(A)'s decision to sustain the Assessing Officer's (AO) estimation of 10% profit on gross sub-contract receipts amounting to ?50,64,828. The CIT(A) noted that the assessee, a Director in Progressive Constructions Limited (PCL), received a road construction contract from PCL. The AO issued a show cause notice due to lack of evidence supporting the expenditure incurred. The AO rejected the appellant's books of account and estimated the profit at 10% of the gross receipts.

The CIT(A) upheld the AO's decision, emphasizing that the work involved earth moving and excavation, which typically have high-profit margins. The tribunal found no merit in the assessee's argument for a lower profit margin and upheld the 10% estimation.

3. Classification of Interest Income:
The assessee argued that the CIT(A) erred in classifying interest income under "Income from Other Sources" instead of "Business Income." The CIT(A) upheld the AO's decision, stating that the assessee had ceased business activities. Consequently, the disallowance of ?70,22,551 on account of bad debts was also contested.

4. Disallowance of Bad Debts:
The assessee claimed bad debts of ?70,22,551, asserting that she was engaged in money lending business. The tribunal noted that the AO had treated the assessee as carrying on money lending business in other assessment years. However, due to the lack of specific show cause notices regarding verification of bad debts and interest disallowances, the tribunal restored the issue to the AO for fresh adjudication.

5. Disallowance of Interest Expenditure:
The assessee contested the disallowance of ?99,73,337 incurred towards interest, arguing that the AO's decision was based on suspicion and conjecture. The tribunal restored this issue to the AO for fresh adjudication, noting that there was no specific show cause notice issued for verification.

6. Addition of Unexplained Cash Credits under Section 68:
The AO added ?50,42,125 as unexplained cash credits, citing the lack of evidence for the genuineness, identity, and creditworthiness of the creditors. The CIT(A) upheld the AO's decision, noting that the assessee failed to prove the onus of proving the genuineness, identity, and creditworthiness of the unsecured creditors.

The tribunal restored this issue to the AO, directing the assessee to produce the corresponding parties for examination to prove their genuineness and creditworthiness.

Conclusion:
The appeal was partly allowed for statistical purposes. The tribunal upheld the 10% profit estimation on sub-contract receipts, restored the issues of bad debts, interest disallowance, and unexplained cash credits to the AO for fresh adjudication, and directed the assessee to produce evidence to substantiate her claims. The order was pronounced in the open court on 25th October 2021.

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