Tribunal Adjusts Income Estimates for Contract Receipts; Upholds Mandatory Interest Levy Based on Supreme Court Precedent.

The Tribunal partially allowed the assessee's appeals, directing the AO to estimate income at 8% on main contract receipts and 5% on sub-contract receipts, aligning with prior assessments. The Tribunal dismissed the assessee's challenge against the mandatory levy of interest under sections 234B and 234C, citing the binding precedent of the SC.

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Issues Involved:
1. Estimation of income at specific percentages on main contract and sub-contract receipts.
2. Levy of interest u/s 234B and 234C of the Income-tax Act, 1961.

Summary:

Issue 1: Estimation of Income

The assessee, engaged in civil construction, failed to substantiate various expenses during assessment proceedings. The Assessing Officer estimated the income at 12% of gross receipts. On appeal, the CIT(A) directed the income to be estimated at 8% on main contract receipts and 6% on sub-contract receipts. The assessee appealed to the Tribunal.

The Tribunal referred to the case of Shri K. Ramakrishna Contractor (P) Ltd., where it was held that once the books of account are rejected, the taxing authority must determine the true profits based on available material. The Tribunal noted that in similar cases, a profit rate of 12.5% was applied. However, in the assessee's case for the assessment year 2003-04, the Tribunal had estimated the profit at 8% for own contracts and 5% for sub-contracts after allowing depreciation.

The Tribunal concluded that the assessee could either follow the precedent set in its own case for the assessment year 2003-04, provided it gives up the claim of depreciation, or follow the decision in the case of M/s Krishna Mohan Construction Company. The Tribunal directed the Assessing Officer to estimate the income at 8% on main contract receipts and 5% on sub-contract receipts. This ground was partly allowed.

Issue 2: Levy of Interest u/s 234B and 234C

The assessee contested the levy of interest u/s 234B and 234C, relying on the Full Bench judgement of the Patna High Court in the case of Smt. Tej Kumari & Ors. v. CIT. The Tribunal, however, referred to the Supreme Court judgement in the case of CIT v. Anjum M.H. Ghaswala and Others, which held that the levy of interest u/s 234B and 234C is mandatory and consequential. Accordingly, this ground was dismissed.

Conclusion:

Both appeals of the assessee were partly allowed, with the Tribunal directing the Assessing Officer to estimate the income at 8% on main contract receipts and 5% on sub-contract receipts, and dismissing the ground regarding the levy of interest u/s 234B and 234C.

Order pronounced in the open court on 27th May, 2011.

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