2016 (5) TMI 1365 - AT - Income Tax

Tribunal upholds profit estimation for civil contracts despite rejected books; Revenue appeal dismissed.

DCIT, Circle-6, Kolkata Versus M/s Sikaria Infraprojects (P) Ltd.

The Tribunal upheld the CIT(A)'s profit estimation at 8% of gross receipts for a Private Limited Company engaged in civil contracts, despite rejecting the ... Treating the profit @ 8% of gross receipts - whether the action of the ld. CIT(A) is correct for working the income @ 8% of the gross receipt? - Held that:- From the facts of the case, we find that the nature of the work of the assessee has not been doubted and so in the similar facts and circumstances various Hon’ble courts have held that a reasonable percentage of profit can be worked out. The assessee has declared the profit in its own case for the earlier years and subsequent years, showing very less amount of profit in terms of percentage and the same was accepted by the Revenue. Therefore in our considered view we find no reason to interfere in the order of Ld. CIT(A) and this ground of Revenue’s appeal is dismissed. Issues:1. Estimation of profit at 8% of gross receipts by CIT(A) without rejecting the books of account.2. Disallowance of certain purchases as bogus by AO based on discrepancies in responses to notices u/s 133(6) of the Act.Analysis:Issue 1: Estimation of profit at 8% of gross receiptsThe appeal was against the CIT(A) order directing profit estimation at 8% of gross receipts for the appellant, a Private Limited Company engaged in civil contracts. The AO found discrepancies between claimed purchases and responses from suppliers to notices u/s 133(6) of the Act. The CIT(A) considered the appellant's failure to provide necessary evidence, defects in books of account, and inability to verify purchases. Despite rejecting the books of account, the CIT(A) assessed income at 8% of gross receipts, leading to an income of Rs. 1,79,98,687. The Revenue argued against this estimation, emphasizing the lack of verification of expenses. However, the Tribunal cited similar cases where courts upheld reasonable profit percentage estimations in civil contract businesses. Additionally, the Tribunal noted the appellant's historical low profits and dismissed the Revenue's appeal.Issue 2: Disallowance of certain purchases as bogusThe AO disallowed Rs. 9,29,08,757 of purchases as bogus due to discrepancies in responses from suppliers to notices u/s 133(6) of the Act. The CIT(A) partially upheld this disallowance, considering the appellant's failure to verify expenses and defects in books of account. The appellant argued that suppliers misunderstood the case due to a name change and insufficient time for responses. The Tribunal upheld the CIT(A)'s decision, citing precedents where net profit estimations were based on past records and upheld by higher authorities. The Tribunal dismissed the Revenue's appeal, noting the appellant's historical low profits and acceptance by the Revenue of previous profit declarations.In conclusion, the Tribunal upheld the CIT(A)'s profit estimation at 8% of gross receipts and dismissed the Revenue's appeal regarding the disallowance of certain purchases as bogus. The judgment was pronounced on 18/05/2016.