Tribunal adjusts income rate, disallows exemption for late investment, remands for fresh decision.

The Tribunal partly allowed the Revenue's appeal for statistical purposes, reducing the estimated income rate from 10% to 8% for the contracting business. The claim for exemption under section 54EC was disallowed as the investment was made after the statutory period for the short term capital gains. The Tribunal remanded the matter to the Assessing Officer for a fresh decision based on new facts presented, allowing both parties' appeals for statistical purposes.

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Issues Involved:
1. Restriction of the addition made by the Assessing Officer (A.O.) to the total income of the assessee by estimating his income from the contracting business.
2. Determination of income from long term capital gain and the claim for exemption under section 54EC of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Restriction of the Addition Made by the A.O.:
The Revenue challenged the action of the Commissioner of Income Tax (Appeals) [CIT(A)] in restricting the addition made by the A.O. by estimating the assessee's income from the contracting business at a net profit rate of 10%. The assessee, engaged in the business of civil contracts, failed to produce relevant bills and vouchers to support the expenses claimed. Consequently, the A.O. estimated the income by applying a net profit rate of 10% on the gross receipts, leading to a substantial trading addition.

The CIT(A) found justification in the A.O.'s estimation due to the absence of supporting bills/vouchers. However, considering that a net profit rate of 8% was applied in the assessee's case for the Assessment Year (A.Y.) 2007-2008, the CIT(A) held that a 10% rate was excessive and reduced it to 8%. The Tribunal upheld the CIT(A)'s decision, noting that all relevant facts and the nature of the business remained consistent with the previous year. Therefore, the Tribunal dismissed Ground No. 1 of the Revenue's appeal.

2. Determination of Income from Long Term Capital Gain and Claim for Exemption under Section 54EC:
Ground Nos. 2 and 3 of the Revenue's appeal and Ground Nos. 1 and 2 of the assessee's cross objection pertained to the determination of income from long term capital gain and the assessee's claim for exemption under section 54EC of the Act.

The assessee declared income from short term capital gain from the sale of two flats but could only produce the sale deed for one flat. The A.O. took the sale consideration for the other flat at Rs. 22,50,000 as against Rs. 14,50,000 shown by the assessee, resulting in a short term capital gain of Rs. 44,82,344. The assessee claimed an exemption of Rs. 50 lakhs under section 54EC for investment in Rural Electrification Corporation bonds. The A.O. disallowed this claim, noting that the corresponding capital gain arose from a sale on 25.11.2006, while the investment was made on 22.12.2008, exceeding the statutory period.

The CIT(A) considered the assessee's submissions and found that the capital gains should be treated as short term, arising from the development agreement dated 25.11.2006. The CIT(A) also noted discrepancies in the A.O.'s calculation of the sale consideration and directed the A.O. to adopt a figure of Rs. 35,83,950 for computing short term capital gains. The CIT(A) upheld the disallowance of the exemption under section 54EC, as the gains were short term.

The Tribunal observed that the assessee presented new facts and figures before the CIT(A) that were not considered by the A.O. Consequently, the Tribunal set aside the CIT(A)'s order on this issue and remanded the matter to the A.O. for a fresh decision, providing the assessee a proper opportunity to be heard. Thus, Ground Nos. 2 and 3 of the Revenue's appeal and Ground Nos. 1 and 2 of the assessee's cross objections were treated as allowed for statistical purposes.

Conclusion:
The appeal of the Revenue was partly allowed for statistical purposes, and the cross objection of the assessee was allowed for statistical purposes. The Tribunal pronounced the order in the open Court on 29.04.2015.

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