2018 (5) TMI 1579 - AT - Income Tax

Tribunal rules on income estimation for sub-contracts, approves depreciation allowance.

SVC Projects Pvt. Ltd. Versus ACIT, Central Circle-2, Visakhapatnam And Vice-Versa

SVC Projects Pvt. Ltd. Versus ACIT, Central Circle-2, Visakhapatnam And Vice-Versa - TMI Issues Involved:1. Validity of the assessment under section 153B.2. Legal validity of the assessment under section 143(3) r.w.s. 153A vs. section 144 r.w.s. 153A.3. Opportunity of being heard before approval under section 153D.4. Requirement of the AO's seal on the assessment order and notice of demand.5. Additions to returned income without pending assessment or seized material.6. Estimation of income and principles of natural justice.7. Estimation of income percentage by CIT(A).8. Classification of interest on fixed deposits.9. Approval under section 153D and application of mind.10. Issuance of notice under section 143(2) for multiple assessment years.11. Estimation of profits on sub-contracts.12. Allowance of depreciation from estimated income.Detailed Analysis:1. Validity of the Assessment Under Section 153B:The appellant did not press this ground during the hearing. Therefore, the tribunal dismissed it as not pressed.2. Legal Validity of the Assessment Under Section 143(3) r.w.s. 153A vs. Section 144 r.w.s. 153A:This ground was also not pressed by the appellant during the hearing and was dismissed accordingly.3. Opportunity of Being Heard Before Approval Under Section 153D:The appellant did not pursue this ground during the hearing, leading to its dismissal.4. Requirement of the AO's Seal on the Assessment Order and Notice of Demand:This issue was not pressed by the appellant during the hearing and was dismissed.5. Additions to Returned Income Without Pending Assessment or Seized Material:The appellant did not press this ground, and it was dismissed.6. Estimation of Income and Principles of Natural Justice:The appellant argued that the income was estimated at a fixed percentage without an opportunity to rebut, violating principles of natural justice. However, this ground was dismissed as it was not pressed during the hearing.7. Estimation of Income Percentage by CIT(A):The CIT(A) estimated the income at 12.5% of gross receipts, which the appellant contended was arbitrary and unreasonable. The tribunal upheld the CIT(A)'s estimation, noting that the appellant's profit history ranged from 8% to 12.29%, and the estimation at 12.5% was reasonable given the evidence of suppression of income and inflation of expenditure found during the search.8. Classification of Interest on Fixed Deposits:This ground was not pressed by the appellant and was dismissed.9. Approval Under Section 153D and Application of Mind:The appellant did not press this ground, and it was dismissed.10. Issuance of Notice Under Section 143(2) for Multiple Assessment Years:The appellant did not pursue this ground during the hearing, leading to its dismissal.11. Estimation of Profits on Sub-Contracts:The appellant argued that the estimation of income at 12.5% on sub-contracts was unreasonable, contending that profits should be shared between the assessee and sub-contractors. The tribunal directed the AO to estimate income at 8% on sub-contracts and 12.5% on own contracts, excluding sub-contract payments deemed bogus.12. Allowance of Depreciation from Estimated Income:The revenue appealed against the allowance of depreciation from the estimated income. The tribunal upheld the CIT(A)'s decision to allow depreciation, citing the statutory nature of depreciation and relevant case law, including the jurisdictional High Court's decision in Y. Ramachandra Reddy and the Supreme Court's decision in Awasthi Traders.Conclusion:The tribunal partly allowed the assessee's appeals concerning the estimation of income on sub-contracts and dismissed the revenue's appeals regarding the allowance of depreciation. The final order was pronounced on May 23, 2018.