2020 (2) TMI 447 - AT - Income Tax

Tribunal allows appeal on assessment modifications, adjusts net profit, and addresses key issues.

The Tribunal admitted the appeal for adjudication after condoning the delay in filing. Additional grounds for appeal were allowed for challenging the ... Undisclosed contract receipts - claim of deduction of remuneration / salary to partners from the estimated income i.e net profit @ 8% - HELD THAT:- Since the assessee itself is showing net profit on contractual receipts before allowing salary and interest on capital to partners ranging between 7-8% in most of the subsequent years, therefore, the modification made by Pr. CIT that the net profit of the assessee should be estimated at 8% on accounted contractual receipts is correct and sustainable. However, we direct the AO to allow salary and interest on capital to the partners out of said estimated net profit. Whether the Pr. CIT was right in modifying the assessment order and directing the AO to add the entire undisclosed receipts as income of the assessee? - HELD THAT:- We are compelled to hold that in view of the proposition rendered by Hon’ble M.P. High Court in the case of Balchand Ajit Kumar [2003 (4) TMI 76 - MADHYA PRADESH HIGH COURT] the entire amount of contract receipts cannot be taxed in the hands of the assessee, only the profit embedded therein can be taxed in the hands of the assessee. Since, in the earlier part of this order, we have confirmed the action of the Ld Pr. CIT to estimate net profit @ 8% of the total contract receipts, but this percentage cannot be completely applied for estimation of net profit embedded in the unaccounted contract receipts. Therefore, explanation of the assessee and the modification order of ld. Pr. CIT, to cover the possible leakage of revenue, we direct the AO to estimate the net profit @ 16% of unaccounted contractual receipts, which would meet the ends of justice. Accordingly, appeal of the assessee is partly allowed. Issues involved:1. Condonation of delay in filing appeal.2. Admission of additional grounds for appeal.3. Estimation of net profit on contractual receipts.4. Taxation of entire undisclosed receipts as income.Detailed Analysis:1. Condonation of delay in filing appeal:The appeal was filed 14 days late, and the assessee sought condonation of the delay. The Tribunal, after considering the condonation petition and submissions, found a reasonable cause for the delay and admitted the appeal for adjudication.2. Admission of additional grounds for appeal:The assessee challenged the modification in the assessment order by the Principal CIT, Cuttack. The Tribunal admitted additional Ground No.5 for adjudication, allowing the assessee to challenge the modification on its merits. Other grounds not pressed were dismissed.3. Estimation of net profit on contractual receipts:The dispute centered on the net profit declared by the assessee on contractual receipts. The assessee argued for a lower estimation based on past and subsequent years' results. The CIT DR contended that the returned income for the assessment year was low compared to other years. The Tribunal upheld the modification by the Principal CIT to estimate net profit at 8% on contractual receipts but directed the AO to allow partner salaries and interest from the estimated profit.4. Taxation of entire undisclosed receipts as income:The issue was whether the entire undisclosed receipts should be taxed in the hands of the assessee. The assessee argued that only the profit embedded in the undisclosed receipts should be taxed. The Tribunal held that only the profit embedded in the undisclosed receipts could be taxed, not the entire amount. It directed the AO to estimate the net profit at 16% of unaccounted contractual receipts to address possible revenue leakage, partially allowing the appeal.In conclusion, the Tribunal addressed the delay in filing the appeal, admitted additional grounds for appeal, determined the net profit estimation on contractual receipts, and clarified the taxation of undisclosed receipts as income, providing a detailed analysis for each issue involved in the judgment.