2021 (11) TMI 87 - AT - Income Tax

Appeal partly allowed with profit estimation upheld. Issues on bad debts, interest disallowance, and cash credits restored for fresh adjudication.

Srivani Mullapudi Versus Asst. Commissioner of Income Tax, Circle-2 (2) Hyderabad

Srivani Mullapudi Versus Asst. Commissioner of Income Tax, Circle-2 (2) Hyderabad - TMI Issues Involved:1. Delay in filing the appeal.2. Estimation of income from sub-contract receipts.3. Classification of interest income.4. Disallowance of bad debts.5. Disallowance of interest expenditure.6. Addition of unexplained cash credits under Section 68.Detailed Analysis:1. Delay in Filing the Appeal:The assessee's appeal suffered from a delay of 446 days, which was attributed to reasons beyond her control as per the condonation petition/affidavit. Since there was no rebuttal from the departmental side, the delay was condoned.2. Estimation of Income from Sub-Contract Receipts:The assessee contested the CIT(A)'s decision to sustain the Assessing Officer's (AO) estimation of 10% profit on gross sub-contract receipts amounting to Rs. 50,64,828. The CIT(A) noted that the assessee, a Director in Progressive Constructions Limited (PCL), received a road construction contract from PCL. The AO issued a show cause notice due to lack of evidence supporting the expenditure incurred. The AO rejected the appellant's books of account and estimated the profit at 10% of the gross receipts.The CIT(A) upheld the AO's decision, emphasizing that the work involved earth moving and excavation, which typically have high-profit margins. The tribunal found no merit in the assessee's argument for a lower profit margin and upheld the 10% estimation.3. Classification of Interest Income:The assessee argued that the CIT(A) erred in classifying interest income under 'Income from Other Sources' instead of 'Business Income.' The CIT(A) upheld the AO's decision, stating that the assessee had ceased business activities. Consequently, the disallowance of Rs. 70,22,551 on account of bad debts was also contested.4. Disallowance of Bad Debts:The assessee claimed bad debts of Rs. 70,22,551, asserting that she was engaged in money lending business. The tribunal noted that the AO had treated the assessee as carrying on money lending business in other assessment years. However, due to the lack of specific show cause notices regarding verification of bad debts and interest disallowances, the tribunal restored the issue to the AO for fresh adjudication.5. Disallowance of Interest Expenditure:The assessee contested the disallowance of Rs. 99,73,337 incurred towards interest, arguing that the AO's decision was based on suspicion and conjecture. The tribunal restored this issue to the AO for fresh adjudication, noting that there was no specific show cause notice issued for verification.6. Addition of Unexplained Cash Credits under Section 68:The AO added Rs. 50,42,125 as unexplained cash credits, citing the lack of evidence for the genuineness, identity, and creditworthiness of the creditors. The CIT(A) upheld the AO's decision, noting that the assessee failed to prove the onus of proving the genuineness, identity, and creditworthiness of the unsecured creditors.The tribunal restored this issue to the AO, directing the assessee to produce the corresponding parties for examination to prove their genuineness and creditworthiness.Conclusion:The appeal was partly allowed for statistical purposes. The tribunal upheld the 10% profit estimation on sub-contract receipts, restored the issues of bad debts, interest disallowance, and unexplained cash credits to the AO for fresh adjudication, and directed the assessee to produce evidence to substantiate her claims. The order was pronounced in the open court on 25th October 2021.