Tribunal affirms 12% profit estimation on contract receipts, clarifies only profit is taxable.

The Tribunal upheld the ld. CIT(A)'s decision to estimate profit at 12% on contract receipts affected by bogus sub-contract expenses, clarifying that only the profit component is taxable. The Revenue's appeal was dismissed, affirming the relief granted to the assessee.

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Issues involved:
The judgment involves the assessment of bogus sub-contract expenses in relation to the business of Construction and Maintenance of Dams and Power projects for the assessment year 2012-13.

Summary:

Assessment of Bogus Sub-Contract Expenses:
The appellant, engaged in the business of Construction and Maintenance of Dams and Power projects, declared total income of Rs. 7.27 crore, and during assessment proceedings, it was found that payments made to three parties for subcontract works were bogus. The Assessing Officer treated the total amount paid to these parties as bogus expenditure, leading to an addition. The ld. CIT(A) upheld the action of the AO but allowed relief by estimating profit at 12% and making a sustained addition. The Revenue appealed to the Tribunal challenging this decision.

Judgment:
The Tribunal affirmed the findings of the AO regarding the bogus sub-contract expenses. The total revenue and expenses of the assessee were analyzed, with the bogus expenses amounting to Rs. 63.30 crore. The ld. CIT(A) estimated the profit at 12% considering the economy due to bogus contract bills. It was emphasized that income tax is charged on the income component in revenue receipts. The Tribunal agreed with the ld. CIT(A)'s approach, stating that only the profit element in the contract receipts is taxable, as per the decision in Pr. CIT Vs. S.V. Jiwani (2022) 449 ITR 583 (Bom.). Therefore, the appeal by the Revenue was dismissed, upholding the estimation of profit at 12% and allowing relief to the assessee.

Conclusion:
The Tribunal's decision affirmed the ld. CIT(A)'s estimation of profit at 12% on the contract receipts affected by bogus sub-contract expenses, emphasizing that only the profit element is subject to tax. The appeal by the Revenue was dismissed, and the judgment was pronounced on 20th July, 2023.

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