Contractor's entire turnover treated as business income under section 44AD, not income from other sources

The ITAT Bangalore addressed income estimation for a contractor who split turnover between business income (declaring 6% profit under section 44AD) and income from other sources. The contractor received payments from Mysore City Corporation with TDS deducted under section 194C. The AO accepted the 6% profit rate on part turnover but disputed the classification of remaining income. The tribunal held that all amounts should be treated as business income under Chapter IV Part D, not income from other sources. For the balance turnover of Rs. 3,09,23,045, the tribunal adopted 8.5% net profit rate as offered by the assessee's representative, considering past trends and absence of books/audit. The appeal was partly allowed.

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Issues Involved:
The appeal filed by the assessee against the order of the CIT(Appeals) regarding the assessment year 2018-19 raised various grounds including estimation of income from contract business, disallowance of deemed expenditure, denial of opportunity of hearing, and challenge to the interest levied under sections 234A, 234B, and 234C of the Income Tax Act.

Estimation of Income from Contract Business:
The assessee, a proprietor of a business, declared income under different heads for the assessment year 2018-19. The AO disallowed the claimed expenditure under section 57 as the assessee failed to provide supporting documents. The assessee contended that the AO should have estimated the income under the head Profits & gains of business or profession instead of disallowing the entire expenditure. The Tribunal held that the income received should be considered under Profits & gains of business or profession, and based on past trends, a Net Profit rate of 8.5% was deemed appropriate for the balance turnover.

Denial of Opportunity of Hearing:
The assessee argued that the CIT(A) failed to provide an opportunity of hearing despite a specific request, violating principles of natural justice. However, the Tribunal did not find merit in this ground as detailed written submissions were made before the CIT(A), and the appeal was duly considered before dismissal.

Interest Levied under Sections 234A, 234B, and 234C:
The appellant contested the liability to pay interest under the mentioned sections, claiming that there was no additional tax liability. The Tribunal observed that the interest levied was not in accordance with the law and lacked clarity in terms of rate, period, and quantum. Consequently, the interest levied was deemed unjustified and deserving of cancellation based on the facts and circumstances of the case.

Conclusion:
The Tribunal partially allowed the appeal by the assessee, emphasizing the proper categorization of income from contract business, addressing the denial of a hearing opportunity, and canceling the interest levied under sections 234A, 234B, and 234C due to lack of clarity and compliance with legal provisions. The decision was pronounced on November 28, 2023.

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