KUNHIKORAN. M.V.,KASARAGOD V. ITO, WARD-1, KANNUR

ITA 539/COCH/2024

AI Insights

The case involves Sri. Kunhikoran M.V., a PWD contractor, who appealed against the order of the Additional/Joint Commissioner of Income-tax (Appeals) which sustained the assessment of his total income as the entire contract receipts for the assessment year 2017-2018. The assessee had initially declared his business income as 8% of the total contract receipts under presumptive taxation as per section 44AD of the Income-tax Act, 1961, but the CPC Bangalore treated the entire receipts as income. The JCIT(A) upheld this decision, noting that the assessee's turnover exceeded Rs. 2 crore, thus disqualifying him from presumptive taxation under section 44AD. The Tribunal found that the entire gross receipts should not be taxed as income if section 44AD does not apply, and only the net income should be considered.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 316017 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LEENA LAL; SENIOR
• Assessee Lawyers: SURESHKUMAR C; TAKING INTO ACCOUNT
• Keywords: Business income; Opportunity of being heard; Presumptive income; FORM 26AS
• Section: 44AD

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN Before Shri George George K, Vice-President & Shri Inturi Rama Rao, Accountant Member ITA No.539/Coch/2024 :Asst.Year 2017-2018 Sri.Kunhikoran M.V. PWD Contractor M.V.K.House, Udinur, Edachakai, Kasaragod – 671 310. PAN : AEVPK7979R. v. The Income Tax Officer Ward 1 Kannurassessee. (Appellant) (Respondent) Appellant by : Sri.Suresh Kumar C, CA Respondent by : Smt.Leena Lal, Senior AR Date of Hearing :13.05.2025 Date of Pronouncement : 14.05.2025 O R D E R Per George George K, Vice-President : This appeal at the instance of the assessee is directed against the Addl. / Joint Commissioner of Income-tax (Appeals)’s [hereinafter “the JCIT(A)”] order dated 19.04.2024 passed u/s.250 of the Income-tax Act, 1961 [hereinafter “the Act”). The relevant assessment year is 2017- 2018. 2. The grounds raised read as follows:- “1. That the order of the learned Additional/ Joint CIT(Appeals)-7, Mumbai, Income Tax Department dated 19.04.2024 sustaining the assessment of Rs.2,98,04,440/- as appellant's total income made by the Assessing Officer, CPC, Bengaluru for A.Y. 2017-18 is contrary to facts and circumstances of the case and infirm in law. ITA No.539/Coch/2024. Sri.Kunhikoran M.V. 2 2. That the lower authorities erred in properly appreciating the facts and circumstances of the case and there is no justification to assess the gross receipts as the appellant's income under 'Profits and Gains from Business or Profession'. 3. That the First Appellate Authority erred in holding that if the provisions of sec. 44AD is not applicable to the appellant's case, the entire gross receipts is liable for treatment as income of the appellant. This is clearly infirm in law and unjustified and unwarranted. 4. The appellant craves leave to add, alter, modify or amend any of the above grounds of appeal at the time of hearing of the appeal 5. For the above and other reasons to be urged at the time of hearing of the appeal, it is prayed that the Hon'ble ITAT may kindly be pleased to vacate the additions made and render justice to the appellant.” 3. Brief facts of the case are as follows: The assessee an individual, is a PWD contractor. For the assessment year 2017-2018, the return of income was filed on 23.05.2018 by declaring total income of Rs.24,03,540. The assessee’s business income was declared at Rs.23,82,692, being 8% of the total contract receipt of Rs.2,97,83,593. The CPC Bangalore issued an intimation u/s.143(1) of the Act (intimation dated 24.08.2018) by treating the entire contract receipts as income instead of 8% declared by the assessee. 4. Being aggrieved by the intimation issued u/s.143(1) of the Act, the assessee preferred an appeal before the first appellate authority. The JCIT(A) confirmed the intimation issued u/s.143(1) of the Act. The JCIT(A) held that the assessee had filed the return of income in ITR 4 wrongly and declared income on presumptive taxation u/s.44AD of the Act. It was held by the JCIT(A) that the total turnover / gross receipts of the assessee during the relevant assessment year exceeded Rs.2 crore, hence, the presumptive provision u/s.44AD of the Act does not have ITA No.539/Coch/2024. Sri.Kunhikoran M.V. 3 application. Further, The JCIT(A) held that no details of the expenditure incurred by the assessee in undertaking the contract work has been furnished. Hence, he concluded that intimation u/s.143(1) of the Act, by bringing to tax the entire contract receipts is correct. 5. Aggrieved by the order of the first appellate authority, the assessee has filed the present appeal before the Tribunal. The learned AR submitted that the assessee had mistakenly filed return in ITR 4, which is applicable for presumptive taxation u/s.44AD of the Act. However, the learned AR submitted that the JCIT(A) has erred in bringing to tax the entire contract receipts as per Form 26AS and treated the same as income of the assessee. The learned AR submitted that the matter may be restored to the files of the AO, since only the net income can be brought to tax. 6. The learned Departmental Representative supported the order of the JCIT. 7. We have heard rival submissions and perused the material on record. The assessee had filed his return of income wrongly in ITR 4, which is applicable for the persons declaring income on presumptive basis u/s.44AD of the Act. Admittedly, the assessee’s turnover exceeds Rs.2 crore, hence, the provisions of presumptive taxation u/s.44AD of the Act does not have application. However, the entire contract receipts as per Form 26AS was treated as income of the assessee and a huge demand of Rs.1,41,82,974 was raised in the intimation issued u/s.143(1) of the Act. We find, there is no justification to assess the gross receipts ITA No.539/Coch/2024. Sri.Kunhikoran M.V. 4 of the assessee as income under the head profits and gains from business or profession. If the provisions of sec.44AD of the Act is not applicable, the Revenue cannot bring to tax the entire gross receipts, but only the net income. In the interests of justice and equity, we restore the case to the files of the AO. The assessee shall produce necessary material to prove that he had incurred the expenses for which he has earned the total receipts of Rs.2,97,85,593. In the event, the assessee has not been able to provide necessary evidences to that effect, the AO shall estimate the income of the assessee by taking into account comparable cases. The AO shall afford a reasonable opportunity of being heard to the assessee before a decision is taken on the matter. It is ordered accordingly. 8. In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on this 14th day of May, 2025. Sd/- (Inturi Rama Rao) Sd/- (George George K) ACCOUNTANT MEMBER VICE-PRESIDENT Cochin; Dated : 14th May, 2025. Devadas G* Copy to : 1. The Appellant. 2. The Respondent. 3. The CIT, Cochin. 4. The DR, ITAT, Cochin. 5. Guard File. Asst.Registrar/ITAT, Cochin "