M/S. MANI AND CO.,CHIDAMBARAM V. ITO, WARD-3, CUDDALORE

ITA 2916/CHNY/2025

AI Insights

The case involves M/s. Mani and Co., a partnership firm engaged in government contracts, primarily construction, which appealed against the order of the Commissioner of Income Tax (Appeals) at the National Faceless Appeal Centre, Delhi. The appeal was directed against the assessment order which rejected the firm's books of accounts and estimated its income at 15% of gross contract receipts, later reduced to 8% by the FAA. The Tribunal found the rejection of the books of accounts justified due to discrepancies and non-compliance issues noted during the assessment. However, considering the competitive nature of the bids and the absence of comparable cases, the Tribunal deemed it appropriate to estimate the income at 6% of gross receipts instead of 8%.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 833611 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Appeal Filed On: 23-10-2025
• Other Referred Cases: Shri Lakshmanan vs. ITO, ACIT vs. Mahesh Enterprises
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GOUTHAMI MANIVASAGAM
• Assessee Lawyers: H. YESHWANTH KUMAR
• Keywords: Business income; Rejection of books of accounts; TDS
• Section: 44AD

Judgement Text

"आयकर अपीलȣय अͬधकरण, ‘बी’ Ûयायपीठ, चेÛनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI Įी जॉज[ जॉज[ क े, उपाÚय¢ एवं Įी इंटूरȣ रामा राव, लेखा सदèय क े सम¢ BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.: 2916/CHNY/2025 िनधाᭅरण वषᭅ/Assessment Year: 2017-18 M/s. Mani and Co., No.2, Manmatha Swamy Nagar, Chidambaram – 608 001. PAN: AAJFM 3009Q Vs. The Income Tax Officer, Ward 3, Cuddalore. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri H. Yeshwanth Kumar, Advocate ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Ms. Gouthami Manivasagam, Addl.CIT सुनवाई कᳱ तारीख/Date of Hearing : 02.02.2026 घोषणा कᳱ तारीख/Date of Pronouncement : 03.02.2026 आदेश/ O R D E R PER GEORGE GEORGE K, VICE PRESIDENT: This appeal filed at the instance of the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 26.09.2025 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2017- 18. Printed from counselvise.com ITA No.2916/Chny/2025 :- 2 -: 2. The issues argued by the Ld.AR is whether the First Appellate Authority (FAA) is justified in confirming the assessment order in rejecting the books of accounts and estimating the income at 8% of gross contract receipts (AO estimated the income of the assessee at 15% of the gross contract receipts) 3. Brief facts of the case are as follows: Assessee is a partnership firm. It is engaged in government contract (primarily construction of roads, culverts, etc). For the assessment year 2017-18, return of income was filed on 07.11.2017 declaring total income of Rs.9,98,980/- against the gross contract receipts of Rs.18,48,81,846/-. The return was selected for scrutiny and order u/s.143(3) of the Act was completed on 31.12.2019 rejecting the books of accounts of the assessee due to multiple defects. The AO estimated the business income at 15% of the gross receipts after allowing interest and allowance claimed by the partnership firm. 4. Aggrieved by the order of the assessment completed by rejecting the books of accounts and estimating the income at 15% of gross receipts, assessee filed appeal before the FAA. The FAA upheld the rejection of books of accounts. However, FAA held that estimation of 15% by the AO is arbitrary and directed to restrict the Printed from counselvise.com ITA No.2916/Chny/2025 :- 3 -: estimation of income at 8% of the gross receipts. Accordingly, the appeal filed by the assessee was partly-allowed. 5. Aggrieved by the order of the FAA, assessee has filed the present appeal before the Tribunal. The Ld.AR submitted that the assessee’s books of accounts are audited and there is no adverse observation by the auditor who had certified the audit report. Therefore, it was submitted that rejection of books of accounts by the AO is erroneous. Further, it was contended that estimation by the FAA at 8% of gross receipts is highly excessive and arbitrary and requested the same may be reduced to 3%. In this context, the Ld.AR had filed a comparative chart disclosing GP for the assessment years 2015-16 to 2018-19 (disclosing GP of 4.70% to 1.95%). Further, the Ld.AR relied on the order of the Chennai Bench of the Tribunal in the case of Shri Lakshmanan vs. ITO in ITA No.2668/CHNY/2019 (order dated 28.04.2021) and submitted that assessee in the said case was also a government contractor and Tribunal in said case estimated the GP at 3% of the gross receipts. 6. The Ld.DR on the other hand has filed brief written submission justifying the rejection of books of accounts and estimation made by the FAA at 8% of gross receipts. In support of the contention that estimation made by the FAA at 8% of the gross Printed from counselvise.com ITA No.2916/Chny/2025 :- 4 -: receipts, the Ld.DR relied on the order of Mumbai Bench of the Tribunal in the case of ACIT vs. Mahesh Enterprises in ITA No.5059/Mum/2010 (order dated 18.09.2013). 7. We have heard rival submissions and perused the material on record. First, we will adjudicate whether the AO has rightly rejected the books of accounts. During the course of assessment proceedings, assessee was asked to explain decreasing in GP when there was an increase in turnover. It was also observed by the AO that there was abnormal increase in expenditure. During the course of assessment proceedings, summons u/s.131 of the Act was issued to ten parties. However, only seven creditors filed their reply. Out of seven replies received by the AO, discrepancy was noticed in replies of three creditors as there was difference in amounts confirmed. One of the parties, Sri Lakshmi Tyres stated that there was no transaction with the assessee during the relevant period. The assessee had also failed to submit the entire list of sundry creditors. Further, the AO also noticed that there was huge outstanding shown in the name of daily wage earners and the expenses were not correlated with the receipts. Further, it was noted by the AO that the labour expenses were inflated via self- made vouchers and not paid weekly as claimed. There was non- compliance with the chapter XVIIB since there was TDS defaults on Printed from counselvise.com ITA No.2916/Chny/2025 :- 5 -: contract bills. Though in the audit report there was no adverse noting by Auditor but during the course of assessment proceedings clearly multiple defects were identified by the AO which was not controverted during the course of assessment proceedings, the appellate proceedings nor before us. Therefore, on facts of the instant case we uphold the rejection of books of accounts u/s.145(3) of the Act. 8. As regards the estimation of income at 8% of the gross receipts, the Ld.AR had relied on the comparable figures for the assessment years 2015-16, 2016-17 and 2018-19. For the relevant assessment year namely 2017-18, the gross percentage is only 1.70% on a turnover of Rs.18,48,81,846/-. The Ld.AR had requested for adopting the average gross percentage for the assessment years 2015-16 to 2018-19 for the relevant assessment year. We find that for AYs 2015-16, 2016-17 & 2018-19, assessments were not selected for scrutiny and therefore, gross percentage declared by the assessee was never tested. Therefore, the plea of the assessee to adopt average gross percentage for the relevant assessment year is rejected. Further, assessee nor department has furnished comparable cases for adopting of GP for the relevant assessment year. Therefore, adoption of 8% u/s.44AB of the Act of gross receipts is an important guideline / yardstick for Printed from counselvise.com ITA No.2916/Chny/2025 :- 6 -: determination of income when there is no comparable cases. However, for presumption of taxation u/s. 44AD of the Act, the turnover ought to be less than Rs.2 crores. In the instant case, the turnover for the relevant assessment year is far exceeding the threshold limit prescribed u/s.44AD of the Act. Hence, taking into consideration that assessee firm undertakes government contracts and the bids are placed in highly competitive market, we deem it appropriate to adopt income of 6% of gross receipts instead of 8% estimated by the FAA. 9. In the result, the appeal filed by the assessee is partly-allowed. Order pronounced in the open court on 3rd February, 2026 at Chennai. Sd/- Sd/- (इंटूरȣ रामा राव) (INTURI RAMA RAO) लेखा सदèय/ACCOUNTANT MEMBER (जॉज[ जॉज[ क े) (GEORGE GEORGE K) उपाÚय¢ /VICE PRESIDENT चे᳖ई/Chennai, ᳰदनांक/Dated, the 3rd February, 2026 RSR आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy to: 1. अपीलाथȸ/Appellant 2. Ĥ×यथȸ/Respondent 3. आयकर आयुÈत /CIT, Chennai 4. ͪवभागीय ĤǓतǓनͬध/DR 5. गाड[ फाईल/GF. Printed from counselvise.com "