MAHESHBHAI DAHYABHAI AHIR,SURAT V. ITO, WARD-2(3)(1), SURAT

ITA 583/SRT/2024

AI Insights

The case involves Maheshbhai Dahyabhai Ahir, who appealed against the order of the Commissioner of Income Tax (Appeals), which confirmed additions to his income for the assessment year 2011-12. The additions were made on account of undisclosed income from contract receipts and rental income from machinery. The Assessing Officer had initially estimated the net profit at 8% of contract receipts and treated all rental income as undisclosed. The CIT(A) reduced the addition on rental income to 50%. The Tribunal considered the assessee's subsequent compliance and the fact that this was his first year of business, leading to a decision to assess the income at a 5% net profit rate.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126269 (ITAT-SURAT)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUKESH JAIN
• Assessee Lawyers: SURESH K. KABRA
• Keywords: Grounds of appeal; Rental receipts; Total Turnover; National Faceless Appeal; Commissioner; Commissioner of Income Tax; A.Y. 2011-12; Expenses claimed; Department; Explanation; Services
• Section: 148; 271(1)(c); 44AD

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER & SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER I.T.A. No. 583/SRT/2024 (Assessment Year: 2011-12) Maheshbhai Dahyabhai Ahir, 226, Divadandi, Hazira, Surat-394270 Vs. Income Tax Officer, Ward-2(3)(1), Surat [PAN No.ADIPA9951H] (Appellant) .. (Respondent) Appellant by : Shri Suresh K. Kabra, C.A. Respondent by: Shri Mukesh Jain, Sr. DR Date of Hearing 21.04.2025 Date of Pronouncement 25.04.2025 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeal), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 03.04.2024 passed for A.Y. 2011-12. 2. The assessee has raised the following grounds of appeal: “1. The Ld. CIT(A), NFAC has erred and was not just and proper on the facts of the case and in law in confirming the addition of Rs. 46,63,936/- being 8.0% of the turnover of contract Receipts of RS. 5,82,99,204/-. 2. The Ld. CIT(A), NFAC has erred and was not just and proper on the facts of the case and in law in confirming the addition of Rs. 60,35,697/- being @ 50.00% of the HIRE RECEIPTS of Machinery of Rs. 1,20,71,394/-.” 3. The brief facts of the case are that the assessee is engaged in the business of rendering contract services and is also involved in renting of Plant ITA No.583/Srt/2024 Maheshbhai Dahyabhai Ahir vs. ITO Asst. Year –2011-12 - 2– and Machinery to various corporates. For the impugned year under consideration, the Assessing Officer noted that though the assessee had substantial receipts on account of carrying out of contract work and hiring of Plant and Machinery on rent, the assessee had not filed his return of income. Accordingly, the case of the assessee was reopened under Section 148 of the Act after taking requisite permissions. 4. During the course of hearing, various notices of hearing were issued to the assessee, but the assessee remained non-compliant in response to various notices issued to him. The Assessing Officer noted that the assessee had total contract receipts of Rs. 5,82,99,204/- from six parties and had also received rental income (by hiring Plant and Machinery) amounting to Rs. 1,20,71,394/- from various parties. The Assessing Officer was of the view that since the assessee had omitted to file return of income and also had not provided necessary explanations with regard to the aforesaid contractual and rental receipts, the source of the aforesaid receipts remained unexplained. With respect to contractual receipts amounting to Rs. 5,82,99,204/- the Assessing Officer applied the provisions of Section 44AD of the Act and estimated the net profit @ 8% of the total contractual receipts and added the same as undisclosed income of the assessee. However, with respect to rental receipts amounting to Rs. 1,20,71,394/- on renting out of Plant and Machinery, the Assessing Officer treated the entire rental receipts as undisclosed income of the assessee. Further, the Assessing Officer also initiated penalty proceedings under Section 271(1)(c) of the Act. ITA No.583/Srt/2024 Maheshbhai Dahyabhai Ahir vs. ITO Asst. Year –2011-12 - 3– 5. In appeal, Ld. CIT(A) partly allowed the appeal of the assessee by restricting the addition on account of undisclosed rental income amounting to Rs. 1,20,71,394/- to 50% of such receipts. 6. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A). 7. Before us, the Counsel for the assessee submitted that this is the first year of business carried out by the assessee. Accordingly, since the assessee was not well-versed with the provisions of the Income Tax Act, admittedly there was non-compliance on the part of the assessee in not maintaining the books of accounts in respect of it’s contractual business and there was also omission on part of the assessee in not filing his return of income, for the impugned assessment year. However, the Counsel for the assessee submitted that in the succeeding assessment years, the assessee had filed his return of income and had declared net profit to the tune of approximately 2% of it’s total turnover for A.Ys. 2012-13 and 2013-14. For A.Y. 2012-13, the assessee had a turnover of Rs. 5.65 crores and for A.Y. 2013-14 the assessee had a turnover of Rs. 7 crores approximately on which next profit @ 2% had been declared by the assessee as his taxable income. Further, it was submitted that the returns of income for both the assessment years had been accepted by the Income Tax Department. For A.Y. 2013-14, there was also a regular assessment which was done in the hands of the assessee in which a minor addition of Rs. 4.95 lakhs was made on account of disallowance of certain expenses claimed by the assessee. Accordingly, the Counsel for the assessee submitted that from the succeeding assessment years, the assessee has been regularly maintaining it’s books of accounts, filing return of income and for ITA No.583/Srt/2024 Maheshbhai Dahyabhai Ahir vs. ITO Asst. Year –2011-12 - 4– A.Y. 2013-14, the net profit rate of 2% had, in principle, been accepted by the Department, during the course of regular scrutiny assessment carried out on the assessee. However, in order to buy peace of mind, the Counsel for the assessee submitted that the assessee would be willing to settle for a net profit rate of 5% on it’s total turnover for the impugned assessment year. 8. In response, the Ld. D.R. placed reliance on the observations made by the Ld. Assessing Officer and Ld. CIT(A), in their respective orders. However, looking into the totality of the circumstances, in which the net profit rate of 2% has been accepted by the Department for succeeding assessment years, the Ld. D.R. also did not object to the determination of income for the impugned assessment years, at a net profit rate of 5% of the total turnover of the assessee. 9. We have heard the rival contentions and perused the material available on record. 10. We observe that this is the first year of the assessee’s contractual business, in which he has earned income from carrying out contractual work and also rental income on account of hiring of Plant and Machinery. For this year, the assessee did not file return of income and has not maintained any books of accounts, being the assessee’s first year of business. However, we note that for the succeeding assessment years, the assessee has been regularly filing return of income and also maintaining duly audited books of accounts. For A.Y. 2012-13, the assessee has declared net profit rate of 2% approximately on total turnover of 5.65 crores. For A.Y. 2013-14 the assessee has declared approximately 2% net profit rate on total turnover of ITA No.583/Srt/2024 Maheshbhai Dahyabhai Ahir vs. ITO Asst. Year –2011-12 - 5– Rs. 7.01 crores approximately. Further, for A.Y. 2013-14, there was a regular assessment in the case of the assessee, wherein the aforesaid return of income was accepted by the Tax Department, though there were some minor disallowances on account of certain expenditures, for which the assessee was unable to provide supporting documentation. Accordingly, taking into consideration the totality of the facts of the assessee’s case, and also taking into consideration the fact that this is the first year of the assessee’s business, in the interest of justice, the net profit rate is directed to be restricted to 5% of the total turnover declared by the assessee, for the impugned assessment year. 11. In the result, the appeal of the assessee is partly allowed. Order pronounced under proviso to Rule 34 of ITAT Rules, 1963 on 25/04/2025 Sd/- Sd/- (BIJAYANANDA PRUSETH) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 25/04/2025 TANMAY, Sr. PS TRUE COPY आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, सूरत / DR, ITAT, Surat 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, सूरत/ ITAT, Surat 1. Date of dictation 22.04.2025 2. Date on which the typed draft is placed before the Dictating Member 22.04.2025 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S 23.04.2025 5. Date on which the fair order is placed before the Dictating Member for pronouncement .04.2025 6. Date on which the fair order comes back to the Sr.P.S./P.S 25.04.2025 7. Date on which the file goes to the Bench Clerk 25.04.2025 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Dispatch of the Order…………………………………… "