VARA INFRAPROJECTS PRIVATE LIMITED,HYDERABAD V. INCOME-TAX OFFICER, WARD-17(1) , SIGNATURE TOWERS, KONDAPUR

ITA 1167/HYD/2024

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M/s. Vara Infraprojects Pvt. Ltd. appealed against the orders of the Income Tax Officer and the Commissioner of Income Tax (Appeals) regarding the assessment of income and the imposition of penalties for the Assessment Year 2016-17. The primary contention was the profit margin applied to contract receipts, where the assessee argued for an 8% profit rate under section 44AD of the Income Tax Act, 1961, as opposed to the 50% rate applied by the lower authorities. The Tribunal agreed with the assessee's argument, citing the provisions of section 44AD and the lack of dispute over the nature of the receipts as contract income. Regarding the penalty, the Tribunal found that the circumstances, including the first year of operation and internal disputes among directors, mitigated against a finding of deliberate concealment, leading to the penalty's removal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 103631 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2016-2017
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PAWAN KUMAR C HAKRAPANI
• Keywords: Business income; TDS; Presumptive income
• Section: 144; 44AD

Judgement Text

" आआआआ आआआआआआ आआआआआआ, आआआआआआआआ आआआ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘A’ Bench, Hyderabad BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER आ.अपी.सं /ITA Nos.1166 & 1167/Hyd/2024 (निर्धारण वर्ा/Assessment Year:2016-17) M/s. Vara Infraprojects Pvt. Ltd., Hyderabad. PAN:AADCV8775B Vs. Income Tax Officer, Ward-17(1), Hyderabad. (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri Pawan Kumar Chakrapani, C.A. रधजस् व द्वधरध/Revenue by:: Shri Srinath Sadanala, SR-DR सुिवधई की तधरीख/Date of hearing: 17/03/2025 घोर्णध की तधरीख/Pronouncement: 16/04/2025 आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M.: These appeals are filed by M/s. Vara Infraprojects Pvt. Ltd. (“the assessee”), feeling aggrieved by the separate orders passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”), both dated 24.07.2024 for the A.Y. 2016-17 respectively. Since these appeals are inter related, they are heard together and one consolidated order is being passed for the sake of convenience and brevity. ITA No.1166/Hyd/2024 2. The grounds raised by the assessee are as under : ITA Nos.1166 & 1167/Hyd/2024 2 3. The brief facts of the case are that the assessee is a private limited company, failed to file its Income Tax Return for A.Y. 2016-17. The Ld. AO, based on available information, found that the assessee had contract receipt of Rs.4,26,15,822/- and rental income of Rs.66,682/- during the year under ITA Nos.1166 & 1167/Hyd/2024 3 consideration. Consequently, notice u/s.148 the Income Tax Act, 1961 ('the Act') was issued by the Ld. AO to the assessee. However, the assessee failed to file any return in compliance to the notice u/s.148 of the Act also. Further, the assessee also did not comply to the other notices issued by the Ld. AO. Finally, the Ld. AO completed the assessment u/s.147 r.w.s. 144 of the Act on 15.03.2022 treating the entire contract receipt of Rs.4,26,15,822/- and rental receipt of Rs.66,682/- as unexplained income u/s.69A of the Act. 4. Aggrieved with the order of Ld. AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A), after considering the submission of the assessee held that the sources of both the receipts were identified and hence oculd not be treated as unexplained income u/s.69A of the Act. The Ld. CIT(A) allowed the deduction of 50% from the total contract receipt and accordingly, partly allowed the appeal of the assessee. The remaining 50% of contract receipt was treated as business income. 5. Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before us. The Learned Authorised Representative (“Ld. AR”) contended that, the profit margin of 50% adopted by the Ld. CIT(A) is on higher side. The Ld. AR argued that, as per the presumptive taxation provisions u/s. 44AD of the Act, an 8% profit rate is reasonable and justifiable. The Ld. AR further submitted that, there is no dispute regarding the nature of receipt as both the Ld. AO and Ld. CIT(A) has accepted the same as arising form contract business. Hence, the Ld. AR prayed before the bench to adopt a profit rate of 8% in line with the percentage provided u/s 44AD of the Act. 6. Per contra, the Learned Department Representative (“Ld. DR”) relied on the decision of revenue authorities. ITA Nos.1166 & 1167/Hyd/2024 4 7. We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. It is observed that both the Ld. AO and Ld. CIT(A) has accepted the nature of receipt as contract income. Further, no dispute regarding the genuineness and source of the contract receipts of Rs.4,26,15,822/- has been raised before us. The only objection raised by the Ld. AR was the higher profit estimation of 50% on the contract receipts. We are in agreement with the submission of the Ld. AR regarding such higher accumulation of profit on contract receipts. There should be a reasonable basis for estimating income on gross receipts. In our opinion, the estimation of profit @ 50% of the contract receipts is not reasonable. We have also gone through the provision of section 44AD of the Act, where, an estimation of profit at 8% of the turnover has been provided under the Act. Considering the facts and circumstances of the case and in the interest of justice, in our opinion, adopting 8% rate of profit on contract receipts would be just and proper in the case of the assessee. Accordingly, we direct the Ld. AO to compute the income from the contract receipts @ 8%. The grounds of the assessee are disposed accordingly. 8. In the result, the appeal of the assessee in ITA No. 1166/Hyd/2024 is partly allowed. ITA No.1167/Hyd/2024 9. This appeal is related to levy of penalty u/s.271(1)(c) of the Act on the addition made by the Ld. AO in ITA No.1166/Hyd/2024. The Ld. AO has levied a penalty of Rs.1,41,12,117/- by his order dated 21.09.2022. ITA Nos.1166 & 1167/Hyd/2024 5 10. Aggrieved with the order of Ld. AO, the assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) confirmed the penalty and directed the Ld. AO to recompute the penalty amount in accordance with the relief granted against the addition made. 11. Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before us. The Ld. AR submitted that, the addition has been made on estimated basis. Therefore, the imposition of penalty u/s.271(1)(c) of the Act is not justified, as estimation of income does not equate the concealment or furnishing inaccurate particulars. The Ld. AR also submitted that, this was the first year of operation for the assessee and in the very first year, dispute arose amongst the directors of the company for which the assessee could not do any business operation in subsequent year. The director who was looking after the accounts and tax matter stopped looking after the same, which causes non- filing of the return and non-appearance before the Ld. AO. However, there was no intention to evade any tax liability on the part of the assessee. In the alternate argument, the Ld. AR submitted that, if the bench accept the estimation of 8% rate of profit, the tax liability would be approximately equal to the TDS already deducted by the contractor. Therefore, there would be no significant tax liability remaining, hence, the penalty should be dropped. ITA Nos.1166 & 1167/Hyd/2024 6 12. Per contra, the Ld. DR relied on the orders passed by the revenue authorities. He further argued that the assessee failed to file the ROI. Had the case not been selected u/s.147 of the Act, the assessee would have been remain outside the tax net. Accordingly, there is clear case of concealment on the part of the assessee justifying the penalty u/s.271(1)(c) of the Act. Accordingly, the Ld. DR prayed before the bench to uphold the order of levy of penalty u/s.271(1)(c) of the Act. 13. We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. It has been submitted by the assessee that this was the first year of operation of the assessee and dispute among the directors prevented the filing of return and compliance before the revenue authorities. This fact, in our view mitigates the charge of deliberate concealment. Further, there is no dispute about the fact that the receipt of the assessee pertains to the contract income. The only dispute in the quantum appeal of the assessee was the estimation of profit on such contract basis, which we have already decided the issue in ITA No.1166/Hyd/2024 and directed the Ld. AO to estimate profit @ 8% on the contract receipts. We observed that TDS has already been deducted on such contract receipts and after considering the adjustment of TDS credit, the tax liability in the hands of the assessee would be insignificant. Therefore, in our opinion the revenue has not suffered any substantial loss. In view of the facts and circumstances of the case and in the interest of justice, in our opinion no penalty should be leviable on the assessee. Accordingly, we direct the Ld. AO to delete the penalty u/s.271(1)(c) of the Act. ITA Nos.1166 & 1167/Hyd/2024 7 14. In the result, the appeal of the assessee in ITA No. 1167/Hyd/2024 is allowed. 15. To sum up, the appeal of the assessee in ITA No. 1166/Hyd/2024 is partly allowed and appeal in ITA No. 1167/Hyd/2024 is allowed. Order pronounced in the open Court on 16th April, 2025. Sd/- Sd/- (RAVISH SOOD) (MADHUSUDAN SAWDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad. Dated: 16.04.2025. * Reddy gp Copy of the Order forwarded to : 1. M/s. Vara Infraprojects Pvt. Ltd., H.No.17-1-382/R/18, Plot No.18, APSRTC Officers Colony, Champapet, Nagarjuna Sagar Road, Hyderabad-500079. 2. ITO, Ward 17(21), Hyderabad. 3. Pr.CIT, Hyderabad. 4. DR, ITAT, Hyderabad. 5. Guard file. BY ORDER, "