Before Shri Challa Nagendra Prasad, Judicial Member & Shri Pradip Kumar Kedia, Accountant Member
Case Number: ITA 2836/DEL/2022
Appellant: DCIT, Central Circle-II, Noida
Respondent: Shiv Shakti Construction, Greater Noida
Assessment Year: 2015-16
Case Filed On: 2022-12-02
Order Type: Final Tribunal Order
Date of Order: 2023-07-27
Pronounced On: 2023-07-27
The case involves an appeal filed by DCIT, Central Circle-II, Noida (Appellant) against Shiv Shakti Construction, Greater Noida (Respondent) for the assessment year 2015-16. The appeal was filed on 2nd December 2022. The key issue in this case was the disallowance of expenses by the Assessing Officer (AO) and the subsequent partial relief granted by the Commissioner of Income Tax (Appeals) [CIT(A)].
Shiv Shakti Construction is a partnership firm engaged in government contracts, specifically in irrigation development activities and other construction projects in remote areas. The firm procures materials from both organized and unorganized sectors, leading to significant outstanding amounts listed under ‘other sundry creditors’ in its books.
A search and seizure operation under Section 132 of the Income Tax Act was conducted on 27th November 2020 at the premises of Shiv Shakti Construction. The operation revealed documents suggesting large amounts of cash payments and potential bogus purchases.
The AO raised several issues:
The AO assessed the total income at Rs. 17,58,10,789 against the declared income of Rs. 2,35,63,250 for AY 2015-16.
Shiv Shakti Construction appealed to the CIT(A), arguing that the AO’s disallowances were based on erroneous facts and failed to consider the nature of their business. They contended that the disallowances led to an unrealistic net profit ratio.
The CIT(A) provided partial relief, reducing the disallowances to Rs. 3,14,05,653 and accepting the necessity of some expenses in the firm’s line of work.
The Tribunal considered submissions from both the Revenue and the assessee. It found that while the CIT(A) correctly identified issues with the reliability of the books, the disallowance by the AO was excessively high. The Tribunal upheld the CIT(A)’s decision to estimate the net profit at 10% of the turnover, excluding other income like interest from fixed deposits, as it was essential to provide a fair assessment.
The Tribunal dismissed the Revenue’s appeal and partly allowed the assessee’s appeal, modifying the order to include interest income from fixed deposits as part of business receipts subject to estimation. This balanced approach ensured that the estimated taxable income was fair and reasonable given the circumstances.
The final order pronounced on 27th July 2023 confirmed the partial relief to the assessee and maintained the 10% net profit estimation for business receipts.
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