Civil Contractor Faced Rs. 1.51 Crore Addition After AO Applied 10% Profit Rate on Rs. 26.94 Crore Receipts; ITAT Orders Fresh Examination and 8% Profit Estimation

The ITAT Bangalore has provided relief to taxpayer Sri Yenubothula Venkat Ramana, a civil contractor from Mysore, by sending his case back to the Assessing Officer (AO) for fresh examination. The tribunal directed the tax authorities to estimate the contractor’s profit at 8% of the actual turnover after proper verification of records.

The assessee, Sri Yenubothula Venkat Ramana, had declared an income of Rs 1.26 crore while filing his income tax return (ITR) for the Assessment Year 2017-18. Initially, the return was accepted; later, it was selected for complete scrutiny. Accordingly, statutory notices were served to the assessee under Sections 143(2) and 142(1) of the Income Tax Act.

It was noted that the assessee had received a sum amounting to Rs 26.94 crore towards the contract payments during the year under consideration, as reflected in Form 26AS. Since the assessee himself admitted that there were significant mistakes in the financial statements and requested rejection of the books of account, the AO estimated business income at 10% of gross receipts and made an addition of about Rs 1.39 crore. The tax authorities also added interest income, disallowed a house property loss claim of Rs 2 lakh, and denied Chapter VI-A deductions of Rs 1.75 lakh.

The aggrieved assessee challenged the assessment before the ITAT Bangalore, arguing that the actual contract receipts were lower than those considered by the AO and that income should be estimated at 8% of turnover. He also contested the additions relating to interest income, house property loss, and deductions.

When the tribunal analysed the complete matter, it noted that the assessee had consistently requested an estimation of profit at 8% and that there were discrepancies in turnover figures appearing in the books, Form 26AS, and the assessee’s own records. Consequently, the tribunal remanded the matter back to the tax authorities and directed them to reconcile these figures and determine the correct turnover before applying an 8% profit rate.

The ITAT further instructed the tax authorities to verify the interest income mismatch, examine evidence relating to the house property loss claim, and allow the Chapter VI-A deduction if supporting documents are furnished. Accordingly, the appeal was partly allowed for statistical purposes.