Chandrashekhar Konduji Pawar Vs CPC (ITAT Nagpur Bench)
Turnover Is Not Income: ITAT Applies Profit Logic u/s 44AD & Cuts ₹7.15-Lakh Gross-Receipt Addition to ₹71,560 in Rectification Appeal u/s 154
Facts of the Case
The assessee, Shri Chandrashekhar Konduji Pawar, was a retired employee of the Border Security Force. After retirement, he commenced a proprietary business of providing security services under the name M/s Shreeji Security Services.
During AY 2017-18, the assessee received gross contract payments of ₹7,15,599. These receipts were reported in Form 26AS, on which tax of ₹14,315 had been deducted at source.
In the return of income, however, the assessee declared only salary income of ₹2,40,000. He did not disclose any income from the security contract business, although he claimed credit for the corresponding TDS of ₹14,315.
While processing the return, the Centralised Processing Centre noticed the contract receipts appearing in Form 26AS. The CPC treated the entire amount of ₹7,15,599 as income from other sources, instead of treating it as gross business turnover from which only the profit element could be brought to tax.
Thus, the gross receipt itself was effectively assessed as income without allowing any deduction for the expenses necessarily incurred in earning the contract revenue.
Rectification Application u/s 154
The assessee filed an application for rectification u/s 154, seeking correction of the treatment given to the contract receipts. The application did not succeed.
The assessee thereafter approached the CIT(A), but the CIT(A) found no infirmity in the rectification order passed u/s 154 & confirmed the addition.
The assessee’s rectification proceedings arose under a provision dealing with correction of mistakes apparent from the record. [Section 154 rectification guidance on TaxGuru](https://taxguru.in/income-tax/rectification-section-154-income-tax-act1961.html?utm_source=chatgpt.com)
Aggrieved, the assessee filed an appeal before the ITAT. His central contention was straightforward: only the income component embedded in the contract receipts could be taxed & not the entire gross turnover.
The Departmental Representative supported the order of the CIT(A).
Issue Before the Tribunal
The principal issue was whether the entire gross contract receipts of ₹7,15,599, appearing in Form 26AS, could be assessed as the assessee’s income or whether only a reasonable amount representing the net profit from the contract business should be subjected to tax.
An incidental aspect was whether such relief could be granted in proceedings arising from a rectification application u/s 154, particularly when the nature of the payment was evident from Form 26AS itself.
Gross Receipts Cannot Be Equated With Profit
The Tribunal observed that Form 26AS clearly showed that the assessee had received contractual payments. Therefore, when the matter came before the CIT(A), the nature of the receipts should have been properly appreciated.
The amount appearing in Form 26AS represented the assessee’s gross receipts from the security contract business. It did not represent his net taxable income.
A business ordinarily incurs expenditure to earn its revenue. In a security-services activity, expenditure may arise toward manpower, administration, travelling, communication & other operational requirements. Therefore, unless facts justify otherwise, it would be incorrect to treat every rupee of the gross receipt as profit.
The Tribunal held that the CIT(A) ought to have recognised the distinction between turnover & taxable business income rather than mechanically sustaining the treatment adopted by the CPC.
Guidance From Section 44AD
The Tribunal referred to section 44AD, which provides a presumptive method for computing profits & gains of eligible businesses.
Under the presumptive framework, an eligible assessee declaring profit at the prescribed rate of 8% or more of the gross receipts is generally not required to maintain regular books of account, subject to fulfilment of the statutory conditions.
The reference to section 44AD supported the proposition that, even where detailed books or evidence of individual expenses are unavailable, the proper course is to estimate a reasonable profit percentage on the turnover rather than assess the whole turnover as income.
Considering the facts of the case, the Tribunal adopted a slightly higher rate & estimated the assessee’s income from the contract business at 10% of the gross receipts.
Accordingly, 10% of ₹7,15,599 was determined at ₹71,560.
TaxGuru’s verified Section 44AD material explains the presumptive computation of business profits on turnover or gross receipts. [TaxGuru Section 44AD guidance](https://taxguru.in/income-tax/summary-section-44ad-income-tax-act-1961-latest-amendments.html)
Relief Granted by the ITAT
As against the addition of ₹7,15,599, the Tribunal sustained only ₹71,560 as estimated net profit from the security contract business.
The balance addition of ₹6,44,039 was deleted.
The finding of the CIT(A) was consequently reversed & the assessee’s grounds on merits were partly allowed.
The order records the assessee’s total income at ₹3,31,600, comprising salary income of ₹2,40,000 & estimated business income of ₹71,560. The appeal was ultimately partly allowed.
Authors’ Comments
The decision reiterates the settled commercial principle that gross receipts are not synonymous with taxable income. Form 26AS is an information-reporting mechanism. While it may establish the receipt of a payment, it cannot automatically establish that the whole amount represents profit.
The case also demonstrates why claiming TDS credit while omitting the corresponding receipt invites adjustment or scrutiny. Taxpayers must disclose the gross receipts under the correct head & offer the appropriate profit, whether based on books or an eligible presumptive provision.
There is, however, an apparent arithmetical error in the order. Salary income of ₹2,40,000 plus business income of ₹71,560 equals ₹3,11,560, whereas the order states total income of ₹3,31,600. The consequential computation should, therefore, follow the individual income figures sustained by the Tribunal.
The ruling grants substantial relief, but it should not be read as approving the omission of business income from the return. It corrects the more fundamental error of taxing turnover as profit.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, NAGPUR BENCH
This appeal by the assessee is directed against the order of Ld. ADDL/JCIT (Appeals)-5, Kolkata (for short, “CIT(A)”) dated 15.01.2026 passed u/sec. 250 of the Income Tax Act, 1961 (for short, “Act”) which is arising out of rectification order dated 02.02.2022 passed u/sec. 154 of the Act for the Assessment Year (A.Y.) 2017-18.
2. Sole issue raised is against the finding of Ld.CIT(A) confirming the action of Ld. Assessing Officer (AO) making addition for gross contract receipts at Rs. 7,15,599/-.
3. I have heard the rival submissions and perused the material placed before me. I notice that assessee is a retired employee of Border Security Force (BSF). During the year, he started proprietary business of security contract in the name of M/s. Shreeji Security Services. During the year, gross contract receipt of Rs. 7,15,599/- are appearing in Form No. 26AS, on which tax has been deducted at source at Rs. 14,315/-. In the return of income for A.Y. 2017-18, assessee has only declared income from salary at Rs. 2,40,000/- and has not declared income from contract business, however, TDS credit of Rs. 14,315/- has been claimed. Centralized Processing Center (CPC), while processing the return, has taken the contract receipts at Rs. 7,15,599/- as income from other sources and assessed the income at Rs. 7,15,599/-. The assessee filed an application for rectification u/sec. 154 of the Act, but did not succeed. Assessee approached the Ld.CIT(A), but Ld.CIT(A) did not find infirmity in the rectification order passed u/sec. 154 of the Act. Now the assessee is in appeal before this Tribunal prayng that the only income component should be subjected to tax and not gross contract receipts. Ld.DR supported the order of Ld.CIT(A).
4. I find that when the matter came up for adjudcation before the Ld.CIT(A), he ought to have considered Form No. 26AS, which clearly reflects the information that assessee has received contract receipts, and that the net profit and not the gross contract receipts should have been treated as income of the assessee. Section 44AD of the Act provides for the computation of profits and gains of business on a presumptive basis. Where the assessee declares profit at the prescribed rate of 8% or more of the gross contract receipts, the assessee is not required to maintain regular books of account, subject to the conditions prescribed under the said provision. I am of the considered view that assessee should be subjected to tax only on the net profit of the contract business and, therefore, the income from contract business on the gross contract turnover of Rs. 7,15,599/- is estimated @ 10% i.e. 71,560/-, thereby computing the total income of the assessee at Rs. 3,31,600/- i.e. income from salary at Rs.2,40,000/- and from business at Rs. 71,560/- In the result, as against the addition of Rs. 7,15,599/- only Rs. 71,560/- is sustained towards estimated net profit from contract business and the remaining addition of Rs.6,44,039/- stands deleted. Finding of Ld.CIT(A) is reversed and the effective grounds of appeal on merits are partly allowed.
5. In the result, appeal of the assessee is partly allowed as per the terms indicated hereinabove.
Order pronounced on 02nd September, 2026 under Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963
