Case Law Details
Badshah Abdul Patel Vs ITO (ITAT Pune)
ITAT Pune held that addition toward unexplained expenditure is liable to be deleted since assessee inadvertently mentioned ‘commission expense’ instead of actual ‘construction expenses. Accordingly, appeal allowed.
Facts- The assessee is a Contractor/Builder with Material contract/Labour. The case of the assessee was selected for Complete Scrutiny. AO observed from the profit and loss account that the assessee has debited Rs.21,28,710/- as commission expenses. However, in response to notice u/s.142(1), the assessee has not submitted details to substantiate the commission expenses. In the circumstances, AO made addition of Rs.21,78,710/- as unexplained expenditure invoking the provisions of section 37(1) of the Act. NFAC confirmed the action of the Assessing Officer. Being aggrieved, the present appeal is filed.
Conclusion- Held that the assessee has actually incurred ‘Construction Expenses’ at Rs.21,28,710/- but due to inadvertent mistake committed while filing the income-tax return has mentioned it as ‘Commission Expenses’. I therefore set-aside the order of the ld.CIT(A)/NFAC and delete the addition made by the Assessing Officer. Grounds of appeal raised by the assessee are allowed.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal by the assessee pertaining to Assessment Year 2018-19 is directed against the order dated 30.09.2024 passed by National Faceless Appeal Centre, Delhi u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) which inturn is arising out of the Assessment Order passed u/s.143(3) r.w. as 143(3A) & 143(3B) dated 03.03.2021.
2. Tersely the facts of the case are that the assessee is a Contractor/Builder with Material contract/Labour Return of income for the A.Y. 2018-19 was furnished on Badshah Abdul Patel 29.08.2018 which was subsequently revised declaring total income of Rs.2,98,410/-. After the case selected for Complete Scrutiny for verification of large commission expenses and low net profit, following by issuance of statutory notices u/s.143(2)/142(1), the assessee submitted partial details. From the ITR details, the Assessing officer observed from the profit and loss account that the assessee has debited Rs.21,28,710/- as commission expenses. However, in response to notice u/s.142(1), the assessee has not submitted details to substantiate the commission expenses. In the circumstances, the Assessing Officer made addition of Rs.21,78,710/- as unexplained expenditure invoking the provisions of section 37(1) of the Act.
3. Aggrieved assessee preferred appeal before the NFAC who vide impugned order confirmed the action of the Assessing Officer.
4. Now the assessee is in appeal before the Tribunal challenging the impugned order.
5. I have heard both the sides and perused the record placed before I note that the assessee in the instant case is a Contractor/Builder. The solitary issue that arises for my consideration is that the assessee in his income-tax return has Badshah Abdul Patel mentioned ‘Commission Expenses’ of Rs.21,28,710/- but subsequently during the course of assessment proceedings it was stated that it was ‘Construction Expenses’. Inadvertently, the mistake crept up while filing the income-tax return. The assessee failed to convince both the lower authorities on this issue.
6. Before me, the Counsel for the assessee has furnished the paper book containing 77 pages in order to support the contention that the assessee is into Construction business as Material and Labour Contractor and is consistently filing the income-tax returns showing the ‘Income from Construction’. It is also contended that the gross receipts for the year stood at Rs.30,12,600/- and the major amount of expenses is towards ‘Construction’ amounting to Rs.21,28,710/-. Copy of the ledger account of Construction Expenses is filed which mainly includes the amount incurred towards purchase of Bricks, Sand, and payment of labour. It is also claimed before me that the assessee fall under the Presumptive Taxation Scheme u/s.44AD of the Act and the income is estimated @8% of the gross receipts which comes to Rs.2,41,008/-, however, the assessee has shown higher amount of Rs.2,98,412/-. It is also claimed that unintentional mistake made by the person filing the income-tax return mentioned the word ‘Commission’ in place of ‘Construction’’ and the same should not be taken against the Badshah Abdul Patel assessee. It is submitted that the assessee in response to notice u/s.142(1) submitted his explanation vide submission dated 30.01.2021, which is placed at pages 25 to 29 of the paper book. The assessee also filed an affidavit in support of the said contention which is reproduced below :
“1. I am a small Material/Labour Contractor. I have been engaged in this activity for past many years.
2. I have been filing I-T returns regularly.
3. For AY 2018-19, I filed my tax return declaring revenue receipts of 30,12,600 earned from activity of Material / Labour contractor. I have declared net profit of Rs. 298,412 and filed my tax returns after paying due tax on the same.
4. While filing the tax return, my conunsel, erroneously, stated “Construction Expenses” of 21,78,710 as “Commission Expenses”. This mistake was realized during the process of assessment proceedings u/s 143(3). I have filed details of ‘Construction expenses” o.e. bricks, material, labour expenses, etc. details of which are given at Page-74 to 77 of the Paper-Book filed before the Honourable ITAT, Pune.
5. During the assessment proceedings, I have pointed out this error specifically, which will be apparent from my submission 28 of the Paper-Book filed before Honourable ITAT, Pune.
6. I have also stated in my submission before the tax authorities that, considering smallness of my activity of Material and Labour contractor, my assessment deserves to be considered u/s.44AD of the ITA, 1961; and; since, income declared is more than 8% of revenue, no any addition be made.
7. Learned I-T authorities did not accept my contentions and insisted on substaitating the ‘Commission Expenses” of 21,78,710.
8. I reiterate that, in my activity of Material / Labour contractor, expenses of 21,78,710 were indeed incurred on ‘Construction expenses’ and not any ‘Commission expenses’. It is my respectful submission that the error in filing the tax return deserves to be considered sympathetically.”
7. From going through the affidavit as well as the details filed in the paper book which remains uncontroverted by the Departmental authorities at any stage, I find merit in the contentions made by Counsel for the assessee and hold that the assessee has actually incurred ‘Construction Expenses’ at Rs.21,28,710/- but due to inadvertent mistake committed while filing the income-tax return has mentioned it as ‘Commission Expenses’. I therefore set-aside the order of the ld.CIT(A)/NFAC and delete the addition made by the Assessing Officer. Grounds of appeal raised by the assessee are allowed.
8. In the result, the appeal of the assessee is allowed.
Order pronounced on this 07th day of January, 2025.
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