Hyderabad ITAT: Earning 90% Profit is Unbelievable and Is a Form of Contractual Exploitation Activities

The notion of earning 90% profit is unbelievable and is contractual loot under the impression of alleged development activities, The Hyderabad Bench of Income Tax Appellate Tribunal (ITAT) ruled.

The bench of R.K. Panda (Vice President) and Laliet Kumar (Judicial Member) sees that the funds of government towards the development must be used for the same instead of for the growth of any person.

It is true that the taxpayer showed the whole receipts and tried to furnish verification from the contract explaining the payment to the taxpayer rather than furnishing the contract copy by MEIL, MEIL had not furnished the ledger account and other attributes of the expenditure to the lower authorities.

The 12 work contracts were issued post-October 2016, it is highly unbelievable and incomprehensible that the significant work has been finished, running bills were raised, and payments were made towards the work accomplished by the taxpayer before March 2017.

The taxpayer received the sub-contract work from M/s. Megha Engineering and Infrastructures Limited, Hyderabad (MEIL) via the Government of Telangana and the Government of Andhra Pradesh. The taxpayer is said to have earned a massive profit, exceeding 92% of the total cost of the project.

From which the taxpayer had only spent a sum of Rs. 14,65,865 on the construction work. When the work is assigned through the state government, technical and commercial bids are sought along with the payments are released on the grounds of the work amount which the state agency certified.

The tribunal sees that the assessing officer along with CIT(A) loses to apply their minds to the basic particular that making more than 92% for the development activities particularly those who have the intent to boost the infrastructure meant to provide the advantage before the citizens is more unusual.

It is the taxpayer’s case that it had made a bigger profit of Rs 113 cr out of the total cost of Rs 131 cr and therefore has exceeded 90% of the contract work. The taxpayer’s earnings of a bigger profit and income declaration are undigested, beyond the preponderance of human probability, and against common sense.

“The Assessing Officer/CIT(A) should have raised an eyebrow and scrutinized the profits earned by the assessee, particularly considering that the development activity was intended for the citizens’ welfare and not merely meant for the enrichment of the assessee,” the ITAT expressed.

As per the tribunal, it ruled that it can’t be digested that the majority of work is finished, running bills were raised, and payments were made for the stated work accomplished via taxpayer before March 2017. A live link is mandated to build towards the allotment of the work and its commencement, execution, completion, and payment.

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No information like that was furnished to any of the lower authorities by the taxpayer. The payment release is linked to benchmarks fixed for distinct phases of finishing the project.

The tribunal observed that the counsel heads have losses in verifying the information of work contracts allotted and the government made pertinent payments with distinct phases of the work contract, hence the tribunal remitted the case to the file of the assessing officer for the new investigation.