ITAT Pune Upholds 8% Profit Estimation on a Govt Work Contract U/S 44AD of the IT Act

ITAT Pune ruled that the estimation of profit at 8% in case of contract work for a government department, by taking provisions of section 44AD of the Income Tax Act as a parameter, is justifiable. As per that, the order of CIT(A) is upheld.

The taxpayer is an individual and is in the business as a government contractor. He submitted his income return dated 31.10.2018 showing the total income of Rs 49,61,890.

The case was chosen for the limited scrutiny assessment under the e-assessment scheme, 2019. The assessing officer, in the absence of non-furnishing the supporting documents to establish the genuineness of contractual payments, ruled that these sub-contract payments to the extent of Rs 3,16,96,450 are not genuine.

CIT(A) / NFAC asked the assessing officer to estimate the profit at 8% of the gross contract receipts. Dissatisfied with it, the present appeal is filed.

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Closure: It was ruled that in the taxpayer’s case, the turnover is more than the specified limit under the provisions of section 44AD, and the accounts are audited; still, the provisions of section 44AD can be considered as a parameter for approximating the income.

Also, the addition of the total amount of Rs 3,16,96,450 to the returned income of Rs 51,11,891 on a turnover of Rs 9,22,49,433 shall provide a profit percentage of nearly 40%, which is not feasible in this type of activity, particularly when the taxpayer is performing contract work for the government department.

Similar: All Details of Section 194C for TDS on Payment to Contractors

In these situations and considering the totality of the facts of the case and because the average net profit ratio for the last four years, i.e., from the assessment year 2015-16 to 2021-22, is 5.37%, we are of the considered view that the order of Ld.

CIT(A) / NFAC directing the Assessing Officer to estimate the profit at 8% is justified under the facts and circumstances of the case. We, accordingly, keep the order of the Ld. CIT(A) / NFAC on this problem and the foundations raised by the Revenue are dismissed.