Facts of the Case

The assessee, a civil contractor, originally filed a return declaring contract receipts of ₹5,46,10,926 and income of ₹18,67,570. The return was processed under section 143(1) and refund was issued. Subsequently, a revised return was filed showing significantly higher contract receipts of ₹12,54,42,478 while income remained unchanged.

During scrutiny, the Assessing Officer observed that the additional receipts of ₹7,08,31,552 were not reflected in Form 26AS, bank accounts, or supporting documents. Treating the explanation as unsubstantiated, the Assessing Officer added the amount as “income from other sources” and estimated profit at 8% on verifiable receipts after rejecting the books.

Before the CIT(A), the assessee claimed that the inflated turnover was shown only to satisfy eligibility criteria for an NTPC tender and did not represent actual business receipts.

Issues Involved

  1. Whether a revised return filed after processing under section 143(1) is valid under section 139(5).
  2. Whether inflated turnover disclosed for tender purposes can be treated as real income in absence of evidence.
  3. Whether additions can be sustained when alleged receipts are not reflected in bank accounts or business records.
  4. Whether profit estimation should apply when turnover itself is disputed.

Petitioner’s Arguments (Assessee)

The assessee contended that the revised return was filed solely to match a manipulated balance sheet submitted to NTPC authorities to avoid disqualification from a tender and forfeiture of earnest money deposit. It asserted that no such additional business activity or receipts actually existed.

Reliance was placed on the fact that the alleged excess receipts were neither reflected in bank accounts nor supported by documentary evidence. The assessee also produced materials relating to NTPC vigilance proceedings indicating submission of inflated figures.

Respondent’s Arguments (Revenue)

The Revenue argued that the revised return was validly filed within the statutory time limit and represented a voluntary disclosure by the assessee. Since the assessee failed to substantiate the nature of the additional receipts, the Assessing Officer was justified in treating them as undisclosed income.

Court Order / Findings (ITAT Allahabad)

The Tribunal held that processing under section 143(1) does not constitute an “assessment” for purposes of section 139(5). Therefore, a revised return filed thereafter within the permitted time remains valid.

On Additions Based on Inflated Turnover

The Tribunal observed that the Assessing Officer himself could not find evidence of actual transactions corresponding to the alleged additional receipts—no bank entries, no details of parties, and no proof of construction activity.

The assessee subsequently retracted the revised figures and produced material indicating that the inflated turnover had been disclosed only for tender qualification. The Tribunal held that such circumstances required deeper verification before treating the amount as real income.

Accordingly, the matter was restored to the Assessing Officer for a fresh assessment to determine whether the enhanced turnover represented actual receipts or merely inflated figures disclosed for extraneous purposes.

Important Clarification

The Tribunal emphasized that taxation must be based on real income supported by evidence. Disclosure of inflated figures in a revised return does not automatically establish taxable income unless actual business transactions are proved. It also noted that appropriate action may be taken if false statements are established under relevant penal provisions.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771062444_ACITCIRCLE3MIRZAPURVS.MSNCHAURASIAASSOCIATESSONEBHADRAAAJFM0374N.pdf

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