Once income estimated under s.145(3), separate s.68 addition for unexplained cash credits disallowed for contractor-firm

HC upheld deletion of the addition made under s. 68 for unexplained cash credits in the case of a partnership firm executing civil contracts. The AO had already rejected the books under s. 145(3) and applied a higher profit rate on total contract receipts. HC held that once income is determined on an estimated basis after such rejection, separate additions for unexplained cash credits under s. 68 are impermissible. Agreeing with CIT(A) and Tribunal, HC found no substantial question of law and dismissed the revenue's appeal.

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Issues involved: Appeal against order under section 260A of the IT Act, 1961 regarding addition made under section 68 of the Act of 1961.

Summary:
1. The appeal was filed against the order passed by the Income-tax Appellate Tribunal, Jodhpur Bench, in relation to the assessment year 2004-05. The Tribunal dismissed the appeal by the Revenue against the order of the Commissioner of Income-tax (Appeals) deleting the addition made under section 68 of the Act of 1961.

2. The assessee, a partnership firm, earned income from civil contracts with Railways and Garrison Engineer. The Assessing Officer (AO) rejected the books of account under section 145(3) and estimated net profit at 12% of total gross receipts, adding an amount under section 68 as unexplained cash credit.

3. The Commissioner of Income-tax (Appeals) directed the AO to apply a net profit rate of 9% of gross contract receipts after allowing certain deductions. The Commissioner found that the addition made under section 68 was not justified as the net profit was estimated after rejecting the books of account.

4. The Tribunal upheld the Commissioner's order, stating that no separate additions could be made under section 68 when profits were estimated after rejecting the books of account. The Tribunal confirmed the net profit rate at 9% and declined to interfere with the Commissioner's decision.

5. The appellant contended that additions under section 68 could still be made if the cash credits were unexplained, despite the estimation of profits under section 145. However, the Court found that as the higher profit rate was estimated after rejecting the books of account, no separate additions could be made under section 68.

6. The Court considered the submissions and orders on record, noting that the amount in question was shown as "market outstanding" in the books of account. Even though the assessee failed to adequately explain these entries, the Court agreed with the Tribunal that no separate additions under section 68 were warranted due to the estimation of higher profit rate under section 145(3).

7. Therefore, the appeal was dismissed, and no costs were awarded as no substantial question of law arose for consideration in this case.

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