2013 (5) TMI 945 - AT - Income Tax

Tribunal upholds CIT(A)'s 10% income estimate, deletes Section 69C addition.

Income Tax Officer IV (4), Lucknow Versus M.A. Builders Pvt. Ltd.

The Tribunal upheld the CIT(A)'s decision to estimate income at 10% of gross receipts and delete the addition made under Section 69C. The Revenue's appeal ... Rejection of books of accounts u/s 145(3) - Unexplained Expenditure u/s 69C - Assessee was using the project completion method of accounting for years. Assessee's books of accounts were rejected by A.O. as he did not produce them during assessment proceedings. CIT(A) reexamined the issue and estimated the profit at 10% of the gross receipts after approving the rejection of the books of account. Also, ld. CIT(A) deleted the addition made by the A.O. u/s 69C of the IT. Act, 1961. - HELD THAT:- The approach adopted by the ld. CIT(A) regarding estimated income and Section 69C is correct and reasonable in comparison to the AO, thus approved the order of the ld. CIT(A). Issues Involved:1. Rejection of books of account under Section 145(3) of the Income-tax Act, 1961.2. Estimation of profit at 10% of gross receipts.3. Deletion of addition made under Section 69C of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Rejection of Books of Account under Section 145(3):The Revenue contended that the books of accounts were correctly rejected under Section 145(3) of the Income-tax Act, 1961, as the assessee failed to produce the books of account, bills, and vouchers despite multiple opportunities. The Assessing Officer (AO) treated the entire receipts from prospective buyers as income for the impugned assessment year after rejecting the books of account. The CIT(A) upheld the rejection of the books of account, noting that the assessee did not produce the books despite various opportunities. The CIT(A) cited judicial pronouncements emphasizing the importance of the method of accounting regularly employed by the taxpayer and noted that the AO did not provide facts and figures to show that the method of accounting adopted by the taxpayer resulted in underestimation of profits.2. Estimation of Profit at 10% of Gross Receipts:The AO estimated the income by treating the entire receipts as income, but the CIT(A) restricted the net profit to 10% of gross receipts. The CIT(A) reasoned that the method of estimation adopted by the AO disturbed the method of accounting regularly followed by the assessee. The CIT(A) referenced judicial precedents to justify that once the books of accounts are rejected, the best course is to estimate the income to the best of judgment. The CIT(A) found that estimating profit at 10% of the receipts was reasonable and directed the AO to assess the income accordingly. The Tribunal upheld this estimation, finding no infirmity in the CIT(A)'s approach, which appeared correct and reasonable compared to the AO's approach of treating the entire receipts as income.3. Deletion of Addition Made Under Section 69C:The AO made an addition of Rs. 3,73,000 under Section 69C of the Act, which the CIT(A) deleted. The CIT(A) reasoned that once the books of account are rejected, they cannot be relied upon for making an addition under Section 69C. The Tribunal agreed with this finding, confirming that no further addition could be made based on entries in the rejected books of account.Conclusion:The Tribunal dismissed the Revenue's appeal, approving the CIT(A)'s estimation of income at 10% of gross receipts and confirming the deletion of the addition made under Section 69C. The order was pronounced in the open court on 28/05/2013.