2011 (9) TMI 600 - AT - Income Tax

Tribunal upholds assessment validity, rejects profit estimation, remands purchase verification.

The Tribunal confirmed the validity of the assessment, dismissing the challenge regarding non-service of notice under section 143(2) of the Income-tax ... Service of Notice 143(2) - Held - When the facts shows that the notice dated 28.09.2007 has been validly posted and the presumption of its service has not been rebutted by any cogent evidence. Thus held that the notice has been duly served on the assessee. Rejection of books of accounts - execution of works contract - the case of the assessee is that the books are audited and a regular system of accounting has been followed, which has been accepted in past. On revenue account, the AO has pointed out only minor discrepancies in respect of purchase of lubricant and tyres. In fact, these are not discrepancies but only doubts raised by the AO. In such a situation, the books could not have been rejected. - held that:- these submissions are in conformity with the provision contained in section 44BBB(2). Thus, the assessee can claim that the profit ought to be assessed on the basis of the books and presumptive rate of 10% is not applicable to this case. Accounting of Revenue as per AS-7 - held that:- the AO has doubted the estimate of cost made initially. However, such estimation has been accepted in past and it forms the basis of assessment for three preceding years. Therefore, any change in this estimation would lead to disturbing past assessments which have been accepted. - AO could not have rejected the books of account and taken recourse to the provision contained in section 44BBB for estimating the income, especially when the provision is not applicable to the case of the assessee. Issues Involved:1. Validity of assessment due to non-service of notice under section 143(2) of the Income-tax Act, 1961.2. Rejection of books of account and subsequent estimation of profit by the Assessing Officer (AO).Issue-wise Detailed Analysis:1. Validity of Assessment Due to Non-Service of Notice under Section 143(2):The assessee challenged the validity of the assessment on the grounds that the notice under section 143(2) of the Income-tax Act, 1961, was not served on them. The assessment order mentioned that the assessee filed its return on 29.11.2006, declaring a loss and claiming a refund. The AO issued a notice under section 143(2) dated 28.09.2007, dispatched by speed post on 04.10.2007. The assessee contended that this notice was not received, supported by an affidavit from the branch manager.The CIT(A) reviewed the affidavit and the AO's records, which indicated that the notice was correctly addressed and dispatched. Since the envelope was not returned undelivered, a statutory presumption under section 27 of the General Clauses Act was drawn that the notice was served. The CIT(A) dismissed the assessee's challenge, concluding that the notice was indeed served.Before the Tribunal, the assessee reiterated that the notice was not received, supported by an affidavit and other documents. The Tribunal considered the evidence, including the affidavit and the postal records, and found that the presumption of service was not sufficiently rebutted by the assessee. Thus, the Tribunal upheld the CIT(A)'s decision, confirming that the notice was duly served and the assessment was valid.2. Rejection of Books of Account and Subsequent Estimation of Profit by the AO:The revenue appealed against the CIT(A)'s decision to reject the AO's findings on the rejection of books of account and the consequent estimation of profit at 10% of the bills raised on NTPC Ltd. The AO had rejected the books citing various discrepancies, including unverified expenses and non-maintenance of proper records for diesel and lubricants, and estimated the profit at 10% of the receipts.The CIT(A) reversed the AO's decision, noting that the assessee maintained regular books of account, audited without adverse remarks. The CIT(A) emphasized that the AO did not provide sufficient grounds to prove the books were incorrect or unreliable and that non-maintenance of stock registers for certain items did not justify rejecting the books. The CIT(A) held that the AO should have disallowed specific unverifiable expenses rather than rejecting the entire books and estimating profits.The Tribunal reviewed the submissions and evidence, including the method adopted by the assessee for computing profits based on AS-7 (percentage completion method). The Tribunal noted that the AO's estimation of profit at 10% was based on section 44BBB, which was not applicable in this case. The Tribunal found that the AO's rejection of books was not justified as the discrepancies pointed out were minor and did not affect the overall reliability of the books.The Tribunal upheld the CIT(A)'s decision to accept the books of account but restored the limited issue of verifying purchases from specific parties (Asha Enterprises, Central Tyres, Ankit Electricals (P) Ltd., and Alpha Technical Services (P) Ltd.) to the AO. The AO was directed to verify the genuineness of these purchases and make disallowances only if any purchase was found to be non-genuine.Conclusion:The Tribunal dismissed the cross objection regarding the non-service of notice under section 143(2), confirming the validity of the assessment. The Tribunal partly allowed the revenue's appeal, upholding the CIT(A)'s decision to accept the books of account but remanding the issue of verifying specific purchases to the AO for further examination.