ITAT partially allows appeal, sustains higher addition to income, finding low profit declared by assessee.

The Income Tax Appellate Tribunal (ITAT) partially allowed the appeal filed by the Revenue and the cross-objection filed by the assessee. The ITAT sustained an addition of Rs. 14.78 lakhs, modifying the Commissioner of Income Tax (Appeals) [CIT(A)]'s order, which had upheld an addition of Rs. 8.34 lakhs. The ITAT concluded that while the Assessing Officer's rejection of books was not entirely justified, the low profit declared by the assessee warranted a higher addition than what was sustained by the CIT(A).

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Issues Involved:
1. Deletion of addition due to non-tallying of bills and vouchers with the profit and loss account.
2. Partial upholding of addition due to under-valuation of sales in flats and shops.
3. Admission of additional evidence without following Rule 46A of the Income-tax Rules, 1962.

Detailed Analysis:

1. Deletion of Addition Due to Non-Tallying of Bills and Vouchers with Profit and Loss Account:
The Assessing Officer (AO) rejected the books of accounts under Section 145(2) of the Income-tax Act, estimating the income at 15% of sale proceeds and work-in-progress, leading to an addition of Rs. 1,40,59,278/-. The AO found discrepancies in the total purchase account and the cost of construction, concluding that some expenses were unaccounted for. However, the Commissioner of Income Tax (Appeals) [CIT(A)] held that the rejection of books was unjustified, noting that the AO had made errors in interpreting the expenditure and that the reconciliation provided by the assessee was correct. The CIT(A) found that the AO's observations were based on miscalculations and misappreciation of facts, leading to the deletion of the major part of the addition, except for Rs. 8,34,648/- related to the under-valuation of sales.

2. Partial Upholding of Addition Due to Under-Valuation of Sales in Flats and Shops:
The AO observed that some flats and shops were sold at prices lower than the market value determined by the Stamp Duty authorities, leading to a variation in selling prices. The CIT(A) acknowledged this discrepancy but rejected the AO's estimation of net profit at 15% of the total sale value and work-in-progress. Instead, the CIT(A) upheld an addition of Rs. 8,34,648/-, considering the specific circumstances and explanations provided by the assessee for the variations in selling prices. However, the Income Tax Appellate Tribunal (ITAT) found that the profit rate of 3.30% declared by the assessee was very low for a builder and developer. The ITAT modified the CIT(A)'s order and directed the AO to take a profit rate of 5% of the sale proceeds, resulting in a net profit of Rs. 43.43 lakhs. Consequently, the ITAT upheld an addition of Rs. 14.78 lakhs instead of Rs. 8.34 lakhs.

3. Admission of Additional Evidence Without Following Rule 46A of the Income-tax Rules, 1962:
The Revenue contended that the CIT(A) admitted additional evidence regarding the reconciliation of discrepancies in expenses without following the procedure laid down in Rule 46A. The CIT(A) considered the reconciliation statement submitted by the assessee and found it correct, leading to the deletion of the major part of the addition made by the AO. The ITAT, after reviewing the entire material and the nature of the assessee's business, concluded that the AO's observations about the non-tallying of vouchers and unaccounted expenses were not sufficient to reject the entire book results. However, the ITAT acknowledged the defects pointed out by the AO and upheld a modified addition of Rs. 14.78 lakhs.

Conclusion:
The ITAT partially allowed the appeal filed by the Revenue and the cross-objection filed by the assessee. The ITAT sustained an addition of Rs. 14.78 lakhs, modifying the CIT(A)'s order, which had upheld an addition of Rs. 8.34 lakhs. The ITAT concluded that while the AO's rejection of books was not entirely justified, the low profit declared by the assessee warranted a higher addition than what was sustained by the CIT(A). The order was pronounced in the open court on April 4, 2014.

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