2019 (7) TMI 1802 - AT - Income Tax

Reopening of assessment under Income Tax Act: Importance of consistency in income estimation

Dy. Commissioner of Income tax Versus PCL Intertech Lenhydro Consortium Joint Venture, Hyderabad

The case involved the reopening of assessment under section 148 of the Income Tax Act, 1961 for the assessment year 2009-10. The Assessing Officer ... Estimation of income - No maintenance of books of accounts - CIT(A) directed the AO to estimate income @ 2% on gross receipts instead 6% on gross receipts estimated by the AO - HELD THAT:- We notice that assessee is an entity formed to execute the civil contract work by the JV partners, namely, M/s Progressive Constructions Ltd., and M/s Intertech Lenhydro Consortium - As noticed that assessee has not maintained any books of account. It is not clear, who executed the civil contract. Since, assessee is only a facilitating entity, the work must have completed by one of the constituent of the JV. Assessee has not brought on record whether assessee has transferred the TDS deducted by M/s Tehri Hydro Development Corporation. No information was submitted before us. However, we notice that in the immediate previous AY, i.e. AY 2008-09, income of the assessee was estimated @ 2% and there is no change in the business model, in our considered view, AO cannot increase the rate of estimation without any major deviation in the business model of the assessee. Therefore, we are inclined to accept the findings of ld. CIT(A) and accordingly, upholding the order of CIT(A), we dismiss the grounds raised by the revenue. Issues:1. Reopening of assessment under section 148 of the Income Tax Act, 1961 for AY 2009-10.2. Estimation of income at 6% of contract receipts by the Assessing Officer.3. Dispute regarding the rate of profit adopted by the Assessing Officer.4. Appeal before CIT(A) challenging the estimation of income.5. Direction by CIT(A) to estimate income at 2% on gross receipts.6. Appeal by revenue against CIT(A) order.1. Reopening of assessment under section 148:The case involved the reopening of assessment under section 148 of the Income Tax Act, 1961 for the assessment year 2009-10 due to the assessee not filing its return of income despite having taxable income. The Assessing Officer completed the assessment by estimating the income at 6% of contract receipts of Rs. 235,90,17,325 against the NIL income declared by the assessee.2. Estimation of income at 6% by Assessing Officer:The Assessing Officer estimated the income at 6% of the contract receipts based on the non-maintenance of books of accounts by the assessee and the absence of the assessee's name in the 26AS of the member of the Joint Venture executing the work. This estimation was challenged by the assessee before the CIT(A).3. Dispute regarding rate of profit:The assessee disputed the rate of profit adopted by the Assessing Officer, arguing that for the previous assessment years, the profit rate was accepted at 2%. The CIT(A) directed the AO to estimate income at 2% on gross receipts instead of 6% as done by the AO.4. Appeal before CIT(A):The assessee appealed before the CIT(A) against the order of the Assessing Officer, contending that the rate of profit adopted was higher at 6% compared to the 2% rate accepted in previous years.5. Direction by CIT(A) to estimate income at 2%:The CIT(A) directed the Assessing Officer to estimate income at 2% on gross receipts instead of 6%, considering the consistency in the business model and the rate of profit accepted in previous assessment years.6. Appeal by revenue against CIT(A) order:The revenue appealed against the CIT(A) order, arguing that the CIT(A) erred in directing the AO to estimate income at 2% instead of 5% without any basis. However, the ITAT upheld the CIT(A) order, emphasizing that without a major deviation in the business model, the AO cannot increase the rate of estimation.This judgment highlights the importance of consistency in estimating income and profit rates, especially when there is no significant change in the business model. The decision provides clarity on the assessment process and the role of the CIT(A) in directing the estimation of income based on relevant factors and precedents.