2018 (7) TMI 48 - AT - Income Tax

Tribunal Upholds CIT(A)'s Profit Estimation at 20% Over Assessee's 17% Rate, Deems Revenue's Appeal Dismissed

Sri Dhananjaya Naidu Golla And Sri Dhananjaya Naidu Bangalore Versus Income Tax Officer, Ward-2, Chittoor

The Tribunal upheld the CIT(A)'s estimation of profit at 20% of the sale consideration, rejecting the assessee's lower rate of 17%. It directed the AO to ... Estimation of profit - Held that:- CIT(A) is reasonable in estimating the profit at 20%. The fact that assessee himself has offered profit of 17% on the sale consideration indicates that he has earned substantial profits, more than similarly placed building contractors. Therefore, the contention raised that the determination of profit should be at 17% on the sale consideration cannot be accepted. Since there are many lapses on the part of assessee and AO had to enquire and find out various transactions of assessee, we are of the opinion that estimation of profit at 20% on the sale consideration is reasonable and accordingly, the estimation by CIT(A) is upheld. Grounds on this issue in all the three assessment years are rejected as assessee’s main contention is only on the rate of profit. The rate of profit at 20% is confirmed. Difference in sale consideration - Held that:- There is ₹ 1 Lakh extra sale consideration determined by the AO. Like-wise, the other one is taking the registration charges of buyer as part of turnover. We are prima-facie satisfied that there are certain mistakes in determining the sale consideration by AO in the order. Since the profit is estimated on the sale consideration in each year, it is necessary to arrive at correct sale consideration. Therefore, AO is directed to examine these amounts and determine the sale consideration correctly, after giving due opportunity to assessee. The grounds in this regard are considered allowed for statistical purposes. Addition u/s 68 - Held that:- Since the income is based on estimation, the re-casted cash book need not be considered for the purpose of making addition u/s. 68 of the Act. It is true that law permits addition u/s. 68 of the Act even when books are rejected, but in the peculiar facts of the case, where assessee has prepared the cash book on the basis of the information received on enquiries caused by the AO, the so called cash credit of ₹ 40 Lakhs on 11-04-2007 need not be brought to tax separately as the income was declared at 20% on the sales turnover, rejecting statements prepared by assessee. The addition by the CIT(A) of an amount which was not added by the AO is not warranted on the facts of the case and hence AO is directed to delete the same. The order of CIT(A) to that extent is modified. Grounds are allowed. Addition u/s. 40(a)(ia) on the interest payment reflected by assessee in the cash flow statement - Held that:- To invoke the provisions of Section 40(a)(ia) amount has to be claimed as an expenditure. Since the amount was not claimed as expenditure by assessee in the computation of income or in the prepared books of account, the question of disallowance u/s. 40(a)(ia) does not arise. There may be a situation that TDS has to be made as per Section 194A and assessee may have to deduct tax on that. For that, one has to be examine the same under the provisions of Section 201. It is also not on record whether the interest payment is a single payment to one person or multiple payments which may not attract TDS. Since the fact is that this amount has not been claimed as expenditure, the disallowance u/s. 40(a)(ia) does not arise, as those provisions are applicable only on the amounts which are claimed as deduction in the P&L A/c. Method of assessment - Held that:- Assessee has agreed with the rejection of books of account and estimation of income at 20% was conformed in assessee’s appeals. Consequent to that, we see no reason to consider the grounds of Revenue. We notice that AO has not followed any systematic method in bringing to tax various amounts in the order. While appreciating the efforts put in by the AO in unearthing the information and confronting of assessee, the ultimate assessment is not properly done and so, the only option is to estimate the income as was done by the Ld.CIT(A). In view of that, we find no merit in the grounds raised by Revenue Issues Involved:1. Estimation of profit.2. Difference in sale consideration.3. Addition of Rs. 40 Lakhs.4. Addition of Rs. 1,29,600/- u/s. 40(a)(ia).5. Method of assessment.Issue-wise Detailed Analysis:1. Estimation of Profit:The assessee, a partner in M/s. Bhagyalakshmi Granites, did not disclose the entire business of construction. The AO, upon investigation, found various bank accounts and credits, leading to a re-casting of accounts by the assessee, who offered income at about 17%. The AO, however, assessed based on unexplained assets/credits. The CIT(A) modified this, estimating profit at 20% of the sale consideration for the relevant assessment years. The Tribunal upheld the CIT(A)'s estimation of 20%, rejecting the assessee's contention for a 17% rate, citing substantial profits and lapses in disclosure by the assessee.2. Difference in Sale Consideration:The assessee contended discrepancies in the sale consideration adopted by the AO for AY 2008-09 and 2009-10. The Tribunal agreed that there were mistakes in determining the sale consideration, such as an extra Rs. 1 Lakh and inclusion of registration charges. The AO was directed to re-examine and determine the correct sale consideration after giving the assessee an opportunity to present their case.3. Addition of Rs. 40 Lakhs:The AO discovered a Rs. 40 Lakhs advance in the assessee's re-casted cash book, which was not originally maintained. Despite confirming the receipt from relatives, the AO rejected the cash book due to discrepancies and did not add this amount in the assessment. However, the CIT(A) added Rs. 40 Lakhs under Section 68, citing failure to prove the creditworthiness and genuineness of the creditors. The Tribunal found that since the books were rejected and income was estimated, the addition of Rs. 40 Lakhs was unwarranted. The AO was directed to delete this addition.4. Addition of Rs. 1,29,600/- u/s. 40(a)(ia):For AY 2009-10, the AO added Rs. 1,29,600/- for interest payment without TDS deduction, despite the amount not being claimed as an expenditure. The CIT(A) confirmed this addition. The Tribunal held that since the amount was not claimed as an expenditure, the disallowance under Section 40(a)(ia) does not apply. The AO was directed to delete this addition.5. Method of Assessment:The Revenue appealed against the CIT(A)'s method of estimating income at 20% on gross receipts instead of the AO's asset and expenditure method. The Tribunal noted that the AO's method was not systematic or prescribed under the Act. The CIT(A)'s estimation was deemed appropriate as the AO did not follow any systematic method. The Tribunal upheld the CIT(A)'s approach, rejecting the Revenue's grounds.Conclusion:The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeals for AYs 2008-09 and 2009-10, directing the AO to re-examine the sale consideration and delete the additions of Rs. 40 Lakhs and Rs. 1,29,600/-. The assessee's appeal for AY 2010-11 was dismissed.