ITAT reduces profit estimation to 11% under section 44AD, disallows separate additions from rejected books

The ITAT Jodhpur addressed profit estimation and unexplained creditors in a contract case. The AO applied 20% profit rate on contract receipts versus appellant's declared 8.13%. CIT(A) directed 14.5% rate. ITAT reduced profit estimation to 11% considering section 44AD provisions and interest of justice. Regarding unexplained creditors, the tribunal held that when books are rejected and profit estimated, separate additions from rejected books cannot be made. Ground 2 was partly allowed for the assessee.

---

---

Issues Involved:
1. Addition of unexplained cash credit u/s 68.
2. Application of Net Profit (NP) rate.
3. Addition of unexplained unsecured loans u/s 68.
4. Addition of other liabilities and provisions u/s 43B.
5. Addition of sundry creditors u/s 68.

Summary:

1. Addition of unexplained cash credit u/s 68:
The Assessing Officer (AO) added Rs. 1,07,92,593/- as unexplained cash credit u/s 68 due to non-submission of any explanation or documents by the assessee. The Commissioner of Income Tax (Appeals) [CIT(A)] noted that this addition was deleted by the AO in an order u/s 154 dated 29-03-2017, making this ground infructuous.

2. Application of Net Profit (NP) rate:
The AO applied a NP rate of 20% on total receipts of Rs. 11,66,37,877/- due to discrepancies in the assessee's expense claims. The CIT(A) reduced the NP rate to 14% based on past history and statutory deductions. The ITAT further reduced the NP rate to 11% considering the overall facts and the assessee's request for justice.

3. Addition of unexplained unsecured loans u/s 68:
The AO added Rs. 1,13,74,206/- as unexplained unsecured loans due to lack of proof of genuineness and creditworthiness. The CIT(A) noted that this addition was deleted by the AO in an order u/s 154 dated 29-03-2017, making this ground infructuous.

4. Addition of other liabilities and provisions u/s 43B:
The AO added Rs. 41,87,052/- as unexplained cash credit u/s 68 due to lack of proof of payment before the due date of filing the return. The CIT(A) sustained the addition to Rs. 14,920/- after verifying the details and evidences provided by the assessee, and the ITAT upheld this decision.

5. Addition of sundry creditors u/s 68:
The AO added Rs. 1,86,79,561/- as unexplained cash credit u/s 68 due to lack of details to prove the identity and creditworthiness of creditors. The CIT(A) reduced the addition to Rs. 16,39,926/- after verifying the details and evidences provided by the assessee. The ITAT upheld this decision, noting that once the books of account are rejected, separate additions cannot be made.

Conclusion:
The appeal of the assessee in ITA No. 299/Jodh/2018 was partly allowed, and the appeal of the Revenue in ITA No. 232/Jodh/2018 was dismissed. The ITAT pronounced the order in the open Court on 21/03/2024.

---