DCIT retains jurisdiction over loss-making companies as income under Section 2(24) includes losses, 10% profit estimation upheld

ITAT Ahmedabad upheld DCIT's jurisdiction over corporate assessee despite disclosed loss, ruling that income definition under Section 2(24) includes losses per SC precedent in Harprasad Co. case. Tribunal also sustained AO's rejection of books of account and 10% profit estimation on total receipts, finding assessee failed to provide required documentation and cooperate. The 10% estimation rate was deemed reasonable, aligning with presumptive taxation under Section 44BBB for construction businesses. Both jurisdictional challenge and quantum assessment were dismissed.

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Issues Involved:
1. Validity of notice issued u/s 143(2) of the Income Tax Act, 1961.
2. Rejection of books of accounts u/s 145(3) of the Income Tax Act, 1961.
3. Estimation of net profit @ 10% of total receipts.

Summary:

1. Validity of Notice Issued u/s 143(2):
The assessee argued that the notice issued by the DCIT was invalid as per Instruction No. 01/2011 of CBDT, which states that jurisdiction over corporate returns with income above Rs. 30 Lakhs in metro cities lies with the DCIT/ACIT. Since the assessee declared a loss of Rs. 3,29,55,888/-, it was contended that the jurisdiction was not with the DCIT. The Tribunal found no merit in this objection, stating that "income" includes "loss" as per Section 2(24) of the Act and upheld by the Supreme Court in CIT v. Harprasad & Co. P. Ltd. (1975) 99 ITR 118 (SC). Therefore, the notice u/s 143(2) was correctly issued by the DCIT. The ground No.3 raised by the assessee was dismissed.

2. Rejection of Books of Accounts u/s 145(3):
The AO rejected the books of accounts due to non-compliance by the assessee in furnishing complete details, including project-wise details, loan applications, confirmations of advances, and documentary evidence for purchases. The Tribunal observed that the AO had valid reasons for rejection, as the books were not supported by primary evidences like vouchers, bills, and quantitative details of WIP. The AO's analysis revealed discrepancies in the accounts, leading to the conclusion that either sales were booked at a lower value or WIP was understated. The Tribunal upheld the AO's decision, noting that the assessee failed to produce the required details even during the appeal proceedings.

3. Estimation of Net Profit @ 10%:
The AO estimated the net profit at 10% of the total receipts, considering the assessee's previous year's net profit of 17.82%. The Tribunal found this estimation reasonable, especially since the assessee did not cooperate and provide necessary details. The AO's estimation was also compared to the presumptive rate of taxation u/s 44BBB for foreign companies engaged in civil construction, which further justified the 10% estimation. The Tribunal upheld the AO's estimation and dismissed the appeal on this ground as well.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the validity of the notice issued u/s 143(2), the rejection of books of accounts u/s 145(3), and the estimation of net profit @ 10% of total receipts. The order was pronounced on 09/05/2024.

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