TaxTMI 
TaxTMI 
2013 (5) TMI 945
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....nd work in progress. 3. The Ld. CIT(A)-II, has erred in law and facts in deleting the addition of Rs. 3,73,000/- made by the A.O. u/s 69C of the IT. Act, 1961. 2. Grounds No.1 and 2 relate to the rejection of the books of account and estimation of profit at 10% of the gross receipts. 3. The facts in brief culled out from the orders of the lower authorities on this issue are that the assessee derives income as a builder and declared total income at Rs. 2,91,032, but the assessment was completed under section 143(3) of the Income-tax Act, 1961 (hereinafter called in short "the Act") at a total income of Rs. 74,49,836. During the course of assessment proceedings, the assessee has furnished audited balance sheet and profit and loss account but could not produce the books of account, bills/vouchers despite various opportunities. The Assessing Officer treated the entire receipts of Rs. 67,85804 from prospective buyers, as income for the impugned assessment year after rejecting the books of account. 4. The assessee preferred an appeal before the ld. CIT(A) with the submission that the Assessing Officer has rejected the books of account despite the fact the accounts are duly audited a....
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.... depending on the extent of completion of the project, a corresponding portion of the net profits to be arrived at subsequently should have been offered for taxation. This is keeping with the accounting standards currently in force as per the section 145 of the I.T. Act, 1961. He therefore issues a show cause to the assessee that - why percentage completion method may not be applied in view of project completion method adopted through AS-7. The appellant responded vide its letter dated 20.12.2010 by submitting that the Accounting Standard -7 (AS-7) has been regularly followed by the company. The AO, however, did not accept the contention of the assessee in absence of books of accounts and documents. Thereafter, at page 4 in paragraph 4.5 of the assessment order the AO observes that -it also transpires that substantial amount of advances against shops appear to have been spent by the assessee in other projects, which itself proves that the assessee was almost near by the completion of the project...". This observation clearly suggests that the AO is talking about Project Completion method of the accounting. However, at page 5 of the assessment order the AO has finally given a conc....
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....oks of accounts and documents were not produced for examination before the AO. The fact that the books of accounts have not been produced before the AO is not disputed and hence I find that the AO is justified in rejecting the books of accounts of the assessee and completing the assessment in the manner provided in section 145(3) of the Act, which is a best judgment assessment as per provisions o section 144 of the Act. 5(4)(i) The scope of assessment under section 144 of the Act i.e. the best judgment assessment has been examined in a number of cases by various courts. In CIT v. Laxminarain Badridas [1937] 5 ITR 170 (PC) their Lordships of the Privy Council observed as follows: "The officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and h....
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....shops as appearing in the balance sheet as at 31.03.2008. This figure of Rs. 1,06,85,327/- includes the advance received till 31.03.2007 amounting to Rs. 94,38,700/-. Needless to say that entire receipts pertaining to advance for shops received from customers could not be said to constitute the income of the appellant. The AO is therefore not justified in estimating the income of the assessee as equivalent to the receipts on account of advances from customers for sale of shops. 5(5)(i) Nevertheless, it has been laid down by Hon'ble Calcutta High Court in the case of Dabros Industries Company (P) Ltd Vs CIT (1977) 108 ITR 424 (Cal) as under - Accounts - rejection -ITO applied s.145 and made certain additions on the basis of past performance in absence of proper accounts to arrive at a correct profit -rejection and estimation on the basis of available material justified - once the books of accounts of an assessee are rejected then profit has to be estimated on the basis of available material. Similar decisions have been given by Hon'ble ITAT, Jaipur bench in the case of Navneet R Jhanwar Vs ITO (2004) 1 SOT 541 and Jodhpur Bench in the case of ITO Vs Kundanmal Surana(2004....