2013 (4) TMI 759 - HC - Income Tax

Rejection of books of accounts - estimation of income and agreed for a net profit of 8% of the gross receipts - adoption of flat rate of 8% under Section 44AD

Summary

Issues:
Income Tax Appeal under Section 260-A - Dismissal of appeal by Income Tax Appellate Tribunal - Estimation of income without books of accounts - Application of Section 44AD - Disallowance of expenses - Judicial interpretation of relevant provisions.

Analysis:

Issue 1: Income Tax Appeal under Section 260-A
The appeal was filed by Pragati Engineering Corporation against the judgment and order of the Income Tax Appellate Tribunal, Lucknow Bench 'B', dismissing the appeal for the Assessment Year 2005-2006.

Issue 2: Estimation of Income without Books of Accounts
The appellant's books of accounts were impounded by the police and later returned with entries washed away. The appellant agreed to an estimation of income at 8% of gross receipts due to the unavailability of books. The Assessing Authority made additions to the expenditure account and determined the total income exceeding the returned income.

Issue 3: Application of Section 44AD
Section 44AD provides for estimating income at 8% of gross receipts for civil contractors. The appellant argued that despite maintaining books of accounts, the Assessing Authority erred in not applying the net rate of 8% under Section 44AD as offered by the appellant.

Issue 4: Disallowance of Expenses
The Commissioner of Income Tax (Appeal) and the Tribunal confirmed the addition of expenses made by the Assessing Authority. The appellant contended that the Tribunal's reliance on a specific case was misplaced and that a similar case had applied a lower net profit rate, which was not considered by the Tribunal.

Issue 5: Judicial Interpretation of Relevant Provisions
The High Court referred to precedents emphasizing the reliance on audit reports in the absence of books of accounts. It was noted that the Tribunal failed to consider its earlier decision on a similar issue, leading to an inconsistency in judicial discipline.

Conclusion:
The High Court set aside the Tribunal's order and remitted the matter back for fresh consideration, emphasizing the importance of considering audit reports in the absence of books of accounts and the need for consistency in judicial decisions.