2003 (2) TMI 502 - AT - Income Tax

Summary

Issues Involved:
1. Allowance of expenses against 'On money' received.
2. Application of a 12% profit rate on both accounted and unaccounted turnover.
3. Rejection of the 'Project Completion Method' for computing profits.
4. Charging of interest u/s 234B.

Summary:

1. Allowance of expenses against 'On money' received:
The department's appeal challenged the CIT(A)'s direction to allow expenses against 'On money' received by the assessee, which were not recorded in the books, and to tax only 12% of the 'On money' as the assessee's income. The Tribunal upheld the CIT(A)'s decision, noting that the department failed to provide material evidence to support a higher rate of gross profit. The Tribunal dismissed the departmental appeal, confirming that the CIT(A) correctly followed the ITAT's previous decision for the assessment year 1991-92.

2. Application of a 12% profit rate on both accounted and unaccounted turnover:
The Assessing Officer (AO) rejected the book results, applying a 12% profit rate on the gross receipts, including 'On money' receipts, due to substantial unrecorded receipts and expenses. The CIT(A) upheld this approach for the unrecorded transactions but allowed deductions for expenses. The Tribunal, upon difference of opinion between the Judicial and Accountant Members, referred the matter to a Third Member. The Third Member agreed with the Judicial Member, holding that the book results should not be accepted and a 12% profit rate should be applied to both accounted and unaccounted turnover. Consequently, the Tribunal decided in favor of the revenue, rejecting the assessee's grounds and dismissing the appeal.

3. Rejection of the 'Project Completion Method' for computing profits:
The AO and CIT(A) rejected the 'Project Completion Method' adopted by the assessee, estimating profits at 12% on the gross turnover of Rs. 5,86,67,554, against the actual profits of Rs. 35,89,659 (6.12%) shown by the assessee. The Tribunal upheld this rejection, noting that the AO was justified in applying the 12% rate due to the unreliability of the assessee's books, which omitted substantial receipts and expenses.

4. Charging of interest u/s 234B:
The Tribunal held that the charging of interest u/s 234B has a consequential effect, and relief may be allowed to the assessee accordingly.

Conclusion:
The Tribunal, in accordance with the majority view, decided in favor of the revenue, rejecting the book results shown by the assessee and applying a 12% profit rate on both accounted and unaccounted turnover. The appeal of the assessee was dismissed.