2013 (11) TMI 1681 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of income addition by estimating higher values after rejecting books of account.
2. Justification of rejection of books of account u/s 145.
3. Allowance of business expenses.
4. Allowance of depreciation.
5. Allowance of loss pertaining to hotel business.

Summary:

1. Deletion of Income Addition:
The Revenue's appeal contested the deletion by the CIT(A) of the income addition made by the A.O. by estimating higher profits from various projects after rejecting the books of account. The A.O. had estimated profits for projects such as Gopala, Kukreja, Ganga Tower I, and Ganga Tower II at higher values. The CIT(A) held that the methods of accounting followed by the assessee were correct and that the A.O. was not justified in rejecting the book results. The CIT(A) found that the income estimated by the assessee from different projects was fair and reasonable.

2. Justification of Rejection of Books of Account u/s 145:
The A.O. rejected the books of account u/s 145, citing inconsistencies in the method of accounting and non-compliance with revised Accounting Standard 7 (AS-7). The CIT(A) held that the project completion method is a recognized method for builders and that the assessee consistently followed this method for new projects started after A.Y. 2001-02. The CIT(A) also noted that AS-7 is applicable to contractors, not builders, and thus the A.O.'s rejection of the books was not justified.

3. Allowance of Business Expenses:
The A.O. had disallowed business expenses of Rs. 36,37,375/- after rejecting the book results. The CIT(A) allowed these expenses, stating that the A.O. did not establish that the expenses were either bogus or not incurred for business purposes. Since the rejection of book results was not justified, the CIT(A) allowed the business expenses claimed by the assessee.

4. Allowance of Depreciation:
The A.O. disallowed the depreciation claim of Rs. 55,19,141/- for the hotel business, questioning the use of assets. The CIT(A) allowed 50% of the depreciation amounting to Rs. 27,59,570/-, based on evidence that the hotel business commenced during the year and the assets were put to use for less than 180 days.

5. Allowance of Loss Pertaining to Hotel Business:
The CIT(A) allowed the assessee's claim for a loss of Rs. 8,18,327/- pertaining to the hotel business, recognizing that the hotel business commenced during the year under consideration. This decision was upheld as it was consequential to the acceptance of the commencement of the hotel business.

Conclusion:
The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal and confirming the deletion of income addition, allowance of business expenses, depreciation, and loss pertaining to the hotel business. The methods of accounting followed by the assessee were deemed appropriate and consistently applied.