2016 (11) TMI 1415 - AT - Income Tax

Rejection of books - profit estimation - Held that - When the asssessee is not maintaining the books of account properly and the correct income of the assessee could not be computed on the basis of the books of account maintained in the course of business, the books of account can be rejected. The assessing officer can estimate the profit on the basis of the material available on record. In the case before us, the books of account of the assessee are not rejected by the assessing officer. Merely because, the assessee has disclosed the profit less than 5% in some of the project, that alone cannot be a reason for the assessing officer to estimate the profit uniformly at 5% for all the projects. It is for the assessing officer to examine the books of account and find out why he could not accept profit of the assessee on the basis of books of account maintained. Since such an exercise was not done and the books of account of the assessee was not rejected, this Tribunal is of the considered opinion that the CIT(A) has rightly allowed the claim of the assessee. - Decided against revenue

Summary

Issues:
Addition of estimated income on basis of lack of bills and vouchers, rejection of books of account, estimation of profit without rejecting books of account.

Analysis:
The case involved an appeal against the order of CIT(A) regarding the addition of estimated income of ?21.40 crores due to the lack of bills and vouchers for construction projects carried out by the assessee during the assessment year 2012-13. The assessing officer estimated the profit at 5% as the assessee returned less than 5% of gross receipts as profit, resulting in a deficiency of ?21.39 crores. However, there was no rejection of books of account during the assessment proceedings. The Tribunal noted that the assessing officer can estimate profit based on available material if books of account are not maintained properly, but in this case, the books were not rejected. The Tribunal opined that the assessing officer should have examined the books of account before estimating profit uniformly at 5% for all projects. As the books were not rejected, the Tribunal upheld the decision of CIT(A) and dismissed the revenue's appeal.

The Tribunal emphasized that the rejection of books of account is necessary for estimating profit when the correct income cannot be computed based on the maintained records. In this case, since the books of account were not rejected, the assessing officer should have conducted a thorough examination before estimating profit at a uniform rate. The Tribunal highlighted the importance of proper assessment procedures and the need for a valid reason to reject books of account before resorting to estimation methods. Consequently, the Tribunal confirmed the decision of CIT(A) as there was no valid ground to interfere with the lower authority's order.

In conclusion, the Tribunal dismissed the revenue's appeal, emphasizing the significance of proper assessment procedures and the requirement to reject books of account before estimating profits based on assumptions. The case highlighted the importance of maintaining accurate records and conducting thorough assessments to determine taxable income correctly, ensuring fairness and adherence to legal principles in tax assessments.