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2010 (1) TMI 912 - AT - Income TaxEstimated addition - 15% of the sales as net profit - held that - AS-2 which was originally issued in June, 1981 and revised in 1999 excludes construction contracts from the scope of Accounting Standard (AS-7). The method adopted by the assessee is one of the recognized method. The AO has not rejected the assessee s books. In these circumstances, as rightly contended by the ld. Representative for the assessee, the estimation of income to the extent of 30% and reduction of the same by CIT(Appeals) to 15% is incorrect. - the CIT(Appeals) was not justified in retaining the estimated addition and the CIT(Appeals) was not justified also in treating this as an accepted method. - Decided in favor of assessee.
Issues Involved:
1. Estimation of Income 2. Rejection of Books of Accounts 3. Valuation of Work-in-Progress (WIP) 4. Treatment of Unsecured Loans Detailed Analysis: 1. Estimation of Income: The primary issue in these appeals is the estimation of income. The Assessing Officer (AO) estimated the profit on sales at 30% for every year, which was later reduced to 15% by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee contested this reduction, arguing that the method of accounting regularly employed by them should be accepted unless proven unreasonable. The Tribunal noted that the AO did not reject the assessee's books of accounts or find the method of accounting unreasonable. The Tribunal upheld that the method adopted by the assessee, which is recognized by the Institute of Chartered Accountants of India (ICAI), should be accepted. Consequently, the CIT(A)'s retention of a 15% estimation was also deemed incorrect, and the appeals by the assessee were allowed. 2. Rejection of Books of Accounts: The AO did not explicitly reject the books of accounts maintained by the assessee. The Tribunal emphasized that without a clear rejection of the books of accounts, the AO's estimation of income was unwarranted. The Tribunal referenced various judicial precedents supporting the principle that the books of accounts should be accepted unless they are proven to be unreliable or unreasonable. 3. Valuation of Work-in-Progress (WIP): The AO added estimated amounts to the assessee's income based on perceived discrepancies in the valuation of WIP. The CIT(A) found that the opening and closing stocks were consistent with the previous year's figures, and there was no justification for the AO's additions. The Tribunal upheld the CIT(A)'s decision, noting that the method of accounting for WIP used by the assessee was consistent with the ICAI's standards and had been accepted in previous years. 4. Treatment of Unsecured Loans: For the assessment year 2006-07, the AO added Rs. 1 crore to the assessee's income, questioning the genuineness of unsecured loans. The CIT(A) deleted this addition, noting that the assessee had provided confirmation letters, addresses, and PAN numbers of the lenders. The Tribunal supported the CIT(A)'s view that the burden of proof shifted to the department once the assessee provided sufficient details. The Tribunal referenced judicial precedents that supported the assessee's position, affirming that the AO should have taken further steps to verify the genuineness of the loans. Separate Judgments: The Tribunal's decisions in related appeals involving the same group of assessees (M/s. Concorde Developers and M/s. Concorde Shelters) were consistent. The Tribunal dismissed the revenue's appeals, which argued for the application of Accounting Standard AS-7 and the percentage completion method, reiterating that the method adopted by the assessee was recognized and accepted. Conclusion: The appeals by the assessee were allowed, and the revenue's appeals were dismissed. The Tribunal emphasized the importance of consistency in the method of accounting and the necessity for the AO to provide clear reasons for rejecting the assessee's books of accounts or methods. The Tribunal's decisions were grounded in established accounting standards and judicial precedents, ensuring a fair and just resolution of the disputes.
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