2012 (4) TMI 265 - AT - Income Tax

Addition of income for suppression of the cable connections - the AO rejected the books of accounts silently and resort of estimations adopting basis of 40% of the electricity connections of an area in making the best judgment assessments u/s 144 - Held that - In the absence of any material pointing towards falsehood of the books of accounts and no particular defect, or discrepancy being pointed in the books of accounts, resort could not be made to rejecting the books of accounts by invoking Sec.145(3) - AO shall not reject the books unless the accounts of the assessee suffer from either of the twin reasons specified in the Act ie correctness or completeness - Shri Ezaz Inamdar, Director s response is picked in isolation. A reading of the question and answer makes it clear that a part of the sentence is extracted to mislead. The full sentence is Further for planning purpose, we take 40% as the possible connectivity - the said allegation of Service Tax Department and informed that the said allegation were finally dropped by the said Department as they could not support the allegation - the AO never could enlist or provide single conclusive instance of either incompleteness or inaccuracy in the accounts in favour of assessee.

Issues Involved:
1. Deletion of addition of Rs. 3,35,73,600/- by CIT (A).
2. Estimation of number of subscribers and income.
3. Rejection of books of accounts under Section 145(3) of the Income Tax Act.
4. Suppression of subscriber base.
5. Estimation based on electricity connections.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 3,35,73,600/- by CIT (A):
The Ld. CIT (A) deleted the addition made by the AO, which was based on the estimation of the number of cable connections. The AO had estimated the number of subscribers based on 40% of the number of residential accommodations, derived from the number of electricity connections. The CIT (A) found this estimation method arbitrary and instead estimated the suppression of the subscriber base at 10% of the connections shown by the assessee.

2. Estimation of Number of Subscribers and Income:
The AO estimated the number of subscribers at 40% of the number of residential accommodations, which was based on a statement by the Director of the assessee company. The CIT (A) reduced this estimate to 10%, deeming it more reasonable. The Tribunal found that the AO had not provided sufficient evidence to support the 40% estimation and that the CIT (A) had also not adequately justified the 10% estimation.

3. Rejection of Books of Accounts under Section 145(3) of the Income Tax Act:
The Tribunal examined whether the AO was justified in rejecting the books of accounts without explicitly invoking Section 145(3). The Tribunal noted that the AO had not pointed out any specific inaccuracies or incompleteness in the books of accounts. The books were duly audited, and no discrepancies were found by the statutory auditors. The Tribunal concluded that the AO's rejection of the books was invalid as it was not based on any concrete evidence of inaccuracies or incompleteness.

4. Suppression of Subscriber Base:
The AO and the CIT (A) both assumed that the assessee had suppressed the number of cable connections. This assumption was based on the statement by the Director and allegations from the Service Tax Department. However, the Tribunal found that there was no incriminating material from the search action to suggest suppression of the subscriber base. The Tribunal also noted that the Service Tax Department's allegations were not substantiated, and the proceedings were dropped.

5. Estimation Based on Electricity Connections:
The AO's estimation was based on the number of electricity connections, assuming that 40% of these connections would have cable connections. The Tribunal found this method to be speculative and not supported by any concrete evidence. The Tribunal emphasized that estimations should be based on reliable data and that the AO had failed to justify the use of electricity connections as a basis for estimating the number of cable subscribers.

Conclusion:
The Tribunal allowed the appeals of the assessee and dismissed the appeals of the revenue. The Tribunal held that the AO had invalidly rejected the books of accounts and that the estimations made were not based on any concrete evidence. The Tribunal emphasized the need for specific findings of inaccuracies or incompleteness in the books of accounts before rejecting them and resorting to estimations. The Tribunal concluded that the assessments made by the AO were unsustainable and quashed the additions made on the basis of the invalid estimations.

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