2013 (9) TMI 226 - AT - Income Tax

Admission of revised return - Wrong contract receipt - Held that - The Assessing Officer has disregarded this revised return on the sole ground that after processing of return u/s 143(1)(a) of the Act, revision made as such cannot be taken as valid. Admittedly, when the processing of a return does not amount to an assessment as has also been held by the Hon ble Apex Court in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. (2007 (5) TMI 197 - SUPREME Court), the Ld. CIT(A) on the peculiar facts and circumstances of the case, cannot be said to have erred in admitting the revised return as a valid return and requiring the Assessing Officer to proceed on that basis - Decided against Revenue. Rejection of books of accounts - Estimation of income - Works contract - Held that - The Assessing Officer is not found to have made any adverse comment nor recorded any finding on such verification aspect but made casual remarks only that the consumption of materials is not verifiable. In fact, in the appellant s case, all the quantitative details were duly appended with the audit report and were laid by the assessee alongwith return of income filed by it. Under these circumstances, the Assessing Officer could not have estimated income by applying a higher gross profit rate on this count even after the accounts stood rejected for some technical reasons. - Decided against the revenue. The appellant, therefore, has contested that the true profits can be deduced from the rejected accounts as well. We, therefore, having regard to the judgment rendered by the jurisdictional High Court in the case Kanhaiaya Lal Jangid v. Asstt. CIT (2007 (1) TMI 496 - HIGH COURT OF RAJASTHAN) and considering the over all conspectus as well as circumstances and peculiar facts of this case and also the earlier in issued judgments, find no rational in such estimation in the impugned year. We, therefore, consider it reasonable to estimate the profit for the peculiar year under consideration by making a disallowance of expenses of Rs. 10 lacs and modify the trading addition sustained by the Ld. CIT(A) - Decided partly in favor of assessee.

Summary

Issues Involved:
1. Acceptance of revised return by the assessee.
2. Restriction of trading addition.
3. Deletion of addition due to non-deduction of TDS on rent.
4. Invocation of Section 145(3) by the Assessing Officer.
5. Profit rate estimation on gross receipts from contract activity.
6. Profit rate estimation on gross turnover from manufacturing activity.

Detailed Analysis:

1. Acceptance of Revised Return:
The Ld. CIT(A) directed the Assessing Officer to accept the revised return filed by the assessee, which was initially disregarded by the Assessing Officer on the ground that it was filed after processing under Section 143(1)(a). The Ld. CIT(A) cited that processing under Section 143(1)(a) does not amount to an assessment and upheld the revised return as valid under Section 139(5). This decision was supported by judgments from the Hon'ble Apex Court and High Courts, emphasizing that revised returns filed within the statutory period must be accepted.

2. Restriction of Trading Addition:
The Ld. CIT(A) restricted the trading addition to Rs. 49,30,980/- instead of Rs. 1,65,59,182/- as made by the Assessing Officer. The Assessing Officer had estimated income by applying a gross profit rate of 8% on receipts, but the Ld. CIT(A) corrected the turnover and applied a net profit rate of 7%, consistent with preceding years. The Tribunal upheld this decision, noting that the assessee's business with Indian Railways involved specialized contracts requiring high technical competence and material intensity, justifying the lower profit rate.

3. Deletion of Addition Due to Non-Deduction of TDS on Rent:
The Ld. CIT(A) deleted the addition of Rs. 10,36,925/- made by the Assessing Officer for non-deduction of TDS under Section 194I on rent paid to a director. However, the Tribunal found that the judgment by the Special Bench in Merilyn Shipping & Transports v. ACIT was not approved by the jurisdictional High Court. Thus, the Tribunal directed the Assessing Officer to re-examine the facts and take a decision in accordance with the law.

4. Invocation of Section 145(3):
The Ld. CIT(A) upheld the invocation of Section 145(3) by the Assessing Officer due to discrepancies in the assessee's accounts, such as the absence of a stock register, site-wise expense vouchers, and attendance or labor control registers. The Tribunal confirmed the rejection of books, noting that the accounts were not complete and correct, and the Assessing Officer's action was justified under the circumstances.

5. Profit Rate Estimation on Gross Receipts from Contract Activity:
The Ld. CIT(A) applied a net profit rate of 7% on gross contract receipts, resulting in an addition of Rs. 46,28,690/-. The Tribunal modified this, considering the peculiar facts of the case and the nature of the assessee's contracts with Indian Railways. The Tribunal found the estimation of a 7% profit rate unreasonable and instead made a disallowance of expenses amounting to Rs. 10 lakhs, adjusting the trading addition accordingly.

6. Profit Rate Estimation on Gross Turnover from Manufacturing Activity:
The Ld. CIT(A) applied a gross profit rate of 4.25% on the turnover of Rs. 5,00,07,802/-, resulting in an addition of Rs. 3,02,290/-. The Tribunal found no reason to interfere with this estimation, as it was based on the best judgment and consistent with the facts and circumstances of the case. The ground raised by the assessee in this regard was rejected.

Conclusion:
The Tribunal partly allowed both the revenue's appeal and the assessee's appeal, making specific adjustments to the trading additions and directing re-examination of the TDS issue. The judgments emphasized the importance of consistency in profit rate application and the necessity of complete and verifiable accounts.