2015 (4) TMI 762 - AT - Income Tax

Rejection of books of account - Discrepancies in purchases and sales - Estimation of Income - Dis-allowance of depreciation - Assessee argued that its books of accounts had been properly audited' and nofault has been found with the audit - Held that - the way in which the books of accounts the appellant had been written, it is impossible to either determine purchases or the sales or the expenses. The books are not amenable any sort of verification and the entries mentioned are wrong - rejection of books of accounts is absolutely in order.. Estimation of income - Held that - Following the case of M/s Sujana Towers Ltd. 2014 (7) TMI 805 - ITAT HYDERABAD and considering totality of facts and circumstances of the present case and the specific plea of the assessee, in the interests of justice in this case also, we are inclined to set aside the impugned order of the CIT(A) and restore the matter to the file of the Assessing Officer with similar directions. We do so and direct the Assessing Officer to re-examine the matter, after giving reasonable opportunity to the assessee to produce the books of account and other information, and re-determine the income accordingly. The directions given in the order of this Tribunal in the case of M/s Sujana Universal Industries Ltd. and M/s Sujana Metal Products Ltd. 2015 (4) TMI 580 - ITAT HYDERABAD dated 13.8.2013, extracted above, apply mutatis mutandis to this case as well. Assessee is directed to cooperate with the Assessing Officer and comply with the notices, and the Assessing Officer is directed to complete the assessment afresh in accordance with law after giving reasonable opportunity of hearing to the assessee. As the issue under consideration is materially identical to the one decided by the coordinate bench in case of M/s Sujana Towers Ltd. 2014 (7) TMI 805 - ITAT HYDERABAD , we set aside the order of the CIT(A) and restore the matter to the file of AO with a direction to decide the same in the light of the said decision of the coordinate bench. The ground raised by assessee as well as by the revenue are allowed for statistical purposes. We have heard the submissions of the parties and perused the material on record as well as orders of the revenue authorities. Since the CIT(A) has given a finding that the assets were non-existent, we set aside the issue to the file of the AO to verify the existence of the computers and allow the claim of depreciation. Accordingly, this ground is allowed for statistical purposes.

Summary

Issues Involved:
1. Rejection of books of account by the AO.
2. Estimation of income at 0.7% of turnover.
3. Disallowance of depreciation on computers.

Issue-wise Detailed Analysis:

1. Rejection of Books of Account by the AO:
The Assessee, a company engaged in trading steel products, filed its return for AY 2009-10, declaring an income of Rs. 20,71,880. The AO completed the assessment, determining the income at Rs. 3,54,1,850 after rejecting the books of account due to discrepancies in purchases and sales. The AO found significant losses in November and inconsistencies in VAT returns and closing stock values. Consequently, the AO estimated the gross income at 1% of sales, citing the unreliability of the books of account.

2. Estimation of Income at 0.7% of Turnover:
The Assessee argued before the CIT(A) that the rejection of books was incorrect as they were properly audited, with no changes in accounting policies. The CIT(A) upheld the rejection, noting the books were not amenable to verification. However, the CIT(A) reduced the income estimation from 1% to 0.7% of turnover, finding the AO's estimation lacked concrete information and comparable cases. The CIT(A) concluded that the Assessee's average net profit for the last three years was less than 1%, justifying a lower estimation.

3. Disallowance of Depreciation on Computers:
The AO disallowed depreciation of Rs. 10,57,816 on computers, following a decision from earlier years where the existence of the assets was unproven. The CIT(A) upheld this disallowance, noting the Assessee failed to prove the existence of the computers. The Assessee contended that once income is estimated, no separate disallowances should be made, citing the Hon'ble A.P. High Court's decision in Indwell Constructions vs. CIT. The Tribunal set aside the issue to the AO to verify the existence of the computers and allow the claim of depreciation if proven.

Separate Judgments Delivered by Judges:
The Tribunal referred to a similar case (M/s Sujana Towers Ltd. Vs. ACIT) where the matter was restored to the AO for re-examination. Following this precedent, the Tribunal set aside the CIT(A)'s order and directed the AO to re-examine the Assessee's books and determine the income accordingly, providing the Assessee a reasonable opportunity to produce relevant documents.

Conclusion:
The Tribunal allowed the appeals for statistical purposes, directing the AO to re-examine the books of account and the existence of computers, ensuring a fair and just determination of the Assessee's income. The Tribunal emphasized the need for concrete evidence and reasonable opportunity for the Assessee to substantiate its claims.