2017 (9) TMI 1714 - AT - Income Tax

Rejection of books of accounts - estimation of income - undisclosed investments and expenditures - the assessee retracted from disclosure made during survey - AO made list of defects and rejected the books of account of assessee. The Assessing Officer on the basis of statement recorded during survey estimated the income of assessee @ 15% of the total gross contract receipts. - the rate of net profit estimated by Assessing Officer at 15% tone down to 10%. Held that - It is an undisputed fact that the assessee has made irregularities in recording financial transactions. There are certain unexplained expenditure and investments. The assessee in grounds of appeal as agreed for estimated addition of Net profit @ 8%. Certainly, estimation of income @ 15% of gross contract receipts is on higher side and without any rational. The ld. DR has not been able to substantiate the action of Assessing Officer in adopting 15% ratio. After taking into consideration totality of facts, we are of considered view that if the estimation of net profit as proposed by Commissioner of Income Tax (Appeals) is further reduced by 1% (one percent) i.e. brought down to 9% of total gross contract receipts for all the assessment years i.e. assessment years 2008-09 to 2011-12, it would meet the ends of justice. We hold and direct, accordingly. Decided partly in favor of assessee.

Summary

Issues Involved:
1. Rejection of books of account.
2. Estimation of net profit percentage.
3. Additions under sections 69, 69B, and 69C of the Income Tax Act.
4. Disallowance of various expenses.
5. Validity of retraction from the statement made during the survey.

Detailed Analysis:

1. Rejection of Books of Account:
The assessee, a proprietor of M/s. Chakradhar Construction, was subjected to a survey under Section 133A of the Income Tax Act, 1961. During the survey, certain incriminating documents and books of account were found and impounded. The Assessing Officer (AO) observed defects in the books, such as self-made vouchers, lack of details of expenditure, no muster register for workers, and unverifiable payments to sundry creditors. Consequently, the AO rejected the books of account and estimated the income of the assessee.

2. Estimation of Net Profit Percentage:
The AO estimated the income at 15% of the total gross contract receipts for the assessment years 2008-09, 2009-10, and 2011-12, based on the statement recorded during the survey. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the rejection of books but reduced the estimation of net profit from 15% to 10%. The Tribunal further reduced the net profit estimation to 9% of the total gross contract receipts, considering the totality of facts and the lack of rational justification for a 15% estimation.

3. Additions under Sections 69, 69B, and 69C:
For the assessment year 2010-11, the AO made specific additions under Sections 69C (?28,95,37,659), 69 (?40,02,044), 69B (?1,36,15,000), and disallowed contract expenses (?4,09,97,440) and other expenses (?8,04,078), totaling ?34,89,56,221. The CIT(A) deleted most of these additions except for the addition under Section 69 (?40,02,044), confirming that these were receipts from other sources not recorded in the assessee's books. The Tribunal upheld the CIT(A)'s decision, stating that the addition under Section 69 is not covered by the estimation of business income.

4. Disallowance of Various Expenses:
The AO disallowed various expenses, which were subsequently contested by the assessee. The CIT(A) deleted the disallowances except for the addition under Section 69. The Tribunal upheld the CIT(A)'s decision regarding the disallowance of expenses, except for the confirmed addition under Section 69.

5. Validity of Retraction from the Statement Made During the Survey:
The assessee retracted from the disclosure of ?878.75 lakhs made during the survey. The AO made additions based on the initial statement. The CIT(A) and the Tribunal noted that no cogent evidence supported the additions based solely on the retracted statement. The Tribunal emphasized that additions cannot be made merely on the basis of a statement without corroborative evidence.

Conclusion:
The Tribunal partly allowed the appeals of the assessee by reducing the net profit estimation to 9% and upheld the CIT(A)'s deletion of most specific additions for the assessment year 2010-11, except for the addition under Section 69. The appeals by the Department were dismissed. The Tribunal's decision was pronounced on September 22, 2017.