2018 (6) TMI 1624 - HC - Income Tax

Addition u/s 40(a)(ai) - Books of Account were rejected and the profit was estimated @ 8% of turnover - ITAT deleted addition - whether the addition made as per the statutory provision could be interfered with in a manner done? - HELD THAT - Having heard learned counsel for the parties and on analyzing the reasons that weighed with the Tribunal for rejecting the justification given by the learned Commissioner (Appeals), we find that the Tribunal has not committed any error. Once the Books of Account were rejected and the profit was estimated @ 8% of turnover, then, the same Books of Account cannot be relied upon for the purpose of making addition under the provision of Section 40 of the Act. In doing so, the Tribunal has not committed any error. We do not find any substantial question of law warranting reconsideration. - Decided against revenue.

Summary

Issues:
1. Tenability of the order passed by the Income Tax Appellate Tribunal in ITA No. 111/Pat/ 2010 for the assessment year 2004-05.
2. Disallowance of certain additions made by the learned Commissioner for Income Tax under Section 40(a)(ai) of the Income Tax Act.

Issue 1:
The High Court was called to determine the tenability of an order passed by the Income Tax Appellate Tribunal for the assessment year 2004-05. The Revenue appealed against the order, specifically challenging the disallowance of certain additions under Section 40(a)(ai) of the Income Tax Act. The Assessing Officer had rejected the Books of Accounts under Section 145(3) of the Act and estimated the net profit at 8% of the total contract received, resulting in an income determination of ?1,26,50,146. The assessee contested this decision, leading to the matter reaching the Tribunal.

Issue 2:
The Tribunal, in its decision, referred to a previous case and held that once the income is estimated by the Assessing Officer after rejecting the books of account, no further disallowance can be made based on the same books. The Tribunal cited a judgment of the Hon'ble Andhra Pradesh High Court to support this view, emphasizing that all deductions under Section 29 are deemed to have been taken into account when making such an estimate. Therefore, the Tribunal upheld the order of the learned Commissioner (Appeals) on this issue.

Judgment Analysis:
The High Court analyzed the Tribunal's decision and found that the rejection of the Books of Account and the estimation of profit at 8% of turnover precluded any further additions under Section 40 of the Act. The Court concluded that the Tribunal did not err in its decision, as the rejected books could not be relied upon for making additional disallowances. Consequently, the High Court dismissed the appeal, stating that no substantial question of law necessitated reconsideration.

In summary, the High Court upheld the Tribunal's decision regarding the tenability of the order passed for the assessment year 2004-05 and the disallowance of certain additions under Section 40(a)(ai) of the Income Tax Act. The judgment emphasized the principle that once income is estimated after rejecting books of account, no further disallowances can be made based on the same books, in line with relevant legal precedents.