2019 (5) TMI 1859 - AT - Income Tax

Estimation of income - Scrutiny assessment - assessment came to be completed by estimating the income of the assessee at 8% of the total turnover after rejecting the books of accounts - CIT(A) considered the returns for the earlier AYs and estimated the income of the assessee at 3.5% as against 8% estimated by the AO - HELD THAT - The assessee is a Highway Contractor and turnover keep on varying so also the nature of the expenditure. The business of the assessee is not located at a specific point. There are multiple variables coming into play in the nature of the business of the assessee. Obviously earlier or subsequent returns filed by the assessee would not be able to give a true and clear picture of the income of the assessee. In any case, there is only one scrutiny assessment in the case of the assessee for the earlier AYs being the AY 2012-13 which resulted in the income of the assessee being a hike up to 3.21%. A perusal of the receipts for the earlier AYs compare to the relevant AY showed an increase in the turnover but for the AYs 2010-11 2011-12, the percentage of income reduced. For the AY 2012-13, the percentage of income increased on account of the addition made in the course of the scrutiny assessment. CIT(A) failed to appreciate the increase in the turnover results the percentage of income should normally increase, substantially on account of the fact that the fixed cost, if any, remain constant or there would be very minor change in that. The variable cost would admittedly be in proportion to or having some relationship to the increase in the turnover. In the present case, no details have been produced before the Tribunal to substantiate the estimation at a lower figure. Thus, clearly before the AO nor before the Ld. CIT(A) nor before the Tribunal, the assessee is willing to produce any details to substantiate its returned income. A perusal of the Assessment Order shows that the AO has followed a binding decision of A. Vajjiram Bros. 2008 (8) TMI 528 - MADRAS HIGH COURT , the Ld. CIT(A) has reduced the estimated income by applying the decision of the Hon ble ITAT where even the comparison have not been clearly shown. This being so, we are of the view that the estimation of the income as made by the AO which is clearly by following the decision of the Hon ble jurisdictional High Court is on the right footing and should not be disturbed. Consequently, the order of the Ld. CIT(A) on this issue stands reversed and the income estimated by the AO stands restored. - Decided in favour of revenue.

Summary

Issues involved:
- Appeal filed by the Revenue against the Order of the Commissioner of Income Tax (Appeals) for the AY 2013-14.
- Cross-Objection filed by the assessee against the estimation of income.

Analysis:
1. Estimation of Income by AO:
The assessee, a Highway Contractor, filed a return admitting a total income for the relevant assessment year. The AO completed the assessment by estimating the income at 8% of the total turnover after rejecting the books of accounts. The Ld. CIT(A) considered returns for earlier AYs and estimated the income at 3.5%. The Revenue appealed against the reduction to 3.5%, while the assessee filed a Cross-Objection seeking further reduction or no variation. The Ld. CIT(A) based the estimation on earlier AYs and a Tribunal decision, but the AO argued for maintaining the 8% estimate due to lack of substantiated details by the assessee.

2. Non-Cooperation of Assessee:
The assessment order highlighted the non-cooperation of the assessee in providing details, leading to the rejection of books of accounts and adoption of an estimation method. The AO emphasized the importance of substantiating expenses and income claimed, citing a High Court decision. The Tribunal noted the unstable nature of the assessee's business as a Highway Contractor, with varying turnover and expenses, making past returns unreliable for estimation purposes.

3. Judgment and Conclusion:
The Tribunal reviewed the submissions and facts, emphasizing the lack of cooperation from the assessee in providing substantiated details. It noted the importance of stable business operations for using past returns as a basis for income estimation. The Tribunal upheld the AO's estimation of income at 8%, following a High Court decision, and reversed the Ld. CIT(A)'s order reducing it to 3.5%. Consequently, the appeal by the Revenue was allowed, and the Cross-Objection by the assessee was dismissed in the judgment delivered on May 9, 2019, in Chennai.