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2021 (9) TMI 1515 - AT - Income TaxEstimation of business income - difference in the gross receipts between the books of accounts and the annual statement of the department (26AS) - substitution and adoption of receipts as appearing in Form 26AS in place of entries shown as per audited book and estimation of business income/net profit thereon @ 8% discarding the book results - assessee submitted that the difference in the gross receipts between the books of accounts and the annual statement of the department (26AS) is on account of timing difference in recognition of income. HELD THAT - Both the orders are totally non-descript and has nothing worth to say for substitution of book results with estimated profits. Noticeably, in the assessment order, the AO has categorically made an averment to the effect that books of accounts have been produced by the assessee and test checked. The AO has not made mention of any material which could questions the correctness and bonafide of the book results declared. AO is stoically silent on any kind of deficiency in books or excessive claim of any expenses etc. which could substantiate his action. It is incumbent upon the AO to record the inconsistency or incorrectness in the books which prevents the AO to ascertain true income chargeable to tax. The AO has neither rejected the books nor a single voucher was alleged to be unverifiable. The pre-condition for estimating business income, where the assessee maintains books of account is that the books of assessee should be found to be unreliable or otherwise not realistically capable for demonstrating the income of assessee. Without this first step, the fact that the gross profit/net profit is low cannot by itself be a ground for taking a view that it is open to the AO to make good alleged deficiency in profits declared. Thus, the action of the AO requires to be cancelled and set aside on this score alone being devoid of any legitimacy. Gross profit rate/net profit rate cannot be estimated cursorily and in a routine manner without showing as to how the book results are superfluous.AO has not brought any material which has any reasonable nexus to the estimation. As rightly stated on behalf of the assessee, even the best judgment assessment cannot be done in a vindictive manner and should be based on reasonable and fair estimations. AO in the instant case has not crossed the barrier to enable it to go into arena of estimation. The estimation is permissible only on showing that the books of accounts are so defective that it is not possible to ascertain the truthfulness of the profits arising therefrom. The onus is upon the Revenue to show that either the books of account maintained by the assessee were incorrect or incomplete or that the method of accounting adopted by him was such that true profits of the assessee cannot be deduced therefrom. For rejection of books of accounts, the AO is required to demonstrate specific defects in the books of accounts produced by the assessee and also as to how the books of accounts produced by the assessee is not giving clear picture of the profit earned from the business activity. Even where the books are rejected, the discretion must be used by the AO judiciously. We also find considerable substance in the plea of the assessee for not indulging estimates of such whopping nature particularly when lesser net profit rates of 2.19% and 1.10% declared in A.Y. 2016-17 and A.Y. 2017-18 has been endorsed by the Revenue itself in regular assessments. Hence, on giving due weightage to the peculiar facts and circumstances of the case, we find merit in the plea of the assessee for reversal of its consequent substitution by the actual income as per books as offered. Thus, we reverse the action of the lower authorities and restore the position of the assessee. Decided in favour of assessee.
Issues Involved:
1. Determination of income from construction activities by applying 8% to enhanced gross contract receipts. 2. Enhancement of gross receipts based on figures in Form 26AS. 3. Separate addition of interest and miscellaneous income already appearing in Profit & Loss Account. 4. Non-allowance of deduction on account of depreciation allowance. 5. Non-allowance of deduction on account of finance cost. Issue-wise Detailed Analysis: 1. Determination of Income from Construction Activities: The AO determined the income from construction activities by applying an 8% net profit rate to the enhanced gross contract receipts of Rs. 102,71,69,868/-, ignoring the audited financial statements. The Tribunal found this estimation arbitrary and unjustified, as the AO did not provide any logical basis or cite any defects in the books of accounts. The Tribunal emphasized that the AO must record specific inconsistencies or incorrectness in the books to justify such an estimation. The Tribunal set aside the AO's action, restoring the income as per the books. 2. Enhancement of Gross Receipts: The AO enhanced the gross receipts from Rs. 95,04,23,092/- to Rs. 102,71,69,868/- based on figures in Form 26AS. The assessee argued that the difference was due to TDS deducted on advances, which did not crystallize into income in the relevant financial year. The Tribunal accepted the assessee's explanation, noting that income should be recognized when the right to receive it accrues. The Tribunal found the reasons for the mismatch convincing and in line with accounting practices, setting aside the AO's and CIT(A)'s actions on this score. 3. Separate Addition of Interest and Miscellaneous Income: The AO made separate additions of Rs. 99,90,703/- on account of interest and Rs. 1,46,250/- on account of miscellaneous income, which were already included in the Profit & Loss Account. The Tribunal found these additions unsustainable, as the interest income on FDRs was inextricably linked to the business and the miscellaneous income was already part of the P&L account. 4. Non-allowance of Depreciation Allowance: The AO did not allow a deduction of Rs. 94,17,716/- on account of depreciation allowance. The Tribunal did not provide a separate detailed analysis on this issue in the judgment, but the overall context suggests that the Tribunal's decision to restore the income as per the books implies acceptance of the depreciation allowance claimed by the assessee. 5. Non-allowance of Finance Cost: The AO did not allow a deduction of Rs. 1,27,17,564/- on account of finance cost. Similar to the depreciation allowance, the Tribunal's decision to restore the income as per the books implies acceptance of the finance cost claimed by the assessee. Conclusion: The Tribunal found substantial merit in the grounds of appeal raised by the assessee and quashed the additions made in the assessment order dated 30.03.2015. The appeal of the assessee was allowed, and the order was pronounced on 24/09/2021.
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