2016 (4) TMI 698 - AT - Income Tax

Rejection of books of accounts - estimation of profit - Held that - The assessee s plea that books of account should not have been rejected u/s 145(3) which is devoid of any merit as nowhere it has been claimed that expenses vouchers were produced by the assessee before any forum. Thus the deficiency remains un-controvered by the assessee, consequently the books of account of the assessee are rightly rejected. Apropos assessee s plea that having rejected the books of account the AO can only estimate the gross profit is also devoid of any merit. After rejection of books of account the law provides for best judgment assessment by the AO. Therefore, the assessee cannot dictate the method or way claiming best judgment assessment. The assessee s plea that he being in the business of civil construction, Section 44AD should be applied to him is baseless inasmuch as the law itself provides that provision will not be applicable to assessee having receipt above ₹ 40 lacs. The assessee s case is within the purview of Section 44AD of the Act by operation of law itself. The assessee s deliberate act of maintaining audited books of account and deliberately not producing expenditure vouchers cannot be taken lightly. No explanation has been offered by the assessee as to why expenditure vouchers could not be produced by him. Thus the act of defiance demonstrate reckless attitude of the assessee which cannot be accepted. The case laws cited by the assessee are altogether on different facts as none of them involves deliberate non furnishing of expenditure vouchers. The assessee s facts being deliberately non-production of expenditure vouchers does not fit in the four corners of the case laws cited by the assessee. - Decided against assessee

Summary

Issues:
1. Rejection of books of account and assessment to the best of judgment.
2. Disallowance of expenses related to civil construction business.
3. Sustaining disallowance made by the Assessing Officer.

Analysis:

Issue 1: Rejection of books of account and assessment to the best of judgment
The assessee appealed against the rejection of books of account by the Assessing Officer (AO) and subsequent assessment to the best of judgment. The AO rejected the books due to lack of necessary details about expenditure, leading to a disallowance of expenses. The assessee contended that only gross profit should be estimated post rejection of books, citing Section 44AD, and argued that the net profit rate declared was reasonable. However, the tribunal upheld the rejection, stating that the AO has the authority to disallow expenses in such cases. The tribunal dismissed the appeal, emphasizing that the rejection was justified due to the lack of expenditure vouchers, and the AO's assessment was upheld.

Issue 2: Disallowance of expenses related to civil construction business
The dispute involved whether the assessee's business of rigging bore wells qualified as civil construction under Section 44AD. The assessee argued that the business activities fell under civil construction, thus provisions of Section 44AD should apply. However, the tribunal held that since the receipts exceeded the threshold of Rs. 40 lakhs, the assessee was not eligible for Section 44AD. The tribunal noted that the deliberate non-production of expenditure vouchers by the assessee was a significant factor in upholding the disallowance of expenses related to the business.

Issue 3: Sustaining disallowance made by the Assessing Officer
The tribunal reviewed the disallowances made by the Assessing Officer, including expenses for diesel, labor, material, and machinery maintenance. While the tribunal reduced some disallowances, it upheld others based on the lack of proper documentation and the nature of the expenses. The tribunal found the Assessing Officer's actions reasonable and upheld the disallowances, considering the overall circumstances of the case and the lack of supporting vouchers for the expenses.

In conclusion, the tribunal dismissed the assessee's appeal, upholding the rejection of books of account, the assessment to the best of judgment by the AO, and the disallowances related to the civil construction business expenses. The decision was based on the lack of supporting documentation, the threshold for Section 44AD applicability, and the overall conduct of the assessee during the assessment proceedings.