2016 (5) TMI 344 - AT - Income Tax

Estimation of business income - Held that - The issue has already been considered and adjudicated by the coordinate bench of this Tribunal in the case of one of the assessees herein, viz., Maa Highways, for assessment year 2007-08, wherein estimation of income in the hands of subcontracts at 5% of the gross receipts was held to be reasonable. Respectfully following the same, we hold that in all these cases as well, the business income of the assessees for the years under appeal be estimated at 5% of the gross receipts, and additions if any, may be determined accordingly. - Decided in favour of assessee in part. Additions made on protective basis - Held that - Though the authorities below have not mentioned the section under which the disallowance and the consequential additions are made, from the order of the Assessing Officer, it appears that the receipts of the assessee were disallowed as they are not used for business activity. Thus, it is disallowance of business expenditure. The CIT(A) has rightly pointed out that the amounts withdrawn cannot be presumed to have been deployed and incurred towards revenue expenditure and got debited to the Profit & Loss Account. Where there is estimation of business income, disallowance and consequential addition of revenue expenditure is not sustainable, as held by the jurisdictional High Court in the case of Indwell Constructions (1998 (3) TMI 121 - ANDHRA PRADESH High Court ). In view of the same held that no separate disallowance of expenditure shall be made once income is determined by resorting to estimation. Respectfully following the same, we do not see any reason to interfere with the orders of the CIT(A).- Decided in favour of assessee.

Summary

Issues:
- Estimation of business income at 5% of gross receipts for the assessees
- Deletion of additions made on protective basis in the cases of the assessees

Estimation of Business Income:
The judgment involved sixteen appeals concerning three assessees of a common group, with cross appeals for various assessment years. The case background included a search and seizure operation under Section 132 of the Income Tax Act in the case of a company and its group concerns, leading to the issuance of notices under Section 153A to the assessees. The Assessing Officer estimated the income of the assessees at 8% of the gross receipts as the books of account were rejected. The assessees filed appeals before the CIT(A), who confirmed the income estimation but deleted the additions made on a protective basis. The assessees argued that the income estimation was not sustainable under Section 143(3) read with Section 153A. They relied on a previous Tribunal order directing income estimation at 5% of gross receipts for a similar case. The Departmental Representative defended the 8% estimation, stating it was reasonable. The Tribunal, considering previous decisions, held that the business income of the assessees should be estimated at 5% of the gross receipts for all the years under appeal, allowing the assessees' appeals.

Deletion of Additions Made on Protective Basis:
Regarding the Revenue's appeals against the deletion of additions made on a protective basis, the Assessing Officer presumed that the assessees rerouted funds received from a company back to the same company, indicating non-expenditure towards business activities. However, the CIT(A) found that not all withdrawals could be considered business expenditure, especially when not debited to the Profit & Loss Account. The Tribunal observed that the disallowance and consequential addition of revenue expenditure were not sustainable when there was income estimation. Citing a jurisdictional High Court decision, it was established that once business income is estimated, no other disallowance should be made. The Tribunal agreed with the CIT(A) that the issue was covered by precedent and dismissed the Revenue's appeals, treating the assessees' appeals as allowed.

In conclusion, the Tribunal upheld the estimation of business income at 5% of gross receipts for the assessees and dismissed the Revenue's appeals against the deletion of additions made on a protective basis, ultimately allowing the assessees' appeals.