2016 (5) TMI 1140 - AT - Income Tax

Rejection of books of accounts - Computation of gross business receipts - Held that - A.O. rejected the books of accounts and estimated income at 10%. The Ld. CIT(A) reduced it to 6.5% without recording any reasons, simply by following the Tribunal decision, which is not relevant. In the case of estimation, of facts and circumstances of each case has to be examined. In the present case after considering the assessment order as well as CIT(A) order and also details filed before us, we are of the opinion that estimation at 8% on gross receipts instead of 6.5% on gross receipts is to be adopted. In view of the above, we set aside the order passed by the Ld. CIT(A). We direct the A.O. to adopt estimation at 8% on gross receipts for the assessment year 2008-09 as well as 2009-10 also. Treatment of interest receipts on FDRs as income from other sources - CIT(A) by considering the submissions of the assessee, he has treated it as a business income - Held that - The assessee is not able to substantiate before us to show that the deposits made by the assessee are for the purpose of business. Therefore, it cannot be said that the interest income received by the assessee from the bank deposits is income from business. Therefore, we hold that interest received by the assessee is income from other sources and we accordingly reverse the order of the CIT(A). Excess claim of expenditure under head Seigniorage & Sales Tax disallowed - Held that - The books of accounts of the assessee are not relied, it was rejected by the Assessing Officer and now, based on the reliance on the same books for the purposes of making further additions is improper and unjust. The estimation of income takes care of irregularities committed by the assessee, but making further additions amount to double addition which is not permitted by law. The Ld. CIT(A) after considering the explanation of the assessee, he has observed that once the income is estimated, no other addition is permissible on the basis of rejected books and as such the impugned addition made by the A.O. is set aside and allowed the claim of the assessee.

Summary

Issues:
1. Estimation of income based on lack of verifiable vouchers and details.
2. Treatment of interest receipts on FDRs as business income.
3. Disallowance of excess claim of expenditure under "Seigniorage & Sales Tax."

Estimation of Income Issue:
The appeals and cross objections were against the CIT (Appeals) order for the assessment years 2008-09 & 2009-10. The assessee, a civil contractor, failed to produce verifiable vouchers for various expenditures, leading the Assessing Officer (A.O.) to reject the books of accounts and estimate income at 10%. The CIT (A) reduced it to 6.5% without providing reasons. The ITAT decided to adopt an estimation of 8% on gross receipts for both years, setting aside the CIT (A) order.

Treatment of Interest Receipts Issue:
For the assessment year 2008-09, the A.O. treated interest receipts on FDRs as 'income from other sources,' while the CIT (A) considered it as business income. The ITAT found the deposits were not proven to be for business purposes, concluding the interest income as 'income from other sources,' reversing the CIT (A) decision. This treatment was also applied for the subsequent year 2009-10.

Disallowed Expenditure Issue:
Regarding the "Seigniorage & Sales Tax" expenditure for 2009-10, the A.O. disallowed an excess claim based on TDS certificates. The CIT (A) set aside the A.O.'s addition, stating that once income is estimated, no further additions can be made based on rejected books. The ITAT upheld the CIT (A) decision, dismissing the revenue's appeal on this ground.

Cross Appeals Issue:
The cross appeals filed by the assessee became irrelevant due to the ITAT's decisions on the main issues for both assessment years. Therefore, the cross appeals were dismissed.

In conclusion, the revenue appeals for the assessment years 2008-09 & 2009-10 were partly allowed, and the cross appeals by the assessee were dismissed. The ITAT provided detailed reasoning for each issue, ensuring a fair and comprehensive analysis of the case.