2016 (6) TMI 101 - AT - Income Tax

Rejection of books of accounts - estimation of income - Held that - In earlier years, Assessing Officer have accepted the books of account and disallowed certain portion of expenditures upto assessment year 2008- 09. Therefore, there is no problem in accepting the opening figures etc. in the later years. But assessee has accepted rejection of books of account, similarly audited, in the immediately preceding year, whose entries are carried over to this year, like certain work in progress, etc. Once books of account in that year was rejected, consequently on same reasons this year also, books are to be rejected as the same cannot be relied on. Assessee cannot approbate and reprobate on the same facts situation. The estimation can be done at 12.5% and thereafter depreciation and interest can be allowed depending on facts or the net profit can be estimated at 8% on the works undertaken. On sub-contract works, it is generally at 5% which was not disputed in many cases.As already stated, Assessing Officer has estimated the incomes at the same rate not only generally accepted in various cases relied on, but also in the immediately preceding year which assessee has accepted. Keeping these in mind, we do not find any reason to differ from the order of Ld. CIT(A), which is in tune with the various orders of this forum. - Decided against assessee

Issues Involved:
1. Rejection of books of account by the Assessing Officer.
2. Estimation of income by the Assessing Officer.
3. Justification of the estimation rates applied.
4. Allowance of depreciation and financial charges from estimated profits.

Detailed Analysis:

1. Rejection of Books of Account by the Assessing Officer:
The primary issue is whether the Assessing Officer was correct in rejecting the books of account and resorting to estimation of income. The assessee, engaged in civil works, filed its return of income admitting a total income of ?8,33,92,911. During a survey under S.133A, internal audit files were impounded, revealing certain deficiencies. The assessee argued that these defects were minor and that the bills and invoices were too numerous to produce. However, the Assessing Officer noted the failure to produce these documents and highlighted similar issues in the previous assessment year (2009-10), where the assessee had not formally contested the rejection of books and estimation of profit. Consequently, the books of account for the assessment year 2010-11 were rejected.

2. Estimation of Income by the Assessing Officer:
The Assessing Officer estimated the income based on different categories of work:
- For works awarded and executed directly, 8% of the turnover of ?161,98,09,913.
- For works awarded and sub-contracted, 5% of the turnover of ?22,42,76,044.
- For works sub-contracted from L&T and executed directly, 3% of the turnover of ?62,94,5190.
- For other incomes from the sale of chips, 8% of the turnover of ?1,04,47,063.
- Full addition of sales tax refund, insurance amount received back, and commission from sub-contracts as these did not involve any expenditure.

3. Justification of the Estimation Rates Applied:
The CIT(A) upheld the rejection of books and the estimation of income, referencing several precedents where similar rates were applied. The CIT(A) noted that the internal audit had pointed out deficiencies, and the assessee failed to produce adequate evidence to counter these claims. The CIT(A) also referenced various ITAT decisions that supported the estimation rates used by the Assessing Officer. For instance, in the case of Shri K Ramkrishna Contractors (P) Ltd, the ITAT upheld an 8% profit estimation for main contracts and 5% for sub-contracts. Similarly, other cases like Shiva Balaji Constructions and Teja Constructions supported these estimation rates.

4. Allowance of Depreciation and Financial Charges from Estimated Profits:
The assessee contended that depreciation and financial expenses should be deducted from the estimated profits. However, the CIT(A) rejected this plea, citing the ITAT decision in Srinivasa Laxmi Constructions, which held that depreciation is deemed to have been allowed as part of the deductions under sections 30 to 33 when estimating profit. The CIT(A) concluded that the rates applied by the Assessing Officer were justified and did not warrant any intervention.

Conclusion:
The appeal by the assessee was dismissed. The Tribunal found no merit in the grounds raised by the assessee, supporting the rejection of books and the estimation of income by the Assessing Officer. The estimation rates were deemed appropriate and consistent with precedents, and the plea for allowing depreciation and financial charges was rejected based on established judicial principles. The judgment was pronounced on 13th May 2016.

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