2016 (6) TMI 781 - AT - Income Tax

Estimation of profit at eight per cent. on the assessee s contractual receipts under the provisions of section 44AD - assessee is a civil contractor - Held that - Commissioner of Income-tax (Appeals) has observed in the impugned order that the books of account produced by the assessee during the assessment proceedings cannot be relied on, as they had been prepared only when the Assessing Officer had detected that the total contract receipts had not been declared by the assessee in his return of income. Now, this is not in accordance with law. There is no provision under the Act whereby income of an assessee can be estimated in oblivion or disregarded of the books of account produced before the Department, which books are not rejected under section 145 of the Act. In case the Department chooses not to go by the books of account produced, it is a must for the Assessing Officer to reject them on the basis of a reasoned order by pointing out the specific defects therein. This has illegally not been done in the present case. The books produced cannot be disregarded merely on a specious observation that they are not reliable, having been prepared after detection. The undisputed fact remains that these books were duly produced by the assessee before the Assessing Officer in the assessment proceedings and the Assessing Officer did not reject them. It is not a case of levy of concealment penalty, where change of stand after detection may be detrimental. Therefore, this issue is remitted to the file of the Assessing Officer to be decided afresh in accordance with law, on duly taking into consideration the books of account produced by the assessee by affording adequate opportunity to the assessee to support his case Estimation of agricultural income - Held that - though the assessee had duly apprised the learned Commissioner of Income-tax (Appeals) of the above mistake committed by the Assessing Officer, the learned Commissioner of Income-tax (Appeals) remained in oblivion of this and merely reiterated that the assessee was having land holding of 110 acres and not 75 acres, as had also been wrongly held by the Assessing Officer. The learned Commissioner of Income-tax (Appeals) has fallen in error in upholding the Assessing Officer s action in assessing agricultural income of the assessee at ₹ 34,30,758. This conclusion of the learned Commissioner of Income-tax (Appeals) is found to be a result of complete misreading and non-reading of the aforesaid contentions of the assessee before both the authorities below, which were not rejected at any stage. Even before this Bench, nothing has been brought on record to rebut the assessee s specific stand that his land holding was 75 acres and not 110 acres, which was the total land holding of the assessee and his family.Taking the formula of the Assessing Officer, on estimating agriculture income at ₹ 27,500 per annum, the total agriculture income of the assessee from his land holding of 75 acres comes to ₹ 27,500 x 75 ₹ 20,62,500 and not of ₹ 35,34,722, as assessed. Therefore, the amount of ₹ 35,34,722 minus ₹ 20,62,500 ₹ 14,72,222 is deleted from the addition made and the addition is sustained to the extent of ₹ 20,62,500.

Summary

Issues Involved:
1. Estimation of profit under Section 44AD of the Income-tax Act, 1961.
2. Estimation of agricultural income.

Issue-wise Detailed Analysis:

1. Estimation of Profit under Section 44AD:

The first issue, encompassing grounds 1 to 4, pertains to the assessee's challenge against the learned Commissioner of Income-tax (Appeals) for sustaining the Assessing Officer's estimation of profit at 8% on the assessee's contractual receipts under Section 44AD of the Income-tax Act, 1961. The assessee, a civil contractor, declared an income of Rs. 1,25,870 for the assessment year 2008-09, including Rs. 1,23,370 from civil contract business by applying an 8% net profit rate on contract receipts of Rs. 15,42,131. However, the Assessing Officer found that the actual contract receipts were Rs. 70,40,413 and estimated the business income at Rs. 5,63,233 by applying an 8% net profit rate.

The learned Commissioner of Income-tax (Appeals) upheld this action, stating that the books of account produced by the assessee were unreliable as they were prepared after the Assessing Officer detected undeclared receipts. The assessee contended that the books of account should have been examined, and income estimated only after pointing out defects and rejecting the books.

The Tribunal observed that the Assessing Officer neither rejected the books of account nor pointed out any defects therein. It emphasized that income estimation cannot disregard the books of account produced unless they are rejected under Section 145 of the Act. Therefore, this issue was remitted back to the Assessing Officer for fresh consideration in accordance with the law, taking into account the books of account produced by the assessee.

2. Estimation of Agricultural Income:

The second issue, raised in ground 5, concerns the estimation of agricultural income at Rs. 35,34,722 by the Assessing Officer, which was upheld by the learned Commissioner of Income-tax (Appeals). The assessee contended that the entire sale proceeds of agricultural produce could not be considered as agricultural income and that expenses, which were around 60% of the sale, should have been allowed.

The Assessing Officer, in his remand report, stated that the assessee had admitted to an average income of Rs. 27,500 per acre from 110 acres of land, resulting in an agricultural income of Rs. 30,25,000. However, the assessee clarified that the land holding was 75 acres, not 110 acres, which was the total holding of the assessee and his family.

The Tribunal found that the learned Commissioner of Income-tax (Appeals) erred in not considering the assessee's specific contention regarding the land holding. It concluded that the agricultural income should be estimated based on 75 acres of land, resulting in an income of Rs. 20,62,500 (Rs. 27,500 x 75 acres). Therefore, the addition was reduced by Rs. 14,72,222, sustaining the addition to the extent of Rs. 20,62,500.

Conclusion:

The appeal was partly allowed. The issue of profit estimation was remitted back to the Assessing Officer for fresh consideration, while the estimation of agricultural income was adjusted based on the correct land holding, reducing the addition to Rs. 20,62,500. The order was pronounced in the open court on February 8, 2016.