2017 (8) TMI 317 - AT - Income Tax

Estimation of income - project completion method - Held that - Though the assessee claimed to have followed the project completion method, it is obligatory on the part of the assessee to maintain the regular books of account and support the contention with the books of account, bills and vouchers, that it is following project completion method and true and correct financial position can be drawn with the books of account. The expenditure debited to the work-in-progress/advances received required to be accounted correctly to show that no inflation of expenditure and no suppression of income was made by the assessee. The assessee has not produced the books of account, bills and vouchers. In the absence of the books of account, bills and vouchers the contention of the assessee that it is following project completion method is without any basis. It is clear from the facts gathered from the assessment order and the Commissioner of Income-tax that, the assessee is not following any method which gives true and current financial affairs to deduce the income correctly. Therefore, we do not find any reason to disturb the order of the Commissioner of Income-tax. Accordingly, we confirm the addition made by the Assessing Officer at the rate of 8 per cent. on the gross receipts. - Decided against assessee. Estimation of income on accumulated gross receipts in the assessment year under consideration - Held that - In the earlier years, the assessee has not admitted any income and filed nil return of income as discussed earlier. No books of accounts were produced before the Assessing Officer to estimate that the Revenue and expenditure was accounted correctly. Therefore, till the date of filing the return, the assessee has admitted nil income and the earlier receipts were not offered to income. The assessee has not produced the books of account before the Assessing Officer and the relevant evidence in respect of expenditure incurred till date. In the absence of books of account, the correctness of the expenditure could not be established. Therefore, only option available to the Assessing Officer to estimate the income on the gross receipts received up to accounting year 2009.- Decided against assessee.

Summary

Issues:
Assessment of income on estimation basis rejecting the books of account.

Analysis:
The judgment involves appeals against the orders of the Commissioner of Income-tax (Appeals) regarding the assessment of income on an estimation basis, rejecting the books of account for the assessment years 2010-11 and 2011-12. The appellant contended that the assessment of estimated income at 8% of project receipts was unjustified, incorrect, and contrary to law. The appellant argued that the project completion method was consistently followed, and the income would be recognized on final completion. However, the Assessing Officer rejected the books of account due to lack of supporting evidence and estimated income at 8% of gross receipts. The Commissioner of Income-tax (Appeals) upheld the Assessing Officer's decision, leading to the appeal before the ITAT Chennai.

The ITAT Chennai noted that the appellant failed to provide sufficient evidence to support the claim of following the project completion method. The absence of books of account, bills, and vouchers hindered the verification of the accounting method. The ITAT Chennai emphasized the importance of maintaining accurate books of account to reflect the true financial position. As the appellant consistently reported nil income in previous years and failed to demonstrate the correctness of expenditure, the ITAT Chennai upheld the estimation of income at 8% of gross receipts by the Assessing Officer. The decision was supported by a precedent from the Income-tax Appellate Tribunal Lucknow Bench.

The appellant also argued against estimating income on accumulated gross receipts, citing incomplete projects and lack of accounting system. However, the ITAT Chennai found no fault in the Commissioner of Income-tax (Appeals)'s decision, as the appellant's failure to provide adequate documentation left no alternative but to estimate income based on gross receipts. Consequently, the appeals of the assessee were dismissed, affirming the orders of the lower authorities.

In conclusion, the judgment highlights the significance of maintaining accurate books of account and providing supporting evidence to substantiate the chosen accounting method. Failure to do so can result in the rejection of books of account and the estimation of income by tax authorities. The ITAT Chennai's decision underscores the importance of adherence to accounting standards and the need for transparency in financial reporting to ensure a fair assessment of income.