2017 (9) TMI 1164 - HC - Income Tax

A.O. power to assess income on presumptive basis u/s 44BBB(1) - assessee has maintained books of account as prescribed u/s 44BBB(2) - whether books of account maintained by assessee are not proper and do not reflect the correct income of assessee? - Held that - In the present case, the CIT (Appeals) as well as the Tribunal both held that the assessee had fulfilled all requirements of sub-section (2) of section 44BBB. It is not the case of the revenue that the assessee had not maintained the books of accounts and documents as required under sub-section (2) of section 44AA or that the assessee s accounts were not audited or the audit report not furnished before the Assessing Officer. The Commissioner and the Tribunal also held that the Assessing Officer was wrong in holding that the accounting standard AS- 7 did not apply to the assessee. No reason to interfere since no question of law arises. Assessing Officer, as recorded by the Tribunal has not found any major defects in such accounts. The Commissioner (Appeals) in fact elaborated that the assessee had the past experience from which it could estimate the total cost and had presented figures to show the percentage completion of the project. These figures match with the actual income and expenditure statements of the subsequent financial years. In fact the entire project was completed by the time the Commissioner (Appeals) decided the appeal. - Decided against revenue

Summary

Issues:
1. Interpretation of section 44BBB of the Income Tax Act regarding the assessment of income on a presumptive basis.
2. Rejection of books of accounts by the Assessing Officer and the applicability of accounting standard AS-7.
3. Application of the decision in the case of CIT vs. Advanced Construction Co. (P) Ltd. reported in 275 ITR 30.
4. Assessment of total income under sub-section (3) of section 143 of the Act.

Analysis:

Issue 1:
The appeal raised questions regarding the interpretation of section 44BBB of the Income Tax Act, specifically whether the Assessing Officer (AO) has the authority to assess income on a presumptive basis under sub-section (1) if the assessee maintains books of account as prescribed under sub-section (2) but inaccurately reflects the income.

Issue 2:
The Assessing Officer rejected the assessee's accounts, primarily due to the use of accounting system AS-7, incorrect method of determining project completion, and unreliable accounts. However, the Commissioner and Tribunal found that the assessee had maintained proper books of account, submitted audited financial statements, and estimated project costs accurately based on past experience, leading to the rejection of the AO's decision.

Issue 3:
The Commissioner relied on the decision in CIT vs. Advanced Construction Co. (P) Ltd. to reverse the Assessing Officer's order, emphasizing that the assessee had fulfilled the requirements of sub-section (2) of section 44BBB by maintaining proper accounts and submitting necessary documents for audit.

Issue 4:
The Tribunal upheld the Commissioner's decision, noting that the AO did not find major defects in the assessee's accounts and that the estimated project costs matched the actual income and expenditure statements of subsequent financial years. The completion of the entire project further supported the assessee's position.

In conclusion, the High Court dismissed the tax appeal, as no question of law arose from the case. The judgment highlighted the importance of maintaining proper accounts, fulfilling statutory requirements, and accurately estimating project costs in line with the provisions of section 44BBB of the Income Tax Act.