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2019 (6) TMI 838 - AT - Income TaxAddition of net profit - Rejection of books of accounts - HELD THAT - The assessee s books of accounts were rightly rejected by A.O observing discrepancies as mentioned herein above in preceding paras and Ld. CIT(A)has rightly sustained the addition of 1% net profit rate thereby confirming the addition. Disallowance u/s 40(a)(ia) - non deduction of tax at source at testing charges paid by the assessee - HELD THAT - Once after rejecting the book results, net profit is estimated by applying net profit rate, no disallowance could be made separately for other expenses, as the profit element already stands considered during the application of net profit rate. We accordingly delete the disallowance made u/s 40(a)(ia) - Decided in favour of assessee.
Issues Involved:
1. Rejection of books of accounts under Section 145(3) of the Income Tax Act. 2. Addition of 1% net profit rate. 3. Disallowance under Section 40(a)(ia) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Rejection of Books of Accounts under Section 145(3) of the Income Tax Act: The assessee, a private limited company engaged in construction work, filed an appeal against the order of the CIT(A) which confirmed the action of the Assessing Officer (A.O.) in rejecting the books of accounts. The A.O. rejected the books under Section 145(3) citing several discrepancies, including: - Failure to maintain separate books for contract receipts from Mumbai and other business receipts. - Work in progress shown on an estimation basis without quantitative details. - Improper maintenance of expense records for various sites, with some payments made in cash and unsupported by proper vouchers. - Payments to laborers made in cash without producing labor payment registers. - Cash payments to sub-contractors without proper supporting documents. - Club membership fees unrelated to business. - Various payments for construction materials made in cash without proper bills or vouchers. The Tribunal upheld the rejection of the books of accounts, noting that the discrepancies pointed out by the A.O. justified the action under Section 145(3). The Tribunal referred to a similar case from the assessee's previous assessment year (2011-12), where the rejection of books was also upheld. 2. Addition of 1% Net Profit Rate: The A.O. initially added 2% of the gross receipts to the net profit shown by the assessee, resulting in an addition of ?66,74,958. The CIT(A) reduced this addition to 1%, which was further contested by the assessee. The Tribunal observed that in the assessee's own case for the assessment year 2011-12, a similar issue was adjudicated, and the addition of 1% net profit was upheld by both the Tribunal and the jurisdictional High Court. The Tribunal reiterated that the CIT(A) was justified in directing the A.O. to recompute the profits by increasing the net profit rate by 1% instead of 2%, as the higher rate was not based on any cogent and relevant reasons. The Tribunal confirmed the addition of ?33,37,479, dismissing the assessee's grounds on this issue. 3. Disallowance under Section 40(a)(ia) of the Income Tax Act: The A.O. made a disallowance of ?1,51,642 under Section 40(a)(ia) for non-deduction of tax at source on testing charges paid by the assessee. The Tribunal referred to a precedent where it was held that once the net profit rate is applied after rejecting the book results, no separate disallowance for other expenses should be made, as the profit element is already considered in the net profit rate. Following this principle, the Tribunal deleted the disallowance made under Section 40(a)(ia), allowing the assessee's ground on this issue. Conclusion: The Tribunal upheld the rejection of the books of accounts and the addition of 1% net profit rate, confirming the addition of ?33,37,479. However, the Tribunal deleted the disallowance of ?1,51,642 made under Section 40(a)(ia). The appeal of the assessee was partly allowed.
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