2019 (7) TMI 742 - AT - Income Tax

Addition being increase in the net profit by rejecting books of account u/s 145(3) - HELD THAT - It is the case of the assessee that as per the accepted accounting principles as applicable to the construction business, the cost is required to be estimated at the end of each year on the basis of technical estimation and after estimating the project cost, the assessee is required to determine the cost of sale to be charged profit and loss account against the sale value. The sale value has been recognized on a percentage completion basis regardless of pendency in completion of work of the project. We however find that while adjudicating the issue, the approach of the CIT(A) appears to be quite generic and devoid of objectivity. While pointing out some errors of lesser impact here and there, the CIT(A) has not compared the project-wise working as per the assessee and as per the AO to locate the area of difference. In the absence of any additional evidence, we do not see any ostensible reason for AO to redo the same exercise based on some submissions of the assessee. The onus was equally placed on the assessee to point out exact area of difference and explanation thereon. CIT(A) has apparently abdicated his responsibilities and shifted the onus again on the AO without any cogent reason. In the absence of objective comparison available for the resultant profits declared by the assessee and computed by the AO, we consider it befitting and expedient to restore the matter back to the file of the CIT(A). CIT(A) shall call for the comparative analysis and other factual details and look into all the aspects afresh objectively and in accordance with law. Needless to say, proper opportunity shall be provided to assessee in this regard. The issue is accordingly set aside to the file of the CIT(A) for de novo adjudication. While coming to aforestated conclusion, we also take note of the objection raised on behalf of the assessee for rejection of books by invoking Section 145(3). However, we are unable to notice any such objection has been raised before lower authorities. In the Revenue s appeal, it will be difficult to appreciate such technical aspect without notice to other side. Thus, such ground requires to be shunned. Be it as it may, we find that the AO has given a very detailed working for determining true profits and consequent defect in the determination of profits. Thus, we do not find any substance in such objection. - Appeal of the Revenue is allowed for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition to net profit by rejecting books of account under Section 145(3) of the Income Tax Act.
2. Validity of assessment under Section 153A of the Income Tax Act.

Detailed Analysis:

1. Deletion of Addition to Net Profit by Rejecting Books of Account Under Section 145(3):

The Revenue filed appeals concerning AYs 2011-12 and 2012-13 against the orders of the CIT(A), which deleted the additions made by the AO to the net profit by rejecting the books of account under Section 145(3) of the Income Tax Act. The AO had re-casted the construction account of the assessee, engaged in the business of real estate construction, and made additions based on adjustments to the closing stock and work-in-progress.

The CIT(A) found the AO's method of re-casting the construction account erroneous and based on assumptions without corroborative evidence. The CIT(A) noted that the AO's approach was inconsistent and contrary to accepted accounting principles, leading to distorted and unrealistic additions. The CIT(A) observed that the AO's method could only be applied after the completion of the project and was impractical for estimating profits on a year-to-year basis.

The Tribunal noted that the AO had committed factual errors in determining the estimated profits and in allocating interest costs over various projects. The Tribunal found that the CIT(A) had not provided a detailed comparison of the project-wise working as per the assessee and the AO. The Tribunal restored the matter to the CIT(A) for a de novo adjudication, directing the CIT(A) to call for comparative analysis and other factual details to objectively examine the issue.

2. Validity of Assessment Under Section 153A:

The assessee raised a legal objection regarding the validity of the assessment under Section 153A of the Income Tax Act, arguing that the addition was not based on any incriminating material found during the search. However, the assessee did not press this objection during the hearing, and it was treated as not pressed by the Tribunal.

Separate Judgments:

For AY 2011-12 (IT(SS)A No. 179/Ahd/2015):
- The Tribunal allowed the Revenue's appeal for statistical purposes, setting aside the order of the CIT(A) and directing a de novo examination of the issue.

For AY 2012-13 (IT(SS)A No. 180/Ahd/2015):
- The Tribunal provided similar treatment as AY 2011-12, allowing the Revenue's appeal for statistical purposes and directing the CIT(A) to examine the issue afresh.

Cross Objections:

For AY 2011-12 (CO No. 134/Ahd/2015):
- The assessee's cross objection regarding the validity of the assessment under Section 153A was dismissed as not pressed.

For AY 2012-13 (CO No. 135/Ahd/2015):
- The assessee's cross objections regarding the validity of the assessment and an addition based on notings on a seized piece of paper were dismissed as not pressed.

Conclusion:

The Tribunal allowed the Revenue's appeals for statistical purposes, directing the CIT(A) to re-examine the issues afresh for both AY 2011-12 and AY 2012-13. The cross objections of the assessee were dismissed as not pressed.