2019 (12) TMI 1035 - AT - Income Tax

Revision u/s 263 - estimation of profit @ 5% of gross business receipt - HELD THAT - The assessee having failed to produce the books of accounts, bills, vouchers etc. during the second round of assessment proceedings; the AO had valid reasons to not be fully satisfied about the correctness and completeness of the accounts of the assessee; and therefore, the AO was justified in invoking the provisions of Section 145(3) of I.T. Act. Moreover, the Ld. Counsel for assessee has failed to bring any materials for our consideration to establish that the estimation of profit @ 5% of the gross business receipt is excessive, unreasonable, high pitched or contrary to law having regard to the facts and circumstances of the case. In view of the foregoing, we confirm the order of the lower authorities invoking provision of Section 145(3) of I.T. Act for the purpose of estimating business profits and we further confirm the estimation of business profits @ 5% of gross business receipts. Loss on sale of machinery - addition amounts to double addition of the same amount - HELD THAT - Aforesaid amount was part of the business loss claimed by the assessee and once that loss is disallowed, and estimated net profit is assessed as income; the aforesaid amount stands disallowed automatically. Therefore, assessee correctly submitted that there was no justification for once again making repeated addition on the aforesaid amount in the Assessment Order. DR agreed that the repeated addition made by the AO in respect of the aforesaid amount amounts to double addition of the same amount and he left it to the discretion of the Bench to give appropriate direction to the AO for deleting the double addition. As both sides are in agreement that repeated addition made by the AO amounts to double addition of the same amount; we accordingly direct the AO to delete the repeated addition. Claim of depreciation - estimation of net profit - HELD THAT - Both sides were in agreement that the assessee was eligible for depreciation of Income Tax Act, 1961 and Income Tax Rules, 1962. As the AO has estimated net profit and not gross profit of business, both sides were also in agreement that the depreciation as claimed by the assessee in the books stands already allowed in the estimation of net profit; and therefore, depreciation to be allowed to the assessee as per Income Tax Act, 1961 and Income Tax Rules, 1962 needs to be reduced by the amount of depreciation claimed by the assessee in the books of accounts. In view of the foregoing, and as both sides have agreed to this at the time of hearing before us, we direct the AO to allow depreciation as per Income Tax Act, 1961 and Income Tax Rules, 1962 as reduced by the amount of depreciation claimed by the assessee in the books of account. Claim for interest expenses on business borrowing of the assessee and does not relate to interest paid / payable to the partner of partnership firm - HELD THAT - We agree with the contention of the Ld. DR that in a case where the determination of income of the assessee is based on estimation of net profit (and not gross profit) interest expenses on commercial borrowing of the assessee are deem to have already been allowed to the assessee. Therefore, this ground of appeal by the assessee is dismissed.

Summary

Issues Involved:
1. Estimation of profit @ 5% of gross business receipts.
2. Addition of ?49,46,196/- on account of loss on sale of machinery.
3. Claim of depreciation.
4. Claim for interest expenses.

Detailed Analysis:

1. Estimation of Profit @ 5% of Gross Business Receipts:
The Assessee contended that books of account, bills, vouchers, etc. were produced during the first assessment, which were accepted by the AO. However, the AO rejected the book results in the second round of assessment due to the Assessee's failure to produce the required documents. The Tribunal noted that the order under Section 263 of the I.T. Act had attained finality, necessitating the production of books again. The Tribunal upheld the AO's decision to invoke Section 145(3) and confirmed the estimation of business profits @ 5% of gross business receipts, finding no material to suggest it was excessive or unreasonable.

2. Addition of ?49,46,196/- on Account of Loss on Sale of Machinery:
The Assessee argued that this addition resulted in a double disallowance since the entire loss was already disallowed and net profit was assessed. The Tribunal agreed, noting that the amount was part of the business loss claimed and disallowed, making the repeated addition unsustainable. Consequently, the Tribunal directed the AO to delete the double addition.

3. Claim of Depreciation:
Both sides agreed that the Assessee was eligible for depreciation under the Income Tax Act and Rules. The Tribunal noted that since net profit (not gross profit) was estimated, the depreciation claimed in the books was already considered. Therefore, the Tribunal directed the AO to allow depreciation as per the Income Tax Act and Rules, reduced by the depreciation claimed in the books.

4. Claim for Interest Expenses:
The Assessee cited the case of CIT vs. Jain Construction Co. & Ors. to support the claim for interest expenses. However, the Tribunal found this case inapplicable as it pertained to remuneration to partners, not business borrowings. The Tribunal agreed with the Departmental Representative that interest expenses were deemed allowed in the net profit estimation and dismissed this ground of appeal.

Conclusion:
- Ground 1: Dismissed.
- Ground 2: Allowed.
- Ground 3: Partly allowed.
- Ground 4: Dismissed (not pressed).

The appeal was partly allowed, and the order was pronounced in open court on 17/12/19.