2020 (12) TMI 386 - AT - Income Tax

Estimation of income - Rejection of books of accounts - bogus expenditure - absence of bills and vouchers to support the expenditure claimed by the assessee - AO estimated the income of the assessee @8.5% of the gross bills and accordingly determined the total income on main contract works executed by the assessee - HELD THAT - Estimation of income @8% is reasonable. Even though the assessee had the turnover over and above the limit of Section 44AD, the Special Bench of ITAT, Indore in the case of Arihant Builders Developers Vs. ACIT, 2006 (11) TMI 253 - ITAT INDORE held that estimation of income taking the cue from Section 44AD is reasonable though the limit exceeds. Therefore, taking into consideration of the submissions of the assessee and the lead from the order orders relied up on by the assessee, we hold that the estimation of income @8% meets the needs of justice.

Summary

Issues:
Estimation of income by Assessing Officer and CIT(A) - Reasonableness of estimation at 8.5% - Submission of bills and vouchers by the assessee - Applicability of comparable cases in support of reasonable estimation.

Estimation of Income by Assessing Officer and CIT(A):
The appeal was against the order of the Commissioner of Income Tax(Appeals) confirming the Assessing Officer's estimation of income at 8.5% of gross bills due to the assessee's failure to provide ledger extracts, bills, and vouchers for expenses. The assessee argued that the estimation was unreasonable and unjustified, especially considering the turnover declared. The ITAT noted that the assessee's income admitted was 6.72% of the turnover, and the gross bills were in line with Form 26AS. The AO did not provide any comparable cases for the estimation. The assessee cited relevant case laws to support their contention for a lower estimation of income.

Submission of Bills and Vouchers by the Assessee:
The assessee, a civil contractor, claimed that their books were audited, but due to relocating, they misplaced the books of account, bills, and vouchers. The assessee declared a turnover of ?13.58 crores, arguing that an 8.5% profit estimation was unrealistic for a civil contractor. The ITAT considered the submissions and held that an 8% estimation would be reasonable based on the provided case laws and the turnover exceeding the Section 44AD limit.

Applicability of Comparable Cases in Support of Reasonable Estimation:
The ITAT analyzed the case laws cited by the assessee, including B. Banamber & Co., Nishikant T. Patne, and CIT-II, Amritsar v. Earth Tech Engineers. These cases supported a lower estimation of income compared to what the AO had determined. The ITAT concluded that an 8% estimation of income would meet the needs of justice based on the submissions made and the precedents cited by the assessee.

In conclusion, the ITAT set aside the CIT(A)'s order and directed the AO to estimate the income of the assessee at 8%, partially allowing the appeal of the assessee.