2021 (8) TMI 327 - AT - Income Tax

Rejection of books of accounts - GP estimation - data shown in the audit report was not co-related with the data shown in the return of income of the assessee - sales of residential unit and sales of open plot of land - HELD THAT - Assessee has failed to substantiate the discrepancy noted by the Assessing Officer. The assessee has not furnished any detail to clarify and explain the abnormality observed by the Assessing Officer in respect of the various transactions including the sale of open plot of land showing losses during the year under consideration. Even during the course of appellate proceedings before the ld. CIT(A) the assessee has again failed to furnish any additional evidences and relevant detail to clarify the various points and to controvert the additions made during the course of assessment proceedings. Even during the course of appellate proceedings before us the assessee has neither furnished the complete details which was remained to be filed before the Assessing Officer nor specified relevant reasons for not making compliance. We consider that there was no other alternative before the lower authorities than to applying the rate of estimated gross profit on the basis of preceding assessment, however considering the turnover of ₹ 2,97,95,124/- compared to the turnover of ₹ 77,58,677/- shown in the preceding year we consider that it would be reasonable to estimate the gross profit @ 15% as against gross profit estimated @ 18% by the ld. CIT(A). Accordingly, we direct the Assessing Officer to estimate the gross profit @ 15% and make the addition of net profit. In view of the discrepancies as cited above in this order and failure of the assessee for not furnishing the relevant details to establish the correctness and completeness of the account, the ground no. 1 of the assessee against rejecting the books of account u/s. 145(2) is dismissed. - Decided partly in favour of assessee.

Issues Involved:
1. Rejection of books of account under Section 145(2) of the Income Tax Act.
2. Estimation of Gross Profit (GP) at 18% and the resultant income.
3. Disallowance of ?79,26,709/- under Section 40(a)(ia) read with Section 194C of the Act.
4. Disallowance of purchase of bricks amounting to ?36,09,000/- as bogus.
5. Alleged breach of Principles of Natural Justice by the lower authorities.
6. Levy of interest under Section 234A/B/C of the Act.
7. Initiation of penalty under Section 271(1)(c) of the Act.

Detailed Analysis:

1. Rejection of Books of Account under Section 145(2):
The Assessing Officer (AO) observed discrepancies in the assessee's books of account, including a significant loss on sales of residential units and open plots. The AO issued multiple notices requesting detailed explanations and supporting documents, which the assessee failed to provide. Consequently, the AO rejected the books of account under Section 145(2) and estimated the gross profit at 25% of total sales. The Tribunal upheld the rejection of books of account, citing the assessee's failure to substantiate discrepancies and provide necessary details.

2. Estimation of Gross Profit (GP):
The AO estimated the gross profit at 25% based on the discrepancies and lack of compliance from the assessee. The CIT(A) reduced this estimation to 18%, considering the higher turnover compared to the previous year. The Tribunal further reduced the GP estimation to 15%, acknowledging the significant increase in turnover. The Tribunal directed the AO to estimate the gross profit at 15% and adjust the net profit accordingly.

3. Disallowance under Section 40(a)(ia) read with Section 194C:
The AO found that the assessee had not deducted TDS on certain land development and labor charges, leading to a disallowance of ?79,26,709/-. However, no separate addition was made as the net profit addition covered this default. The Tribunal upheld this approach, dismissing the assessee's grounds on this issue.

4. Disallowance of Purchase of Bricks:
The AO disallowed the purchase of bricks amounting to ?36,09,000/-, citing lack of supporting documents and the improbability of the transaction. Similar to the TDS disallowance, no separate addition was made, considering the net profit addition. The Tribunal dismissed the assessee's grounds on this issue as well.

5. Alleged Breach of Principles of Natural Justice:
The assessee argued that the lower authorities did not properly appreciate the facts and ignored various submissions, violating the Principles of Natural Justice. The Tribunal found that the assessee had multiple opportunities to provide necessary details but failed to do so. Thus, the Tribunal dismissed this ground.

6. Levy of Interest under Section 234A/B/C:
The assessee contested the levy of interest under Sections 234A, 234B, and 234C. The Tribunal did not provide a separate ruling on this issue, implicitly upholding the lower authorities' decision.

7. Initiation of Penalty under Section 271(1)(c):
The assessee also contested the initiation of penalty proceedings under Section 271(1)(c). The Tribunal did not address this issue separately, implying no interference with the lower authorities' action.

Conclusion:
The Tribunal partly allowed the appeal, directing the AO to estimate the gross profit at 15% instead of 18%, and upheld the rejection of books of account and other disallowances. The Tribunal dismissed the grounds related to the breach of Principles of Natural Justice, levy of interest, and initiation of penalty. The appeal was thus partly allowed.

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