2022 (2) TMI 165 - AT - Income Tax

Estimation of income @15% on gross sales after rejection of Books of accounts - HELD THAT - As bounden duty of the assessee not only to cast its onus of proving the corresponding contracts as well as sub-contracts executed in the relevant previous year but also the cogent supportive evidence of the expenditure items wholly and exclusively incurred for deriving the business income/turnover. The fact also remains that the AO had nowhere commented upon the assessee's voluminous evidence even if it is accepted that it has placed on record before us some additional details as well. We make it clear that in Mech Engineers 2021 (3) TMI 738 - TELANGANA HIGH COURT holds that contractual and sub-contractual receipts have to be assessed @9% and 6%; respectively. Faced with this situation, we restore the Revenue's instant grievance back to the Assessing Officer with a clear cut direction that it shall be incumbent upon the assessee to prove all kinds of receipts forming part of turnover as well as the corresponding expenditures' claims failing which the same would stand assessed in light of the hon'ble jurisdictional high court's foregoing decision. Revenue's appeal is treated as allowed for statistical purposes.

Summary

Issues:
- Rejection of estimation of income @15% on gross sales after rejection of Books of accounts.
- Deletion of addition made by AO as income was closely connected to business, no separate addition warranted.
- Adoption of uniform rate of 15% while estimating income.

Rejection of estimation of income @15% on gross sales after rejection of Books of accounts:
The appeal arose from the CIT(A)-3, Hyderabad's order concerning proceedings under section 143(3) of the Income Tax Act, 1961. The Revenue contended that the CIT(A) erred in rejecting the estimation of income at 15% on gross sales after rejecting the books of accounts. The CIT(A) reversed the assessment findings, emphasizing that rejection of books of account should not be done in a casual or mechanical manner. The AO failed to show specific deficiencies in the accounts leading to rejection. The appellant argued that the rejection was arbitrary and against the principles of natural justice. The CIT(A) directed the AO to accept the book results and the income returned, allowing the appeal on this ground.

Deletion of addition made by AO as income was closely connected to business, no separate addition warranted:
The Revenue also challenged the deletion of the addition made by the AO, claiming that the income in question was directly related to the business of the assessee. The CIT(A) held that the AO's rejection of books was not based on tangible evidence and was arbitrary. The appellant argued that the right to make an arbitrary assessment does not exist. The AO estimated the business income at a uniform rate of 15% without justification, including trading turnover in gross revenue. The CIT(A) directed the AO to delete the addition made on that account and accept the income returned, as the rate adopted was without basis and not justified.

Adoption of uniform rate of 15% while estimating income:
The Revenue's grievance was restored back to the Assessing Officer with a direction that the assessee must prove all receipts forming part of turnover and corresponding expenditure claims. Failure to do so would result in assessment based on a recent decision by the jurisdictional high court, which assessed contractual and sub-contractual receipts at 9% and 6%, respectively. The Revenue's appeal was treated as allowed for statistical purposes in these terms.