1997 (8) TMI 106 - AT - Income Tax

Summary

Issues Involved:
1. Justification of additions instead of applying profit rate.
2. Application of profit rate in computing income.
3. Addition due to difference in reconciliation of receipts with bank statements.
4. Addition on account of escalation in expenses.
5. Excessiveness and justification of additions.

Summary:

1. Justification of Additions Instead of Applying Profit Rate:
The assessee argued that the authorities should have applied a profit rate as done in previous years instead of making various additions. The Tribunal noted that the assessee did not maintain any books of accounts and the AO was justified in resorting to estimation of profit from the contract business. The AO's method of computing taxable income by making separate additions or disallowances was not deemed patently erroneous or invalid.

2. Application of Profit Rate in Computing Income:
The assessee contended that the AO should have estimated the income based on past records or comparable cases of civil contractors. The Tribunal observed that since the assessee did not maintain books of accounts, the AO could either apply a net profit rate or estimate the profit in another fair and reasonable manner. The Tribunal referenced s. 44AD, which provides for an 8% net profit rate for civil construction business, to determine a fair estimate.

3. Addition Due to Difference in Reconciliation of Receipts with Bank Statements:
The assessee challenged the addition of Rs. 20,128 due to unexplained differences in bank balances. The Tribunal found that the AO was justified in making this addition as the assessee failed to provide vouchers or documentary evidence to support the expenses claimed.

4. Addition on Account of Escalation in Expenses:
The assessee argued that the addition on account of escalation in expenses was made without basis and should be deleted. However, this ground was not pressed by the assessee's counsel as the CIT(A) had already deleted the addition made on account of profit on labor escalation charges.

5. Excessiveness and Justification of Additions:
The assessee contended that the disallowance of 5% out of total contract expenses sustained by the CIT(A) was excessive and unjustified. The Tribunal noted that the AO made an ad hoc disallowance of 10% without a valid basis. The Tribunal decided to restrict the disallowance and additions confirmed by the CIT(A) to Rs. 1,36,347, granting relief accordingly.

Conclusion:
The Tribunal partly allowed the appeal, directing the AO to grant relief by restricting the disallowance and additions to Rs. 1,36,347. The Tribunal emphasized that the estimation of profit should be fair and reasonable, considering the lack of books of accounts and documentary evidence provided by the assessee.