2024 (5) TMI 1205 - AT - Income Tax

Scrutiny assessment - Jurisdiction of AO over corporate assessee with income of Rs. 30 Lakhs and above in metro cities - Jurisdiction of the DCIT/ACIT to issue notice u/s 143(2) - assessee had disclosed loss - HELD THAT - The definition of income in Section 2(24) of the Act is an inclusive definition and it is a settled principle that under the provision of Income Tax Act income includes loss. The Hon ble Supreme Court had held in the case of CIT v. Harprasad Co. P. Ltd. 1975 (2) TMI 2 - SUPREME COURT that the words income or profits and gains should be understood as including losses also. In the subsequent decision of CIT vs. Gold Coin Health Food Pvt. Ltd. 2008 (8) TMI 5 - SUPREME COURT it was reiterated by the Apex Court that in view of the decision of CIT v. Harprasad Co. P. Ltd. 1975 (2) TMI 2 - SUPREME COURT there was irresistible conclusion that income also includes losses. As the income as defined under the Income Tax Act includes losses the CBDT Instruction regarding jurisdiction of corporate assessee in metro cities being with ACIT/DCIT was in respect of both the cases of income as well as losses over Rs. 30 Lakhs. Therefore the notice u/s. 143(2) of the Act was correctly issued by the DCIT in this case. As the objection of the assessee on the issue of jurisdiction is devoid of merit the ground No.3 as taken by the assessee is dismissed. Rejection of books of account and estimation of profit @10% of total receipts - The assessee didn t respond to the opportunity provided by the AO for rejection of accounts and estimation of income. It was the assessee itself who was to be blamed for rejection of accounts as it didn t submit proper accounts as called for by the AO. Having failed to provide the primary evidences and to provide the other details as required by the AO the assessee can t blame the AO for rejection of accounts. The assessee can t be absolved from its responsibility of supporting the accounts with proper evidences and explaining the huge loss incurred during the year. Once the books of account are rejected and the assessee is not co-operating the only option left with the Assessing Officer was to estimate reasonable income after taking into account the total receipts of the year. The AO estimated the income of the assessee @ 10% for the reason that net profit disclosed by the assessee in the preceding year was 17.82%. The rate of estimate of 10% as applied by the AO is found to be reasonable. The work of the assessee is mostly in the nature of civil construction and estimation rate of 10% is prescribed u/s. 44BBB of the Act to compute the profit and gain of the foreign companies engaged in the business of civil construction. Considering the presumptive rate of taxation as prescribed under the Act the estimation as made by the AO is found to be reasonable. Therefore we are not inclined to interfere in the quantum aspect as well and disturb the estimation of income as made by the AO and as upheld by the CIT(A).

Summary

Issues Involved:
1. Validity of notice issued u/s 143(2) of the Income Tax Act, 1961.
2. Rejection of books of accounts u/s 145(3) of the Income Tax Act, 1961.
3. Estimation of net profit @ 10% of total receipts.

Summary:

1. Validity of Notice Issued u/s 143(2):
The assessee argued that the notice issued by the DCIT was invalid as per Instruction No. 01/2011 of CBDT, which states that jurisdiction over corporate returns with income above Rs. 30 Lakhs in metro cities lies with the DCIT/ACIT. Since the assessee declared a loss of Rs. 3,29,55,888/-, it was contended that the jurisdiction was not with the DCIT. The Tribunal found no merit in this objection, stating that "income" includes "loss" as per Section 2(24) of the Act and upheld by the Supreme Court in CIT v. Harprasad & Co. P. Ltd. (1975) 99 ITR 118 (SC). Therefore, the notice u/s 143(2) was correctly issued by the DCIT. The ground No.3 raised by the assessee was dismissed.

2. Rejection of Books of Accounts u/s 145(3):
The AO rejected the books of accounts due to non-compliance by the assessee in furnishing complete details, including project-wise details, loan applications, confirmations of advances, and documentary evidence for purchases. The Tribunal observed that the AO had valid reasons for rejection, as the books were not supported by primary evidences like vouchers, bills, and quantitative details of WIP. The AO's analysis revealed discrepancies in the accounts, leading to the conclusion that either sales were booked at a lower value or WIP was understated. The Tribunal upheld the AO's decision, noting that the assessee failed to produce the required details even during the appeal proceedings.

3. Estimation of Net Profit @ 10%:
The AO estimated the net profit at 10% of the total receipts, considering the assessee's previous year's net profit of 17.82%. The Tribunal found this estimation reasonable, especially since the assessee did not cooperate and provide necessary details. The AO's estimation was also compared to the presumptive rate of taxation u/s 44BBB for foreign companies engaged in civil construction, which further justified the 10% estimation. The Tribunal upheld the AO's estimation and dismissed the appeal on this ground as well.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the validity of the notice issued u/s 143(2), the rejection of books of accounts u/s 145(3), and the estimation of net profit @ 10% of total receipts. The order was pronounced on 09/05/2024.