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2025 (3) TMI 1047 - AT - Income TaxAddition for suppression of receipts - HELD THAT - As reason to doubt the version of the assessee that the amounts were carried to the balance sheet as sundry debtors pending measurements and acknowledgement of the amounts due. We further note that the Hon ble Courts have held that where rates of taxes are same the assessee does not derive any benefit by seeking to offer its receipts to tax in a later year rather than in an immediately preceding year and the Revenue also does not gain any benefit by taxing it earlier than when it is required to be taxed. We also observe that the assessee has disclosed certain amounts as excess on account of enhancement of work. No justification for any addition to be made on account of suppression of receipts without examination of whether the amounts had actually accrued and were unaccounted for. Estimation of income after rejection of the books of account - decision of the CIT(A) to estimate profit @ 5% of net receipts - HELD THAT - AO has pointed out several discrepancies in the books of the assessee which would make it evident that the books of the assessee were not complete and correct in all respects. Therefore his decision to reject the books u/s 145(3) of the Act is upheld. Keeping in mind this fact and the nature of inconsistencies observed in the books we believe that the ends of justice would be served if the net profit declared @ 2.87% is increased to 3.5% of contractual receipts (excluding sales on which there is no controversy). Accordingly we order that the net profit of the assessee be assessed @3.5% on contractual receipts of Rs. 4 79 52 517/-. For the balance receipts from sale the declared profits of the assessee can be accepted.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS 1. Justification of Income Assessment: The relevant legal framework involves the provisions of the Income Tax Act, specifically Section 143(3) concerning assessments. The Court considered whether the assessment made by the Assessing Officer (AO) was in accordance with the law and whether the income declared by the assessee based on closed books of accounts should have been accepted. The Court noted that the AO identified various discrepancies in the books of accounts, leading to the conclusion that the books were incomplete and incorrect. The AO's decision to assess a higher income was based on these findings, which were partially upheld by the Commissioner of Income Tax (Appeal) [CIT(A)]. The Court upheld the rejection of the books under Section 145(3) but adjusted the net profit rate applied. 2. Rejection of Books of Accounts under Section 145(3): Section 145(3) allows for the rejection of books of accounts if they are deemed incomplete or incorrect. The AO cited multiple discrepancies, such as unverified purchases, incorrect entries, and non-compliance with accounting principles. The CIT(A) and the Tribunal found merit in these observations, justifying the rejection of the books. However, the Tribunal adjusted the AO's application of a 7% net profit rate, considering the nature of the business and past assessments. The Tribunal reduced the net profit rate to 3.5%, acknowledging the specific circumstances and inconsistencies in the books. 3. Alleged Suppression and Enhancement of Receipts: The AO alleged suppression of receipts amounting to Rs. 56,69,837/-, claiming discrepancies between the tender amounts and recorded receipts. The CIT(A) confirmed this addition, emphasizing the mercantile system of accounting, which requires income to be declared on an accrual basis. The Tribunal scrutinized the reconciliation provided by the assessee and found that the AO had not fully substantiated the claim of suppression. The Tribunal directed the AO to conduct further inquiries with the concerned Government Departments to verify the alleged suppression, thus remanding the issue for further examination. 4. Application of Net Profit Rate: The AO applied a 7% net profit rate, which was contested by the assessee. The CIT(A) reduced this to 5%, considering various precedents and the nature of the business. The Tribunal further reduced it to 3.5%, taking into account the past history of the assessee and the specific nature of electrical contract work, which differs from civil contracts. The Tribunal emphasized that while past history does not guarantee the same profit rates, it is a relevant consideration in the absence of comparable cases. 5. Legality of Interest Charged: The interest charged under various sections of the Income Tax Act was challenged by the assessee. The Tribunal noted that interest charges are consequential to the sustenance of any additions. However, the relief granted in the appeal would proportionately reduce the interest liability. SIGNIFICANT HOLDINGS The Tribunal's significant holdings include:
The Tribunal concluded by partly allowing the appeal, providing relief on specific grounds while upholding the rejection of books and adjusting the net profit rate.
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