2012 (12) TMI 636 - AT - Income Tax

Rejection of books of account - income estimation @ 8% on gross receipts - Sub-contract work - Held that - AO did not have any incriminating material before him which was found as a result of search on the basis of which he could have come to a conclusion that the books of accounts maintained by the assessee were not correct. In the absence of any incriminating material, the AO is not justified in rejecting the books of account and estimate income in proceedings initiated u/s 153A, when regular assessment has been completed accepting the books of accounts. Unexplained Investment - Held that - On perusal of materials available on record, it is seen that the assessee has explained that the amount of Rs.55 lakhs given as advance to the prospective seller of the land was pooled together from different persons by his father and the entire amount was paid by his father i.e. Rs. 25 lakhs by cheque from the joint account held with the assessee and balance amount of Rs.30 lakhs by way of cash by his father to the prospective seller Sri Saibabaiah. It is also a fact available on record that the receipt was executed by Sri Saibabaiah in the name of the assessee s father, Sri N. Ramanaa Reddy. However, the source of this amount of Rs.55 lakhs stated to have been pooled together from different persons, have not been properly enquired into. No material has been brought on record with regard to the fact that the persons who stated to have advanced the amounts were having sufficient source of income or not as this fact has neither been examined by the AO nor the CIT (A) it is proper to restore the matter back to the file of AO who shall make proper enquiry to find out the source of Rs.55 lakhs given as advance for purchase of the land.

Summary

Issues:
1. Rejection of books of account and income estimation under section 153A.
2. Tax effect below Rs. 3 lakhs for appeal dismissal.
3. Addition of unexplained investment under section 69.

Issue 1: Rejection of books of account and income estimation under section 153A:
The case involved three appeals by the Revenue against a common order of CIT (A) for assessment years 2005-06, 2008-09, and 2009-10. The AO rejected the books of account and estimated income at 8% on gross receipts under section 153A for the assessment year 2005-06. The CIT (A) allowed the appeal of the assessee, emphasizing that in the absence of incriminating material, the AO cannot reject books of account when regular assessment has been completed accepting them. The ITAT upheld the CIT (A)'s decision, stating that the AO lacked justification for rejecting the books of account without any incriminating material, thereby dismissing the Revenue's appeal for this assessment year.

Issue 2: Tax effect below Rs. 3 lakhs for appeal dismissal:
In the appeal for assessment year 2008-09, the learned AR for the assessee pointed out that the tax effect was below Rs. 3 lakhs. Referring to Instruction No.3 of 2011 issued by the Central Board of Direct Taxes, the ITAT dismissed the Revenue's appeal due to the tax effect falling below the specified threshold, aligning with the directive provided.

Issue 3: Addition of unexplained investment under section 69:
Regarding the appeal for assessment year 2009-10, the Revenue challenged the deletion of an amount of Rs.55 lakhs added to the total income of the assessee as unexplained investment under section 69. The AO added the amount based on discrepancies in statements and transactions related to the advance given for land purchase. The CIT (A) deleted the addition, noting that the amount was pooled from different persons and returned by the seller before the assessment order was finalized. The ITAT observed that proper inquiry into the source of the advanced amount was lacking and directed the AO to conduct a thorough investigation to establish the source of the Rs.55 lakhs. The appeal filed by the Revenue was treated as allowed for statistical purposes, emphasizing the need for a detailed examination of the source of the advanced funds.

In conclusion, the judgment addressed issues related to the rejection of books of account and income estimation under section 153A, the dismissal of an appeal due to the tax effect falling below the specified threshold, and the addition of unexplained investment under section 69, providing detailed analysis and outcomes for each issue involved in the legal judgment.