2013 (10) TMI 660 - HC - Income Tax

Estimation of Income Held that - It is well settled that ignorance or innocence of law is no excuse - Once he commenced business of construction in 2000 and if he has receipt of income as seen from the records, he is expected to file returns - If he knew that the accounts need to be audited by an auditor, definitely, the Company was also aware of the fact that they were expected to file returns - Therefore, inexperience or ignorance cannot be a ground not to file returns. Losses Suffered Held that - Sustaining loss definitely will not entitle an assessee, who is required to file returns, not to file returns - He can show loss and then file returns, the Tribunal was justified in saying it is not a good ground at all. Applicability of Section 44-AD Held that - The activity carried on by a builder or realtor would not attract the provisions of Section 44-AD and it would rather attract the case where the assessee were to be a civil contractor - The income earned by the Company would be more than the income earned by a civil contractor as opined by the Tribunal - there was no material to substantiate the contention that the project was not completed even upto 5% - All the receipts during this period plus non filing of the returns and disclosure of the receipt of accounts in the search and seizure would clearly show there was no bona fides on the part of the appellant Company in not filing the returns, thus the estimation of profit at 20% from the receipts of the income for the assessment year 2002-2003 is justified Decided against Assessee.

Issues:
1. Estimation of income at 20% of gross collection.
2. Justification for not filing returns.
3. Sustaining loss as a ground for not filing returns.
4. Applicability of Section 44-AD of the Income Tax Act.

Estimation of income at 20% of gross collection:
The case involved a Company engaged in construction and sale of residential apartments. The dispute arose when the assessing authority proposed an income estimation at 20% of gross receipts due to non-filing of returns by the Company until a search and seizure by the Department in 2006. The Company objected to this estimation, claiming lack of experience, improper planning, and losses incurred, particularly after 2003. The first appellate authority deleted the income estimation, citing completion of less than 5% of the project. However, the Tribunal overturned this decision, emphasizing the lack of justification for the deletion and the absence of evidence showing completion progress. Ultimately, the Court upheld the 20% income estimation, considering the Company's lack of bona fides in not filing returns despite evidence of income.

Justification for not filing returns:
The appellant Company argued that their lack of experience and resulting losses were reasons for not filing returns, despite having audited accounts. The Court, however, held that ignorance or innocence of the law cannot excuse the failure to file returns. The Company's commencement of construction business in 2000 and receipt of income obligated them to file returns, regardless of their inexperience or lack of proper planning. Therefore, the Court rejected the Company's contention that lack of experience justified not filing returns.

Sustaining loss as a ground for not filing returns:
The Company's assertion that sustaining losses justified not filing returns was dismissed by the Court. It was clarified that while an assessee can show losses in returns, sustaining losses does not exempt the obligation to file returns. The Tribunal's decision to reject this ground was upheld, emphasizing that sustaining losses does not absolve the Company from filing returns as required by law.

Applicability of Section 44-AD of the Income Tax Act:
The Company sought to apply Section 44-AD, which allows for 8% income from receipts, arguing that their activities did not fall under the purview of this provision. The Court agreed, noting that the Company's work as a builder, not a civil contractor, meant their income would exceed that of a civil contractor. The Tribunal's decision lacked evidence to support the claim that the project was less than 5% complete. Considering the Company's failure to file returns despite evidence of income, the Court upheld the 20% income estimation, concluding that the Company's actions did not warrant a lower income estimation under Section 44-AD.

In conclusion, the Court dismissed the appeal, affirming the Tribunal's order and upholding the 20% income estimation from receipts for the assessment year in question.

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