2014 (1) TMI 642 - AT - Income Tax

Estimation of income - Rejection of books of accounts Non-production of bills or production of kachcha bills - Held that - The assessee is contractor and engaged in the road construction business - The assessee maintained regular books of account which are audited also - The nature of business of the assessee clearly proves that even sometimes grits are purchased from un-organized sectors therefore pukka bills would not be issued by the parties because the purchases are made from remote areas also - Even if books of account of the assessee are not reliable the profit of the assessee shall have to be estimated on reasonable basis considering the history of the assessee and the profit margin Decided against Revenue.

Summary

Issues:
1. Challenge against the order accepting books of account and deleting net profit addition.
2. Rejection of books of account and estimation of profits at 8% rate.
3. Justification for the deletion of substantial addition by the CIT(A).

Analysis:
1. The appeal by the Revenue challenged the order of the ld. CIT(A) accepting the books of account maintained by the assessee and deleting the addition of net profit amounting to Rs.30,96,161 for the assessment year 2007-08.

2. The AO estimated net profit at 8% of total receipts after rejecting the books of account due to defects pointed out in the assessment order. The assessee argued that the rejection was unjustified as purchases were made from various parties, some not registered, and due to the nature of road construction business where purchases from unregistered suppliers are common. The CIT(A) considered the material and submissions, deleting the substantial addition and allowing the appeal partly, emphasizing that the profit rate of 8% under section 44AD was unjustified as the assessee maintained audited regular books of account.

3. The Revenue, represented by the ld. DR, relied on the AO's order citing discrepancies in bill production, amounting to Rs.4,65,726. The ld. Counsel for the assessee reiterated their stance. The Tribunal found no reason to interfere with the CIT(A)'s decision. The assessee, a contractor in road construction, maintained audited books, with purchases totaling Rs.3.76 crores. The rejection was based on non-production of bills or kachcha bills for grit purchases, with defects amounting to Rs.4,65,726. The CIT(A) justified a disallowance of Rs.2,00,000 from the defects, emphasizing the impracticality of maintaining all records due to working conditions. The Tribunal upheld the deletion of the substantial addition, emphasizing the need for a reasonable profit estimation based on the assessee's history and profit margin, dismissing the Revenue's appeal.

In conclusion, the Tribunal dismissed the departmental appeal, upholding the CIT(A)'s decision to delete the substantial addition, emphasizing the importance of reasonable profit estimation and considering the nature of the assessee's business and working conditions.