2015 (2) TMI 526 - AT - Income Tax

Estimation of the net profit - results as reflected in the accounts which had been subjected to tax audit u/s 44AB ignored - rejection of books of accounts - Held that - The assessee s income from operational activities and other income have been estimated by the AO as well as Ld.CIT(A), after rejecting the book results on the ground that statutory audit has not been completed. The reasons given by the assessee was that, the audit was to be carried out by the Comptroller & Auditor General of India and such an audit was completed only up to A.Y. 2004-05 at the time of assessment. There is no other authority who can carry out statutory audit in case of assessee. The assessee has appointed his own chartered accountants for obtaining tax audit u/s 44AB and provisional balance sheet & P&L Account, which were filed before the AO. Now that the statutory audit report is available for the relevant financial year, we are of the opinion that such an evidence is to be admitted and this issue should be restored back to the file of the AO to be consider the statutory audit report and complete the assessment afresh taking into account such report. - Decided in favour of assessee for statistical purposes. Taxability of interest - Held that - Ld. Counsel has filed on office memorandum dated 04.01.2014, issued by the Government of Maharashtra clarifying that interest on the utilized grant is to be characterized as part of grant-in-aid only. Such a letter/memorandum has a vital bearing on the issue involved, therefore, we admit the said additional ground and remit the matter back to the assessing officer to take cognizance of such an evidence - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Estimation of net profit for assessment.
2. Treatment of interest income as taxable.

Estimation of Net Profit:
The appeal was against the order passed for the quantum of assessment under section 143(3) for the A.Y. 2007-08. The Assessee challenged the estimation of net profit by the Commissioner of Income Tax (Appeals) and the rejection of books of accounts invoking section 145 of the Act. The Assessee argued for the acceptance of provisional financial statements due to the non-completion of statutory audit beyond its control. The assessing officer estimated income at 30% of gross receipts based on a comparable case, while the Assessee contended for a 20% net profit ratio based on past years' performance. The Tribunal allowed the appeal, directing a fresh assessment based on the now available statutory audit report for the relevant financial year.

Taxability of Interest Income:
The assessing officer treated interest credited to the grant-in-aid account as income chargeable to tax, contrary to the Assessee's claim that it was not income but part of the grants received. The Commissioner (Appeals) dismissed the Assessee's ground based on a previous Tribunal decision. However, new evidence in the form of an office memorandum from the Government of Maharashtra clarified the nature of the interest income. The Tribunal admitted this additional ground and remitted the matter back to the assessing officer for a fresh decision considering the new evidence and other material on record. The Tribunal allowed the appeal for statistical purposes.

In conclusion, the Tribunal allowed the Assessee's appeal for both issues: the estimation of net profit and the taxability of interest income. The Tribunal directed a fresh assessment based on the now available statutory audit report and the new evidence regarding the nature of the interest income. The decision emphasized the importance of considering all relevant evidence and providing sufficient opportunity for the Assessee to present its case.