2016 (6) TMI 546 - AT - Income Tax

Trading addition - estimating of profit - rejection of books of accounts - CIT(A) deleted the addition - undisclosed and unexplained expenditure - Held that - There was a certain payment made to subcontractors M/s Shoora Construction was noted. This was offered for tax in statement recorded during survey. However, in course of assessment proceedings, the assessee explained that the amount so offered is incurred as the expenditure by the assessee with reference to said payment has been recorded in the books of account of the assessee on receipt of claim of such expenditure. Further once trading addition is made by estimating the NP rate, no addition for such payment can be made. Even the ld Assessing Officer has not made any addition for such amount considering the explanation of the assessee. Therefore, this ground of the department is liable to be quashed. Whatever defects pointed out by the Assessing Officer is justified, the rejection of books of account U/s 145(3) of the Act. When books of account has been rejected, the only alternate before the Assessing Officer to estimate the income on the basis of past history of the case, general knowledge about civil contract or by comparing the identical case. As all the civil contract has unique type of contract, which cannot be compared squarely. Therefore, the ld Assessing Officer has to consider the past history of the case including the decision of the Coordinate Bench. As submitted by the ld AR of the assessee, the Coordinate Bench has confirmed the NP rate @ 7% to 7.2% in preceding year. Further the discrepancies found out during the course of survey, has been explained by the assessee as no separate addition has been made by the Assessing Officer. The ld Assessing Officer applied NP rate @ 8.9% subject to depreciation. He has not allowed the interest paid to the third party, which has been allowed by the ld CIT(A) and not challenged before us by the revenue. Therefore, we find NP rate applied by the ld CIT(A) @ 7.5% is reasonable. Accordingly, we uphold the order of the ld CIT(A). - Decided in favour of assessee.

Summary

Issues involved:
1. Whether the CIT(A) erred in deleting trading addition by estimating profit @ 7.5% subject to depreciation and interest.
2. Whether the CIT(A) erred in not appreciating the differences in facts between A.Y. 2005-06 to 2008-09 and A.Y. 2010-11 regarding undisclosed and unexplained expenditure.

Issue 1: Trading Addition Deletion
The appeal was filed by the revenue against the CIT(A)'s order deleting trading addition by estimating profit at 7.5% subject to depreciation and interest for A.Y. 2010-11. The Assessing Officer observed discrepancies in the assessee's books of accounts, lack of proper supporting bills, and the absence of project-wise accounting. The CIT(A) rejected the books of account under Section 145(3) of the Act and estimated income using NP rate at 8.9%, which was reduced to 7.5% considering the past history and facts of the case. The CIT(A) relied on various decisions to support the estimation method and allowed deductions for depreciation but disallowed interest paid to a third party. The revenue challenged the CIT(A)'s decision, arguing that the NP rate should be higher due to incriminating entries found during a survey. The ITAT upheld the CIT(A)'s order, emphasizing the need for a fair estimate of income based on past history and specific circumstances, concluding that the 7.5% NP rate was reasonable.

Issue 2: Differences in Facts
The second issue revolved around the CIT(A)'s alleged failure to acknowledge the differences in facts between A.Y. 2005-06 to 2008-09 and A.Y. 2010-11 regarding undisclosed and unexplained expenditure. The CIT(A) justified the deletion of trading addition by applying a lower NP rate of 7.5% based on past history and the factual matrix of the case. The revenue contended that the CIT(A) should have considered the incriminating entries found during a survey in A.Y. 2010-11, which led to the rejection of books of account and estimation of income. However, the ITAT upheld the CIT(A)'s decision, emphasizing the importance of considering past history and fair estimation methods in assessing income, ultimately dismissing the revenue's appeal.

In conclusion, the ITAT Jaipur upheld the CIT(A)'s decision to delete trading addition by estimating profit at 7.5% subject to depreciation and interest for A.Y. 2010-11, considering the past history and factual circumstances of the case. The judgment highlighted the significance of a fair estimate of income based on specific circumstances and past trends, ultimately dismissing the revenue's appeal.