2016 (6) TMI 736 - AT - Income Tax

Estimation of income based on the previous history of the assessee - civil construction work - Rejection of book of accounts u/s 145(3) - Held that - CIT(A) has effectively taken the net profit rate at 5.05% which is based on the previous history of the assessee. The ld. DR was not able to controvert the fact recorded by the ld. CIT(A) in his order. Therefore, we find no merit in this ground of appeal of the Revenue which is dismissed. - Decided against revenue Addition u/s 41 - addition on accounts of all the sundry creditors above ₹ 1,00,000/- - main contention of the Revenue was that the assessee has neither filed confirmations nor these parties were produced for examination -AR submitted that these were the trading liabilities and were not old in nature - Held that - Most of the liabilities were of current year or immediately preceding year and the accounts were active in nature and the transactions were being carried out for the current year as well as in the subsequent year. Considering these facts and circumstances of the case, we are of the view that the ld. CIT(A) has rightly deleted the addition and find no infirmity in his order which is sustained - Decided against revenue

Summary

Issues:
1. Disallowance of expenses based on net profit rate
2. Addition under Section 41(1) for unconfirmed liabilities

Issue 1: Disallowance of expenses based on net profit rate:
The Revenue appealed against the CIT(A)'s order restricting the disallowance of expenses to 5.05% net profit rate instead of 10.2% applied by the AO. The AO found discrepancies in the assessee's accounts, leading to disallowances under different expense heads. The AO rejected the books of account under Section 145(3) due to a static net profit rate. The CIT(A) upheld a 5.05% net profit rate based on past history, reducing the addition to ?17,75,488. The ITAT upheld the CIT(A)'s decision, noting the effective net profit rate and dismissing the Revenue's appeal.

Issue 2: Addition under Section 41(1) for unconfirmed liabilities:
The AO added ?58,87,032 to the assessee's income under Section 41(1) for unconfirmed liabilities. The CIT(A) deleted this addition, stating the AO acted hastily without proper procedure or supporting material. The ITAT upheld the CIT(A)'s decision, emphasizing that the liabilities were not old, active accounts showed transactions, and the addition lacked justification. The Revenue's appeal was dismissed, affirming the CIT(A)'s order.

In conclusion, the ITAT Jaipur upheld the CIT(A)'s decisions on both issues, dismissing the Revenue's appeal and maintaining the orders regarding the disallowance of expenses based on net profit rate and the addition under Section 41(1) for unconfirmed liabilities.