2018 (3) TMI 884 - AT - Income Tax

Profit estimation - rejection of books of accounts - assessee is in the business of construction of sale of apartments - Held that - We find that ld. CIT(A) for the year under consideration, has considered the profit of earlier year and scaled down the estimation of profit from 12.5% to 9%. We find no reason to interfere in the order passed by the ld. CIT(A). Thus, this ground field by the Revenue is dismissed. Disallowance of interest - Non deduction of tds u/s 194A - Whether once income of the assessee is estimated, no separate addition can be made in respect of interest paid by the assessee? - Held that - We find that the assessee has not claimed any expenditure in the profit & loss account, therefore, the disallowance made by the Assessing Officer under section 40(a)(ia) is not warranted. We find that ld. CIT(A) has rightly directed the Assessing Officer to delete the addition. Also no further disallowance under section 40(a)(ia) and 40A(3) can be made on the basis of the books of accounts in spite of mandatory provision and non-obstante clause contained therein, merely because the income was determined on estimate basis, by rejecting such books of accounts. See Indwell Constructions Versus CIT 1998 (3) TMI 121 - ANDHRA PRADESH High Court - Decided in favour of assessee

Summary

Issues involved:
1. Estimation of profit in the business of construction and sale of apartments.
2. Disallowance of interest paid on loans borrowed for house property and business.

Estimation of profit:
The appeal involved cross appeals by the Revenue and the assessee against the order of the Commissioner of Income Tax for the Assessment Year 2011-12. The Assessing Officer rejected the books of account of the assessee due to lack of supportive evidence for claimed expenditures, estimating the income at 12.5%. The CIT(A) later scaled down the estimation to 9% based on a previous case involving the same assessee. The Tribunal upheld the CIT(A)'s decision, emphasizing the reasonableness of the estimation based on past cases and circumstances. The Revenue's appeal on this ground was dismissed.

Disallowance of interest:
The Assessing Officer disallowed interest claimed by the assessee under section 40(a)(ia) of the Act, as TDS was not deducted on payments to India Bulls. The CIT(A) directed the Assessing Officer to delete the addition, stating that section 194A did not apply as the interest was on a housing loan. The Tribunal agreed with the CIT(A), noting that no expenditure was claimed in the profit & loss account, thus the disallowance was unwarranted. Additionally, the Tribunal cited precedent to support that once income is estimated, no separate addition can be made for interest paid. The Revenue's appeal on this ground was also dismissed.

Conclusion:
The Tribunal dismissed the appeals filed by both the Revenue and the assessee, along with the Cross Objection filed by the assessee. The decision was pronounced on March 7, 2018.