2021 (3) TMI 120 - AT - Income Tax

Condonation of delay - delay of 206 days in filing the appeal - sufficient cause for delay - HELD THAT - Managing Director of the assessee company has filed affidavit and medical certificates showing a sufficient cause that due to replacement of kidney, he fell ill and Dr. advised complete rest and isolation for proper cure and care. After recovering from the said illness, MD took all endeavor to file appeals before the Tribunal but the same was delayed by 206 days. There is no affidavit or documentary evidence from the Department controverting the said affidavit and medical evidence in support of application. Thus, in our humble understanding, this is a sufficient cause based on medical ground. Respectfully following the ratio of the decision in the case of Collector, Land Acquisition vs Mst. Katiji 1987 (2) TMI 61 - SUPREME COURT and satisfying with the sufficient cause based on medical ground supported by an unrebutted affidavit of medical certificates, shown by the assessee in filing the appeals for condonation of 206 days, we have no hesitation to hold that the assessee has shown and established a sufficient cause for condoning the delay of 206 days in filing the appeals. Hence, we condone the delay of 206 days and admit the appeal for adjudication. Rejection of books of accounts - rejection of books of account by invoking the provisions of section 145(3) - HELD THAT - On careful and vigilant reading of the orders of lower authorities, we find that the AO before resorting to take any action under section 145(3) of the Act has properly analysed the facts and circumstances of the case and found 11 defects and deficiencies citing the correct and completeness of books of account and ld counsel of assessee could not controvert these defects barring a few. Therefore, same were not reliable and the AO was right in rejecting the same by following the decision of Hon ble Supreme Court in the case of CIT vs. British Paints India Ltd. 1990 (12) TMI 2 - SUPREME COURT We are satisfied that the AO has given sufficient reasons regarding defects deficiencies of completeness and correctness of books of account, which could not reflect and disclose the true state of affairs and correct income of assessee for the period under consideration. The assessee failed to do and thus, in our considered opinion, the AO was right in rejecting the books of account of the assessee. We are also in agreement with the conclusion drawn and recorded by ld CIT(A) that since neither before the AO nor before the CIT(A), the assessee has not filed complete books of account and, therefore, the AO was right in rejecting books of account u/s.145(3) of the Act and to proceed to estimate profit on the basis of best judgment principles. In the present case also, the AO has categorically noted in the assessment order found many glaring discrepancies and defects in the books of account of the assessee as well as conduct of the assessee during assessment proceedings, thus the assessee s purchase and expenditures shown were not verifiable from books of account and same should be rejected and income has to be estimated. Estimating the income of the assessee @ 11% on gross turnover - HELD THAT - As taking into consideration of the relevant evidence and facts and circumstances of the case, especially the net profit declared by the assessee and accepted by the department during immediately preceding assessment and succeeding assessment year, we are of the view that the average of three years is 1.98% as against the net profit declared by the assessee for present assessment year @ 1.66%. Therefore, in our considered opinion, to meet the ends of justice and to cover all possible leakage of revenue, we find it proper to estimate the net profit making the profit double of 1.98% (APPROX) which comes to 4% of contract receipts. The assessee get partial relief and the AO is directed to compute the net profit @ 4% of the gross contract receipts. Addition of other revenue viz; income from NSC and insurance claim and other receipts - HELD THAT - Since the AO after rejection of books of account u/s.145(3) of the Act, has estimated the business income of the assessee accrued to it from the business activities of works contract, therefore, it is not permissible to make another addition pertaining to the entries in the profit and loss account without specifying the same in the assessment order and without bringing out any adverse materials on record that the assessee has earned some other income which was not related to its business activities of works contract. We are in agreement with the contention of the assessee that the AO has committed an error while adding the amount of other revenue viz; income from NSC and insurance claim and other receipts despite the fact that in assessee s own case, ITAT has allowed miscellaneous income as business income by holding that they cannot be excluded from the normal profit and in furtherance to that dismissing the departmental appeal against such deletion. Accordingly, we hold that the AO was not correct in making addition pertaining to other income shown in the P L account when he has estimated business income after taking action of rejection of books of account. Thus, the AO is directed to delete the same. Unexplained liability claimed by the assessee towards sundry creditors - Whether CIT(A) was not justified in holding that since book result of the assessee was rejected by the AO, further addition on account of bogus liability was not permissible? - HELD THAT - The impugned amount as on 31.3.2009 also includes closing balance brought forward from preceding financial period and it becomes opening balance as on 1.4.2009 from present financial year 2009-10 and in our humble understanding, this amount cannot be taken into consideration for making addition in present assessment year 2009-10 on account of sundry creditors. From the copy of the scrutiny assessment order for A.Y. 2009-10, we also observe that the AO has accepted the closing balance of impugned amount of sundry creditors as on 31.3.2009, which has brought forward from present assessment year to succeeding assessment year 2010-2011 as opening balance has been accepted by the AO without any dispute. These glaring facts have not been controverted by ld CIT DR in any manner. Therefore, action of the AO in making addition of impugned amount of sundry creditors was not correct and valid. Thus, it cannot be held as sustainable. Therefore, the ld CIT(A) was quite correct and justified in deleting the addition by observing that after rejection of books of account and estimation of income, there is no valid reason to disallow the sundry creditors. - Decided against revenue.

Summary

Issues Involved:
1. Condonation of Delay
2. Rejection of Books of Account
3. Estimation of Net Profit
4. Addition of Sundry Creditors

Condonation of Delay:
The assessee filed an appeal with a delay of 206 days, citing the Managing Director's prolonged illness as the reason. The Tribunal considered affidavits and medical certificates submitted by the assessee, which were not contested by the Revenue. The Tribunal referred to the Supreme Court's judgment in Collector, Land Acquisition vs Mst. Katiji, emphasizing that substantial justice should prevail over technicalities. Thus, the delay was condoned.

Rejection of Books of Account:
The Assessing Officer (AO) rejected the books of account under Section 145(3) of the Income Tax Act, citing 11 defects, including incomplete records and low profit margins. The Tribunal upheld the AO's decision, stating that the AO had the duty to ensure the books reflected the true state of affairs. The Tribunal referenced the Supreme Court's decision in CIT vs. British Paints India Ltd., affirming the AO's right to reject books if they do not disclose true income.

Estimation of Net Profit:
The AO estimated the net profit at 11% of the gross turnover, relying on comparable cases without confronting the assessee. The Tribunal found this estimation excessive and not justified. It noted the average net profit of the assessee over preceding and succeeding years was 1.98%. The Tribunal, considering past accepted results and the nature of the assessee's business, directed the AO to estimate the net profit at 4% of the gross turnover, providing partial relief to the assessee.

Addition of Sundry Creditors:
The AO added ?9,32,70,920/- as unexplained sundry creditors. The Tribunal noted that this amount included an opening balance brought forward from the previous year and was accepted in subsequent assessments. The Tribunal referred to the Andhra Pradesh High Court's decision in Indwell Constructions vs CIT, which held that after rejecting books of account, the AO cannot make specific additions based on those rejected books. The Tribunal upheld the CIT(A)'s deletion of the addition, stating it was not permissible to add sundry creditors post-estimation of income.

Conclusion:
The appeal by the assessee was partly allowed, with the Tribunal directing a net profit estimation at 4% instead of 11%, and the addition of sundry creditors was deleted. The Revenue's appeal was dismissed.