2021 (7) TMI 141 - AT - Income Tax

Addition on estimate basis without rejecting the books of accounts - HELD THAT - AO has not pointed out any defect in the details furnished by the assessee during the assessment proceedings. Likewise, the contention of the assessee before the authorities below that the cost of land in the project of the sister concern was lesser than the cost incurred by it, was not doubted by them (the authorities below). AO has made the addition after recording the finding that the assessee has shown lesser profit with respect to its residential project in comparison to the project of its sister concern which was eligible for deduction under section 80 IB(10) of the Act. Likewise, the AO made the addition with respect to its commercial projects on the reasoning that the assessee has declared higher cost in the commercial project then the residential project. The view of the AO was based on the reasoning that there was no amenity to be provided with respect to commercial projects. Whether the basis adopted by the AO for estimating the profit is sustainable in the eyes of law? - The answer stands in negative. It is because the books of accounts of the assessee were duly audited and no defect was pointed out by the AO. There can be several factors for having shown lesser profit in the project. One of the major factor as highlighted by the assessee was that the land cost with respect to the residential project was higher than the project of the sister concern eligible for deduction u/s 80-IB(10) of the Act. The contention of the assessee has not been doubted by the authorities below. Thus we are of the view that in the absence of any specific defect in the books of accounts of the assessee there cannot be any addition based on estimate to the total income of the assessee. No ambiguity that the profit declared by the assessee cannot be enhanced on estimated basis without rejecting the books of accounts. The learned DR at the time of hearing has not brought any judgment of jurisdictional High Court in support of his favour. Therefore we hold that the profit enhanced by the AO and confirmed by the learned CIT (A) on estimated basis cannot be added to the total income of the assessee for the reason that the books of accounts were not rejected by the authorities below. Hence the ground of appeal of the assessee is allowed.

Summary

Issues:
1. Estimation of profit without rejecting books of accounts.

Analysis:
The appeal was filed by the Assessee against the order of the Commissioner of Income Tax (Appeals) confirming the addition of ?10,83,700 on an estimate basis without rejecting the books of accounts. The Assessee contended that the AO erred in estimating the profit without pointing out any defects in the books of accounts. The AO observed discrepancies in the profit declared by the Assessee in comparison to a sister concern eligible for deduction under section 80 IB(10) of the Income Tax Act. The AO estimated the profit at higher rates for residential and commercial projects, leading to the addition of ?10,83,700 to the total income of the Assessee.

The CIT (A) upheld the AO's order, stating that the Assessee failed to demonstrate why the profit rates were lower than neighboring projects. The Assessee argued that the cost differences were due to varying land rates. However, the CIT (A) found no basis to reject the AO's estimation. The Assessee then appealed to the ITAT, presenting detailed financial statements and documents verified by the AO. The ITAT considered whether the AO could estimate profit without rejecting the books of accounts.

The ITAT noted that the AO did not identify any defects in the Assessee's submissions during assessment. The basis for the AO's profit estimation was deemed unsustainable as the books were audited without any specific flaws. Citing a judgment, the ITAT emphasized that income cannot be enhanced on an estimated basis without rejecting the books of accounts. The ITAT held that the profit enhancement without rejecting the books was unjustified. As the DR failed to provide supporting judgments, the ITAT allowed the Assessee's appeal, concluding that the profit addition was unwarranted due to the absence of rejected books of accounts.

In conclusion, the ITAT allowed the Assessee's appeal, ruling in favor of the Assessee and against the estimation of profit without rejecting the books of accounts. The judgment emphasized the importance of proper scrutiny and justification for profit enhancements in income tax assessments, ensuring fairness and adherence to legal procedures.