2025 (1) TMI 1349 - AT - Income Tax

Rejection of books of accounts - estimation of income of the appellant @ 8% of gross contract receipts - HELD THAT - The assessee participated in the assessment proceedings. Books of accounts of the assessee were produced which were verified by the AO on test check basis. As during the scrutiny proceedings the Assessing Officer has observed that the assessee has filed self made vouchers/bills which were paid in cash and which are not verifiable as not supported by evidences which led to rejection of books of account u/s. 145(3) of the Act and net profit was computed @ 8% of the gross receipts. Assessee is not able to demonstrate even before ITAT that the vouchers/bills were not self made and same can be subjected to verification/enquiry. Thus the findings of the authorities below remained uncontroverted by the assessee even before the ITAT. It is equally true that the authorities below never made any attempt to quantify and specify with precision as to what are self made vouchers which could not be subjected to verification and their magnitude/quantification. The authorities below have not pin pointed the said self made cash vouchers and their quantification/identification which were not supported by evidences and which remained unverifiable. The turnover of the assessee during the year under consideration was Rs. 4, 00, 48, 401/- while in the assessment year 2008-09 the turnover was Rs. 4, 16, 02, 496/-. Thus the turnover in this year is merely 4% lower than the turnover for the assessment year 2008-09 which is negligible difference and Respectfully following the decision of ITAT for the assessment year 2008-09 and with a view to end this protracted litigation confirm the addition of Rs. 1, 00, 000/- in the hands of the assessee keeping in view that the assessee has produced self made vouchers/bills before the authorities below which were not verifiable and this finding could not be unsettled by the assessee even before ITAT by producing bills/vouchers and its verification no doubt it is true that the assessee produced books of account tax audit report before the authorities below. The assessee has also claimed that these vouchers were receipted by the recipients. It is also claimed that the chartered accountant who did the tax-audit did not pointed any fault/defect in the accounts. Addition of interest from JSPL - Assessee has claimed that he has reflected the said income in profit and loss account of Shakti Construction and the same was accordingly brought to tax under the head income from business or profession. It is observed that the assessee has not brought the same to tax under the head income from other sources. The assessee has not demonstrated that the said interest income is earned keeping in view the business requirement and business exigencies rather than investing the surplus fund lying with the assessee with JSPL. This requires investigation of facts and the matter is remanded back to the file of Assessing Officer for limited verification as to whether said funds were invested with JSPL keeping in view commercial/business expediency rather than merely investing surplus fund on which interest was earned.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

1. Whether the rejection of the assessee's books of accounts by the Assessing Officer (AO) under Section 145(3) of the Income-tax Act, 1961, was justified.

2. Whether the estimation of the assessee's income at 8% of gross contract receipts was appropriate.

3. Whether the addition of Rs. 87,662/- as interest on Fixed Deposit Receipts (FDR) and Rs. 73,972/- as interest received from JSPL to the total income of the assessee was justified, considering these amounts were already included in the total income declared by the assessee.

ISSUE-WISE DETAILED ANALYSIS

1. Rejection of Books of Accounts:

- Relevant Legal Framework and Precedents: The rejection of books of accounts is governed by Section 145(3) of the Income-tax Act, which allows the AO to reject the books if they are not complete or correct.

- Court's Interpretation and Reasoning: The Tribunal noted that the AO rejected the books due to self-made vouchers paid in cash, which were unverifiable. The assessee failed to provide adequate evidence to support these vouchers.

- Key Evidence and Findings: The assessee's books were audited by a Chartered Accountant, but the AO found discrepancies due to self-made vouchers. The Tribunal observed that similar issues were present in the assessment year 2008-09, where an addition of Rs. 1,00,000/- was made for similar lapses.

- Application of Law to Facts: The Tribunal upheld the rejection of books due to the lack of verifiable evidence and the precedent set in the assessment year 2008-09.

- Treatment of Competing Arguments: The Tribunal considered the assessee's argument that the vouchers were receipted by recipients and audited without discrepancies. However, it found that the assessee did not sufficiently counter the AO's findings.

- Conclusions: The Tribunal confirmed the rejection of the books and an ad-hoc addition of Rs. 1,00,000/- to account for unverifiable vouchers.

2. Estimation of Income at 8%:

- Relevant Legal Framework and Precedents: Section 44AD of the Income-tax Act provides for presumptive taxation at 8% of gross receipts for eligible businesses.

- Court's Interpretation and Reasoning: The Tribunal noted that the AO applied an 8% profit rate due to unverifiable expenses and self-made vouchers.

- Key Evidence and Findings: The assessee argued that the contract involved competitive rates with low margins, unlike government contracts. The Tribunal observed that the assessee declared a higher profit rate than in the previous assessment year.

- Application of Law to Facts: The Tribunal found that while the assessee showed a higher profit rate, the lack of verifiable evidence justified the AO's estimation.

- Treatment of Competing Arguments: The Tribunal considered the assessee's argument regarding competitive pricing and private contracts but upheld the AO's estimation due to the lack of evidence.

- Conclusions: The Tribunal confirmed the profit estimation at 8% due to the unverifiable nature of the expenses.

3. Addition of Interest Income:

- Relevant Legal Framework and Precedents: Income from interest is generally taxable under the head 'Income from Other Sources' unless it is shown to be part of business income.

- Court's Interpretation and Reasoning: The Tribunal noted that the assessee claimed the interest was already included in the business income, but the AO treated it separately.

- Key Evidence and Findings: The Tribunal found that the interest from JSPL was not shown as income from other sources by the assessee.

- Application of Law to Facts: The Tribunal remanded the issue back to the AO for verification of whether the interest was earned due to business exigencies or as surplus investment.

- Treatment of Competing Arguments: The Tribunal acknowledged the assessee's claim but required further verification by the AO to avoid double taxation.

- Conclusions: The Tribunal remanded the issue to the AO to determine the nature of the interest income and ensure it is not taxed twice.

SIGNIFICANT HOLDINGS

- The Tribunal upheld the rejection of the books of accounts and confirmed an ad-hoc addition of Rs. 1,00,000/- due to unverifiable self-made vouchers.

- The Tribunal confirmed the AO's estimation of income at 8% of gross receipts, citing the lack of verifiable evidence as justification.

- The Tribunal remanded the issue of interest income back to the AO for further verification to determine whether it should be taxed as business income or income from other sources, emphasizing the need to avoid double taxation.

- Core Principles Established: The judgment reinforces the principle that unverifiable evidence can justify the rejection of books and the estimation of income under presumptive taxation provisions. It also highlights the importance of distinguishing between business income and income from other sources to prevent double taxation.