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TMI Blog2024 (5) TMI 1205X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act includes losses, the CBDT Instruction regarding jurisdiction of corporate assessee in metro cities being with ACIT/DCIT was in respect of both the cases of income as well as losses over Rs. 30 Lakhs. Therefore, the notice u/s. 143(2) of the Act was correctly issued by the DCIT in this case. As the objection of the assessee on the issue of jurisdiction is devoid of merit, the ground No.3 as taken by the assessee is dismissed. Rejection of books of account and estimation of profit @10% of total receipts - The assessee didn t respond to the opportunity provided by the AO for rejection of accounts and estimation of income. It was the assessee itself who was to be blamed for rejection of accounts as it didn t submit proper accounts as called for by the AO. Having failed to provide the primary evidences and to provide the other details as required by the AO, the assessee can t blame the AO for rejection of accounts. The assessee can t be absolved from its responsibility of supporting the accounts with proper evidences and explaining the huge loss incurred during the year. Once the books of account are rejected and the assessee is not co-operating, the only option left with the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d shown loss of Rs. 3,29,55,888/- on total turnover of Rs. 5,40,25,457/- whereas in the preceding year the assessee had declared net profit of Rs. 26,21,429/- on total turnover of Rs. 1,47,09,632/-. Thus, the assessee had shown negative NP of minus 61% during the year as compared to positive NP of 17.82% in the preceding year. The assessee is a builder involved in development of various projects. In the course of assessment, the AO had called for various details from the assessee which was only partly complied. As the assessee did not furnish the complete details as required by the AO, he rejected the books of accounts u/s. 145(3) of the Act and estimated income of the assessee @ 10% at Rs. 54,02,545/-, which was upheld by the ld. CIT(A). Submission of the assessee 4. Shri Hem Chhajed, ld. AR appearing for the assessee submitted at the outset that the notice issued by the AO was in contravention to the Instruction No. 01/2011 of CBDT and was, therefore, not valid. He explained that as per the said Instruction, the jurisdiction over corporate returns with income of above Rs. 30 Lakhs in the Metro Cities was with the DCIT/ACIT and the jurisdiction of the case with income upto Rs. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umbai in the case of Kamani Oil Industries Pvt. Ltd. Vs DCIT I.T.A. No. 5465/Mum/2017 7. ITAT Rajkot in the case of Panchshil Exim Pvt. Ltd. vs. Deputy Commissioner of Income Tax (2020) 58 CCH 0326 Rajkot Trib" 6. Further, the Ld. AR has relied upon the following decisions in respect of wrong estimation of income: "1. Hon'ble Supreme court in the case of Brij Bhushan Lal Parduman Kumar vs. Commissioner of Income-tax [1978] 115 ITR 524 (SC) 2. Hon'ble Supreme court in the case of Dhakeswari Cotton Mills Ltd. vs. Commissioner of Income Tax (1955) 27 ITR 0126 3. Hon'ble Gujarat High Court Principal Commissioner of Income Tax vs. Swastik Construction [2018] 91 taxmann.com 10 (Gujarat)" Submission of the Revenue 7. Shri J. L. Bhatia, the ld. Sr. DR, on the other hand, strongly supported the order of the AO as well as the CIT(A). On the issue of jurisdiction, ld. Sr. DR submitted that it is a settled principle that 'income' includes 'loss' and this concept has been approved by the Hon'ble Supreme Court in a number of cases. As the 'loss' disclosed by the assessee during the year was in excess of Rs. 30 Lakh the notice was rightly issued by the DCIT as the ITO had j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat under the provision of Income Tax Act, income includes loss. The Hon'ble Supreme Court had held in the case of CIT v. Harprasad & Co. P. Ltd. (1975) 99 ITR 118 (SC) that the words 'income' or 'profits and gains', should be understood as including losses also. To reproduce from the order: From the charging provisions of the Act, it is discernible that the words "income" or "profits and gains" should be understood as including losses also, so that, in one sense "profits and gains" represent "plus income" whereas losses represent "minus income" CIT v. Karamchand Prem Chand Ltd. [1960] 40 ITR 106 ; [1960] 3 SCR 72. In other words, loss is negative profit. Both positive and negative profits are of a revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. 10. In the subsequent decision of CIT vs. Gold Coin Health Food Pvt. Ltd. (2008) 304 ITR 308 (SC), it was reiterated by the Apex Court that in view of the decision of CIT v. Harprasad & Co. P. Ltd. (supra), there was irresistible conclusion that income also includes losses. As the income as defined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls that were not furnished had no impact on the profitability of the assessee and that it had furnished the trial balance which was examined and analysed in the assessment order. It is true that all the details and documents as not produced by the AO may not have impact on the profit but nevertheless they have a bearing on the correctness of the accounts. The assessee had not explained as to why these documents were not produced before the AO or even before the CIT(A). The assessee has not come forward and produced these evidences before us in the course of present appeal as well and neither the reason for non-production of these details of the accounts has been explained. 13. In the assessment order, the AO had analysed the trial balance furnished by the assessee and found that accounts pertained to three different projects undertaken by the assessee. The analysis chart of the AO appearing in the assessment order is found to be as under: Rajvi Garnet Rajvi Pearl Rajvi Oasis Sale 45710000/- 5262000 0 Closing WIP 9,60,87,5007- 17533057 16,98,3387- Total 141808317 22795057 16,98,3387- Direct expense 153101870 22795057 0 Indirect expenses 20188467 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-wise details with copy necessary approval proof . Therefore assessee definitely defaulted in this respect. Further, discrepancies as discussed in above paras have also been found in the net prof it result shown by the assessee during the year under consideration. In absence of details of closing stock and expenditure claimed by the assessee, it is not possible to verify the genuineness of claim and closing stock shown by the assessee in its books. Further it cannot be proved that all the purchases made by the assessee are genuine. Thus there is no evidence to verify the closing stock as well as expenditure claimed on account of purchases and services. Accordingly it is not possible to fairly deduce the income of the assessee in absence of quantitative stock register and verification of closing stock as well as in absence of details and supporting documentary evidences of various expenditure claimed by the assessee. Further, it is pertinent to mention here that during the relevant year, there was huge decline in the net profit 78.82% from the last assessment year 2014-15 despite of increase in sales/ turn over by almost 4 times. 3.1.8 The above narrated facts demonstrate unrelia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yebrow of the Department. The assessee was duty-bound to produce the details and information as called for by the AO and explain the reason for the abnormal loss incurred during the year. The nonproduction of the details as mentioned earlier and the analysis of the accounts and information as available led the AO to conclude that either the sales were booked at lower than its cost price or the WIP was shown at a much lower amount than what it should actually happen. The assessee has not explained as to why the details and the information as required by the AO were not produced either before the AO or in the course of the appeal proceedings. In view of the defects as pointed out by the AO and for the failure on the part of the assessee to produce the relevant details as required by the AO we find that the AO was justified in rejecting the accounts of the assessee and estimating the income on a reasonable basis. 16. The assessee has relied upon the various judicial pronouncements. It is found that the facts involved in all those cases were different. In the case of Vikram Plastics (supra) the Assessing Officer had rejected the books of account maintained by assessee and made disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee." The assessee in that case was not only in a different trade but the books were rejected due to absence of quality-wise details of diamonds. Further, the book results in that case were comparable with past results. Thus the facts are found to be totally different. 18. In the case of Nice Industries (supra), the assessee was engaged in the process of yarn and had maintained records of quantity of yarn including opening stock, closing stock, purchases, sales oil gain etc. The AO had noted that gross profit ratio of the assessee had fallen steeply as compared to two preceding years which was explained due to shift in office and due to the partners not paying attention to manufacturing/business. It was stated that the sale of texturised yarn/twisted yarn/dyed yarn/grey clothes in Surat Textile Market depended upon commission agents. The AO did not accept the explanation of the assessee and rejected the book results and estimated the gross profit @ 11.15 per cent i.e., average of preceding two years. It was on consideration of these facts that the Coordinate Bench of this Tribunal had held that the AO had rejected the book results of the assessee without pointing out any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious levels. Further, the assessee had produced before the Tribunal, the relevant sales registers wherein various details were given in respect of the sales bills prepared against which the goods were delivered together with the challan number, etc. On consideration of these facts it was held by the Ld. Tribunal that there was no reason to reject either the books of account or to make any addition. 21. In the case of Panchshil Exim Pvt. Ltd (supra) the AO had found that the assessee had sold certain products at a price less than the cost of acquisition which resulted in gross loss to the assessee. The AO doubted that the assessee had suppressed sale price by showing sale of the goods at loss and accordingly rejected the books of accounts under section 145(3) of the Act. The Ld. ITAT held that before rejecting the books of accounts, the AO must record the specific reason for rejecting the books of accounts and that such satisfaction has to be established and substantiated based on facts and figures, which depended on the circumstances of each case. It was held that mere minor mistakes/typological errors/absence of stock registers/lower GP may not ipso facto amount to incorrectnes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO for rejection of accounts. The assessee can't be absolved from its responsibility of supporting the accounts with proper evidences and explaining the huge loss incurred during the year. 25. Once the books of account are rejected and the assessee is not co-operating, the only option left with the Assessing Officer was to estimate reasonable income after taking into account the total receipts of the year. The AO estimated the income of the assessee @ 10% for the reason that net profit disclosed by the assessee in the preceding year was 17.82%. The rate of estimate of 10% as applied by the AO is found to be reasonable. The work of the assessee is mostly in the nature of civil construction and estimation rate of 10% is prescribed u/s. 44BBB of the Act to compute the profit and gain of the foreign companies engaged in the business of civil construction. Considering the presumptive rate of taxation as prescribed under the Act, the estimation as made by the AO is found to be reasonable. Therefore, we are not inclined to interfere in the quantum aspect as well and disturb the estimation of income as made by the AO and as upheld by the CIT(A). 26. In the result, appeal filed by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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