AO Estimates Profit without Rejecting Books, Relies on Faulty Comparison with Sister Concern: ITAT deletes ₹5.82 Crore Addition [Read Order]

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) deleted the addition of Rs. 5.82 crore, holding that the Assessing Officer (AO) failed to reject the developer's books of accounts and relied on improper comparisons with a sister concern.

Ambience Developments, the assessee, a partnership firm engaged in real estate development, had declared nil income for the Assessment Year 2013-14. The project in question, named ‘Ambience Greendale’, was under scrutiny where the AO questioned the low profitability declared by the firm compared to another project, ‘Ambience Antilla’, carried out by its sister concern.

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The AO estimated the profit margin at 38.26% without rejecting the assessee’s regularly maintained and audited books of accounts. The estimation was based on ad hoc calculations and comparisons with the profitability of the sister concern’s project. The AO added Rs. 5.82 crore to the assessee’s income.

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On appeal, the CIT(A) deleted the addition. The Revenue appealed against CIT(A)'s order before the ITAT. The two-member bench comprising Dr. Manish Borad ( Accountant Member ) and Shri Vinay Bhamore ( Judicial Member ) observed that the AO had not pointed out any defects in the books of account nor rejected them under Section 145, which is essential before resorting to estimation of profits.

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The tribunal also observed that the AO’s comparison with the sister concern’s project lacked merit as the projects differed in nature and circumstances, and the AO failed to substantiate the alleged discrepancies with proper documentary evidence.

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The tribunal ruled that the AO’s action of estimating profits without rejecting the books and relying on improper comparisons was unjustified. The tribunal upheld the CIT(A)’s order and deleted Rs. 5.82 crore addition. The revenue appeal was dismissed.

To Read the full text of the Order CLICK HERE

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