The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has recently upheld the addition due to inadequate maintenance of books of accounts.
The assessee M/s. Sri Sivaram and Co was a partnership firm engaged in civil construction work and for the relevant assessment year 2016-17, it filed its return of income admitting total income at Rs.38,09,800/-.
The Income-tax Department selected the Assessee’s case for limited scrutiny under CASS to examine closing cash balance. The assessee before Assessing Officer during the course of scrutiny assessment proceedings produced cash books for financial year 2015-16 and 2016-17 and monthly summary for April, May and June, 2016.
The Assessing Officer noted that cash available as per cash book for financial year 2015-16 was Rs.83,21,334/-, which was subsequently withdrawn mainly in April, May and June, 2016 and utilized for business purposes.
The Assessing Officer noted that during the course of examination of cash book for financial year 2015-16, certain such materials being vouchers / receipts debited to the profit & loss account were not properly vouched. There was discrepancy in the vouchers and bills.
The assessee could not offer any explanation. Since the assessee could not explain the transaction recorded in cash book properly by supporting documents, hence genuineness of the same cannot be verified.
Therefore, the Assessing Officer rejected the books of accounts and estimated the profit from contract receipts at the rate of 8% of the total contract receipts. The total contract receipts of the assessee is Rs.8,10,78,364/- and this gives a raise to profit rate of 8% at Rs.64,86,269/-. For this, the assessee had not objected and assured to pay tax on the same.
The Assessing Officer also noted from the bank statements that the assessee had received interest from banks amounting to Rs.11,55,754/- and interest under Section 244A of the Income Tax Act being income-tax refund interest amounting to Rs.1,92,995/-, which was not declared in the return of income. Hence, he added this amount cumulatively at Rs.13,48,749/-. Aggrieved assessee came in appeal before CIT(A).
The CIT(A) upheld the action of the Assessing Officer in rejecting the books of accounts for the reason that the assessee did not challenge the action of the Assessing Officer and not objected to Assessing Officer’s finding on defects in the books of accounts.
Counsel for the assessee argued that it was a case of limited scrutiny and Assessing Officer could not have rejected the books of accounts and consequently, he could not have restricted the disallowance of expenses but when specifically pointed out that there were defects in the books of accounts that the assessee has not maintained proper vouchers or vouchers are defective as pointed out in the assessment order and no explanation was offered before Assessing Officer for this, he could not answer anything, he further contended.
Counsel for the revenue submitted that the difference in opening balance and closing balance and for verifying the opening and closing balance of cash, the Assessing Officer had to examine the expenses and related vouchers which were not found in accordance with the books of accounts and hence, for this reason the Assessing Officer had rightly rejected the books of accounts and CIT(A), has upheld the same.
He also pointed out that the assessee had not included the interest received from banks amounting to Rs.11,55,754/- and interest on income-tax refund received under Section 244A of the Income Tax Act amounting to Rs.1,92,995/- and hence, that has also been rightly brought to tax under the head “income from other sources”.
The tribunal bench consisting of a Vice President, Mahavir Singh and an Accountant Member Manoj Kumar Aggarwal observed that the assessee could not satisfactorily explain as to how the assessee’s books have been rejected without any basis. The assessee could not contradict the finding of the Assessing Officer that there are bills and vouchers or receipts which are not debited properly or not vouched properly.
The Bench further added that since the transactions recorded in the books of accounts are not properly vouched or supported by proper documents, the Assessing Officer could not verify the genuineness of transactions and further noted that the fair profit rate should have been at 6% in the present facts and circumstance and hence, the tribunal directed the Assessing Office to apply the fair profit rate of 6% i.e., net profit rate to the total contract receipts and estimate the income accordingly.
The tribunal bench pointed out that with regards to interest received by assessee from banks on deposits amounting to Rs.11,55,754/- and interest on income-tax refund of Rs.1,92,995/- received under Section 244A of the Income Tax Act and not declared in the return of income and even, now admitted before us, not even disclosed in the books of accounts, the Assessing Officer had rightly assessed the same as “income from other sources”.
In result, the appeal filed by the assessee was partly allowed.
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