Past Assessment History Relevant When no Comparables Available: ITAT

The Tribunal accepted the assessee’s submission in part, revising the net profit rate to 3.5% on contract receipts, while also remanding specific issues related to alleged suppression of receipts back to the AO for fresh verification.

The appellant, Deora Electric Works, a contractor primarily engaged in electrical work for central government departments, had declared receipts of ₹10.66 crore for the Assessment Year 2010–11 and filed its return based on audited books of account. The AO, however, noted multiple discrepancies in the books, including unverified purchases, self-made vouchers, disallowed payments, and a mismatch in receivables and reported sales, prompting rejection under Section 145(3).

The AO observed that the contract-wise receipts did not tally with the corresponding tenders, and although specific works were completed, they were not fully reflected in the income disclosures. Applying a net profit rate of 7% on the allegedly enhanced receipts (including additions of ₹56.69 lakh), the AO assessed the taxable income at ₹79.09 lakh against the returned income of ₹9.03 lakh.

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On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] partly upheld the AO’s action. While agreeing with the rejection of books, the CIT(A) reduced the profit rate to 5%, considering precedents in civil construction cases. The CIT(A) also affirmed the additions made for suppression of receipts, holding that the assessee, despite claiming to follow the mercantile system, had recognised income on a receipt basis, as contrary to accounting principles.

The CIT(A) rejected the arguments regarding the reduction in scope of work and dismissed the debtor's disclosures because the income had already accrued and should have been reflected in the profit and loss account.

The Tribunal, comprising Sudhanshu Srivastava (Judicial Member) and Nikhil Choudhary (Accountant Member), addressed the matter by segregating two key issues: (i) suppression of receipts and (ii) profit estimation after book rejection. The ITAT found that the addition of ₹56.69 lakh was unsustainable because the assessee failed to match the tender values with the reported income, necessitating thorough verification. The Tribunal noted that ₹34.64 lakh was reflected as sundry debtors and ₹9.39 lakh related to projects with reduced scope of work, and the revenue had not conclusively disproved these claims.

The matter was remanded to the AO with instructions to verify whether these amounts had accrued and remained unreported, or whether they were merely unpaid claims pending departmental certification.

The Tribunal, upon rejecting the books and profit estimation, upheld the rejection of the books, agreeing that discrepancies such as non-verifiable vouchers, delayed entries, and inconsistencies justified the AO’s decision under Section 145(3). However, it rejected the application of a flat 5-7% profit rate based on civil construction standards, pointing out the firm's core activity was electrical contracting.

The ITAT also stated that while prior years' assessments do not bind revenue authorities, the assessee’s consistent history of lower margins under Section 143(3) assessments could not be ignored entirely in the absence of comparable industry data.

The Tribunal revised the net profit estimation to 3.5% on contract receipts of ₹4.79 crore, excluding the ₹5.87 crore from generator sales, for which no dispute had been raised. As a result, the appeal was partly allowed.

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