Madras H.C : the Tribunal was right in law in deleting the additions made by the AO to the tune of Rs. 48,43,782 even though the assessee has not accounted the correct receipts of his business

High Court Of Madras

Commissioner Of Gift Tax vs. A. Vajjiram & Bros.

Section 44AD

Asst. Year 2002-03

K. Raviraja Pandian & P.P.S. Janarthana Raja, JJ.

Tax Case (Appeal) No. 1266 of 2008

25th August, 2008

Counsel appeared :

J. Narayanaswamy, for the Appellant

JUDGMENT

K. Raviraja Pandian, J. :

The Revenue is on appeal against the order of the Tribunal dt. 31st July, 2007, made in ITA No. 1818/Mad/2005. The relevant assessment year is 2002-03.

2. The facts of the case are as follows : The assessee is a partnership firm, a civil contractor, carrying on Government projects. The assessee-firm filed its return of income for the asst. yr. 2002-03 on 28th Oct., 2002, disclosing a total income of Rs. 1,60,000 and claiming refund of excess tax deducted at source in a sum of Rs. 2,35,453. It is the case of the Revenue that the assessee has not accounted the correct receipts and on that basis the AO computed the total income of the assessee at Rs. 52,10,010. Against that order, the assessee preferred an appeal before the CIT(A) and the CIT(A) has estimated the profits of the assessee at 8 per cent of the contract receipts, having found that the total addition made by the AO is highly exorbitant which would amount to net profit at 27.28 per cent, which is commercially impossible in respect of Government contract works. Against that order, the Revenue filed an appeal before the Tribunal. The Tribunal after perusing the materials on record, held that the CIT(A) has taken a very reasonable view and which requires no interference. The correctness of the same is now canvassed by the Revenue by framing the following substantial question of law :

“1. Whether on the facts and in the circumstances of the ease, the Tribunal was right in law in deleting the additions made by the AO to the tune of Rs. 48,43,782 even though the assessee has not accounted the correct receipts of his business ?

Whether on the facts and in the circumstances of the case, the Tribunal was right in sustaining the order of the CIT(A) estimated the profits of the assessee at 8 per cent of the contract receipts even though the books of account are not maintained by the assessee-firm ?”

We have heard the argument of the learned counsel for the Revenue. As against the estimate made by the AO, on appeal, the CIT(A) has sustained the addition in a sum of Rs. 12,67,933. He had estimated the profit of the assessee at 8 per cent of the contract receipts. He interfered with the assessment order on the ground that if the total addition made by the AO is allowed to remain or accepted, then the net profit of the assessee is nearly 28 per cent, which is not at all possible in the nature of the work undertaken by the assessee. The estimation have been made on the sole ground that the accounts maintained by the assessee has not been proper. The Tribunal has also taken into consideration that under s. 44AD also when the books of account are not maintained, income has to be estimated only at 8 per cent and hence the order of the CIT(A) estimating the income at 8 per cent cannot be regarded as one which is illegal. We are of the view that the conclusion arrived at by the Tribunal is correct. The estimation has been made judiciously which requires no interference. In view of the aforesaid reason, the appeal is dismissed.

[Citation : 326 ITR 551]