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1996 (3) TMI 160 - AT - Income Tax
Issues Involved:
1. Validity of reopening assessments u/s 147/148.
2. Acceptance of the project completion method for assessment.
3. Estimation of 'on money' received and its year of taxation.
4. Rejection of books of account u/s 145(2).
Summary of Judgment:
1. Validity of Reopening Assessments u/s 147/148:
The assessee challenged the reopening of assessments for AYs 1981-82 to 1984-85. The CIT(A) confirmed the assessment orders but did not address the validity of reopening. The Tribunal set aside the CIT(A)'s orders, directing a fresh decision on the reopening validity after providing the assessee an opportunity to be heard.
2. Acceptance of the Project Completion Method for Assessment:
The assessee argued that it followed the project completion method, deferring profit recognition until substantial project completion. The CIT(A) accepted this method for AYs 1985-86 and 1988-89, but the Tribunal found that the assessee's books were not correct and complete, and hence, the project completion method could not be accepted. The Tribunal emphasized that even if a particular accounting method is followed, it loses significance if the books are not correct or complete.
3. Estimation of 'On Money' Received and Its Year of Taxation:
The AO estimated 'on money' receipts at 25% of the total consideration for each year, rejecting the assessee's claim of charging 'on money' only in the last two years. The Tribunal upheld the AO's estimation, noting that the assessee admitted to receiving 'on money' and that such receipts should be taxed annually rather than deferring to the project's end.
4. Rejection of Books of Account u/s 145(2):
The AO rejected the assessee's books of account u/s 145(2) due to discrepancies and unaccounted 'on money'. The Tribunal agreed with this rejection, stating that the books were not correct and complete, and the income should be assessed based on the best judgment. The Tribunal concluded that a profit rate of 25% on gross receipts was reasonable, combining 17.5% 'on money' and a 7.5% net profit rate.
Conclusion:
The Tribunal dismissed the assessee's appeals and allowed the revenue's appeals, directing the AO to assess the profits for each year from AY 1981-82 to 1988-89 separately, applying a 25% profit rate on gross receipts.