TMI Blog2013 (5) TMI 945X X X X Extracts X X X X X X X X Extracts X X X X ..... in law and on facts in failing to appreciate that the books of accounts of the assessee had been correctly rejected u/s 145(3) of the I.T. Act, 1961. This being so the A.O. was not in a position to determine whether they are correct or complete. In this situation the A.O. was left with no option but to estimate the assessee's income on the basis of material available with him. 2. The Ld, CIT(A)-II has erred in law and in facts in restricting the net profit to 10% gross of receipts of the assessee. He failed to appreciate that the correct profit was the sale price as reduced by the cost of the same i.e. the sum of the value of closing stock and work in progress. 3. The Ld. CIT(A)-II, has erred in law and facts in deleting the addition of ₹ 3,73,000/- made by the A.O. u/s 69C of the IT. Act, 1961. 2. Grounds No.1 and 2 relate to the rejection of the books of account and estimation of profit at 10% of the gross receipts. 3. The facts in brief culled out from the orders of the lower authorities on this issue are that the assessee derives income as a builder and declared total income at ₹ 2,91,032, but the assessment was completed under section 143(3) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case. I have considered the submissions of the appellant and I have also perused the findings of the Assessing Officer. The assessment order passed by the AO is based on the method of accounting prescribed under section 145 of the Act. There are 3 limbs to the said provision Method of accounting regularly followed by the assessee. Accounting standards as notified followed by the assessee. Correctness or completeness of the accounts of the assessee. The AO begins the examination of the case of the assessee by observing at page 2 of the assessment order that - This implies that the revenue has to be recognized for every investment made in the project and depending on the extent of completion of the project, a corresponding portion of the net profits to be arrived at subsequently should have been offered for taxation. This is keeping with the accounting standards currently in force as per the section 145 of the I.T. Act, 1961. He therefore issues a show cause to the assessee that - why percentage completion method may not be applied in view of project completion method adopted through AS-7. The appellant responded vide its letter dated 20.12.2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance with Section 145(1) of the Act and is regularly followed by the taxpayer. The High Court held that the AO cannot invoke Section 145(3) of the Act and complete the assessment under Section 144 of the Act unless he has expressed his dissatisfaction about the correctness or completeness of the accounts of the taxpayer. 5(3)(iii) In the impugned case, although the AO has referred to the method of accounting and accounting standards, nowhere has any adverse finding been given thereon. In fact the AO has specifically taken recourse to the provisions of section 145(3) of the Act and has given a finding on being not satisfied with correctness and completeness of the accounts of the assessee as the books of accounts and documents were not produced for examination before the AO. The fact that the books of accounts have not been produced before the AO is not disputed and hence I find that the AO is justified in rejecting the books of accounts of the assessee and completing the assessment in the manner provided in section 145(3) of the Act, which is a best judgment assessment as per provisions o section 144 of the Act. 5(4)(i) The scope of assessment under section 144 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. The said amount of ₹ 67,85,804/- has been worked out by deducting the closing stock and work in progress from the advances received from the customers against sale of shops. Since, the books of accounts of the assessee have been rejected by the AO; I find that the method of estimation adopted by the AO will amount to disturbing the method of accounting regularly followed by the assessee. This is so because in either of the two methods i.e. percentage completion method or project completion method, the starting point for revenue recognition will be the receipts on account of sale of shops. In other words the method of estimation adopted by the AO is not justified. Further, the AO has adopted the figure of advance for shops as appearing in the balance sheet as at 31.03.2008. This figure of ₹ 1,06,85,327/- includes the advance received till 31.03.2007 amounting to ₹ 94,38,700/-. Needless to say that entire receipts pertaining to advance for shops received from customers could not be said to constitute the income of the appellant. The AO is therefore not justified in estimating the income of the assessee as equivalent to the receipts on account of advances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a thoughtful consideration to the rival submissions and from a careful perusal of record, we find that undisputedly the assessee has been following project completion method of accounting, in which the net profit can be offered at the time of completion of project. It is also undisputed fact that during the course of assessment proceedings the assessee did not produce the books of account and other documents as sought by the Assessing Officer. Therefore, the Assessing Officer has rejected the books of account of the assessee under section 145(3) of the Act and estimated the income. The rejection of books of account was approved by the ld. CIT(A), but the ld. CIT(A) has estimated the income at 10% of the gross receipts. The approach adopted by the ld. CIT(A) appears to be correct and reasonable in comparison to the Assessing Officer, who has treated the entire receipts to be the income of the assessee. Once the books of account are rejected and the assessee is not co-operating, the only option left with the Assessing Officer is to estimate reasonable income after taking into account the total receipts of that year. We, therefore, find no infirmity in the estimation of income by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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