DCIT, CIRCLE-2, NOIDA vs. OPTIMA-ERA INFRA JOINT VENTURE, NOIDA

Per Dr. B. R. R. Kumar, Accountant Member:

“As per order sheet entry dated 12.12.2014, the assessee was requested to furnish the complete details with documentary evidences regarding project contract expenses of Rs.21,68,24,502/-

2 Optima-Era Infra Joint Venture and labour charges of Rs.2,93,69,885/- total of Rs.24,61,94,387/-. But no complete explanation/submission was offered by the assessee in this regard in spite of sufficient opportunity provided to the assessee. In absence of incomplete details, the expenses of project contract and labour charges of Rs.24,61,94,387/- during the year has been fund unexplained. Therefore, facts and circumstances of the case, 1/5th of above expenses are disallowed and added to the income of the assessee. The disallowance comes to an amount of Rs.4,92,38,877/- of project contract expenses and labour charges of Rs.24,61,94,387/-.

Hence, addition/disallowance of Rs.4,92,38,877/- is being made.”

“The AO has failed to follow the correct procedure as is mandatory under the Income Tax Act, 1961. Once, the AO was not satisfied with the conduct of the assessee in furnishing the information and details called for by the AO. The AO, if it considered to be so necessary, could have assumed jurisdiction u/s 144 of the Income Tax Act, 1961 and proceeded to frame the best judgment assessment. However, it is seen that the AO did not choose to assume jurisdiction u/s 144 of the Income Tax Act, 1961 and therefore, it cannot be held against the assessee that it failed to comply with the requirements of the AO regarding furnishing the details and other information. Conversely, once there was no circumstances to invoke the provisions of Section 144 of the Income Tax Act, 1961 the AO could not have estimated the income of the assessee and as the assessment was framed under the provisions of Section 143(3) of the Income Tax Act, 1961 by disallowing the expenses purely on estimate basis as assessment was to be framed only on the basis of the material on record of the AO and the AO has brought no material on record to justify the 3 Optima-Era Infra Joint Venture disallowance of 20% of the gross expenses purely on estimate basis which in any case could not have been done under the provisions of Section 143(3) of the Income Tax Act, 1961.

It is seen that the AO has referred to no material at all in the impugned assessment order except to the claimed failure of the assessee to furnish the details called for by the AO.

Either there was material on record of the AO to frame an assessment u/s 143(3) or the assessee has not complied with the requirements of the AO to furnish the information called for by the AO and thus calling for the assumptions of jurisdictions u/s 144 of the Income Tax Act, 1961. Since, the impugned assessment order was framed u/s 143(3), the assessee cannot be faulted with or not furnishing the details called for by the AO. On the other hand, the AO has no material to base its conclusions u/s 143(3) of the Income Tax Act, 1961 to disallow 1/5t h of the gross expenses on the ground of alleged failure of the assessee to furnish the details called for by the AO as in such a case the AO could have proceeded against the assessee under the provisions of Section 144 to frame the assessment in the estimation of the AO.

The AO is vested with the authority and jurisdiction to reject the books of accounts of the assessee in case the same is found not to be maintained according to the accounting standards issued by the Central Government and thereafter proceed to frame the assessment as per the judgment of the Assessing Officer. However, the law provides for a specific procedure for rejection of books of accounts and for estimation of the income of the assessee. In the present case, the AO has estimated the income of the assessee but without rejecting the books of accounts of the assessee in so many words though, the effect of the impugned assessment order and estimation of income of the assessee is the same i.e. rejection of the books of accounts. In any case, the principle of natural justice is a strict

4 Optima-Era Infra Joint Venture requirement in law for rejection of books of accounts and estimation of income.”

We have heard the rival submissions and perused the materials available on record. The issue in the present ground is with respect to the deletion of adhoc disallowance made by the AO. We find that ld. CIT(A) has come to the conclusion that the disallowance of the expenses has been made purely on estimated basis and AO has not brought any material on record to justify the disallowance. He has further noted that if the assessee had not furnished required details called for by the AO, the AO should have rejected the books of accounts and should have invoked the provision of Section 144 of the Income Tax Act, 1961. He noted that the AO has neither rejected the books of accounts nor has framed assessment u/s 144. Before us, no fallacy in the findings of ld. CIT(A) has been pointed out by the Revenue. In such a situation we find no reason to interfere with the order of the ld. CIT(A) and thus the ground of revenue is dismissed.

Thus, we find that the AO has summarily disallowed 1/5th 6. of contract expenses to the tune of Rs.24.61 crores, the ld. CIT(A) deleted the addition holding that the AO did not invoke the relevant provisions of Section 144 and rejection of books of accounts, and the Co-ordinate Bench of Tribunal affirmed the 5 Optima-Era Infra Joint Venture action of the ld. CIT(A) holding that the disallowance has been purely on estimate basis and the AO has not brought any material on record to justify the disallowance. Hence, keeping in view the entire facts of the case, we hereby decline to interfere with the order of the ld. CIT(A).