,VATRAM VENKATESWARA RAO,ELURU vs. THE ITO, ELURU

आदेश /O R D E R

PER D.S. SUNDER SINGH, Accountant Member: This appeal is filed by the assessee against the order of the Commissioner of Income-Tax (Appeals) [CIT(A)]-2, Guntur vide ITA No.113/2011-12 dated 31.01.2017 for the assessment year 2009-10.

assessee is engaged in civil contracts. For the impugned assessment year,

the assessee received gross receipts of Rs.1,93,31,395/- and filed the return

of income declaring total income of Rs.2,51,144/-. The assessing officer

(AO) has taken up the case for scrutiny. During the assessment

proceedings, the assessee has produced books of accounts, but could not

produce the bills and vouchers stating that the same were not readily

available. Therefore, the AO completed the assessment estimating the

income @ 9% of gross receipts clear of all expenses and depreciation and

resultant difference of Rs.13,88,683/- was added to the returned income.

the CIT(A) and the Ld.CIT(A) confirmed the rejection of books of accounts.

However, the Ld.CIT(A) compared the expenditure for the assessment

years 2008-09 and 2009-10 and directed the AO to disallow the

expenditure in proportionate to the turnover in respect of materials and

labour charges and wages.

before this Tribunal. During the appeal hearing, Ld.AR argued that the

assessee is a civil contractor and during the assessment, the assessee did

not produce the bills and vouchers since they were not readily available.

The Ld.CIT(A) has decided the appeal directing the AO to allow the

expenditure in proportionate to the turnover in the immediately preceding

assessment year. The Ld.AR argued that the estimation of resultant income

works out to 7.21% which is very high in this line of business and in the

assessee’s case the profit was only as declared in the return of income.

Disallowance of expenditure as held by the Ld.CIT(A) would cause lot of

financial injury to the assessee, since it was very high. The Ld.AR further

submitted that since the AO has rejected the books of accounts, it is a case

for reasonable estimation of income. For a query from the Bench, the

Ld.AR submitted that the estimation of income @ 5% is reasonable in this

line of business.

the income @9% clear of depreciation and all other expenses since the

assessee failed to produce the books of accounts, bills and vouchers etc.

Therefore, argued that the income estimated by the AO is fairly reasonable.

Further, the Ld.CIT(A) has ordered the AO to disallow the expenses under

the head ‘material and labour expenses’ in proportion to the turnover. The

Ld.CIT(A) is very fair in directing the AO to restrict the disallowance to

‘material and labour expenses’. Therefore, argued that no interference is

called for in the order of the Ld.CIT(A).

In this case, though the assessee has produced the books of accounts, but

failed to produce vouchers, bills etc. Therefore, we uphold the action of the

AO in rejecting the books of accounts. The Ld.CIT(A) though accepted the

rejection of books of accounts directed the AO to disallow the expenses in

respect of materials and labour charges and wages in proportion to the

turnover compared to the earlier assessment year. However, the Ld.CIT(A)

has not considered the increase in expenditure due to inflation. The

correct procedure is once the books of accounts are rejected, the AO has to

resort for estimation of income which would take care of all other relevant

expenses. Therefore, we are of the view that the estimation of income @

6% of gross receipts, clear of depreciation and all other expenses is fair and

reasonable in this case. Accordingly, we set aside the orders of the lower

authorities and direct the AO to estimate the income @ 6% of the gross

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receipts clear of all expenses and depreciation. The appeal of the assessee

is partly allowed.

The above order was pronounced in the open court on 9th May, 2018.

Sd/- Sd/- (वी.दुगा� राव) (!ड.एस. सु�दर #संह) (V. DURGA RAO) (D.S. SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER वशाखापटणम /Visakhapatnam $दनांक /Dated : 09.05.2018 L.Rama, SPS

आदेश क� ��त&ल प अ'े षत/Copy of the order forwarded to:- 1. अपीलाथ� / The Appellant- Vatram Venkateswara Rao, D.No.3-105/1, Ambica Nagar, Near Ambica Devi Temple, 6th Lane, Satrampadu, Eluru – 534007 2. ��याथ� / Income Tax Officer, Ward-2, Eluru 3. The Pr.Commissioner of Income Tax, Rajamahendravaram 4. The Commissioner of Income-Tax(Appeals)-2, Guntur, Camp : Visakhapatnam 5. वभागीय��त�न*ध, आयकरअपील�यअ*धकरण, वशाखापटणम /DR, ITAT, Visakhapatnam . गाड�फ़ाईल / Guard file 6 आदेशानुसार / BY ORDER // True Copy //

Sr. Private Secretary ITAT, VISAKHAPATNAM