Facts of the Case

Harsha Constructions, engaged in construction/contract activities, was subjected to scrutiny assessment by the Assessing Officer. During the course of assessment proceedings, certain aspects of the assessee’s accounts, receipts, expenses, or financial transactions were examined.

The Assessing Officer made additions to the declared income on the ground that the accounts or explanations furnished were not satisfactory or properly substantiated.

The Commissioner of Income Tax (Appeals) confirmed the additions made by the Assessing Officer. Aggrieved by the appellate order, the assessee filed an appeal before the Income Tax Appellate Tribunal, Agra Bench.

Issues Involved

  1. Whether the additions made during scrutiny assessment were justified in law.
  2. Whether the assessee had properly substantiated its business receipts, expenses, or financial entries.
  3. Whether the rejection of accounts or estimation of income (if any) was valid.
  4. Whether the CIT(A) correctly appreciated the facts and evidence.

Petitioner’s Arguments (Assessee)

  • The additions were arbitrary and not based on reliable evidence.
  • The accounts maintained were proper and supported by records.
  • The Assessing Officer failed to appreciate the nature of construction business, where variations in expenses and receipts may occur.
  • The appellate authority erred in sustaining the additions without adequate justification.

Respondent’s Arguments (Department)

  • The assessee failed to satisfactorily explain discrepancies or deficiencies noticed during assessment.
  • Supporting documents were inadequate or unreliable.
  • The additions were made after due consideration of facts and were legally sustainable.
  • The CIT(A) rightly upheld the assessment order.

Court Order / FINDINGS (ITAT)

  • Additions to business income must be supported by cogent reasons and evidence.
  • Where books of account are relied upon, rejection must be justified under law.
  • Estimation of income cannot be arbitrary and must be based on reasonable grounds.
  • The burden lies on the assessee to substantiate entries; however, the Assessing Officer must also establish the basis for additions.

Important Clarification by the Tribunal

  • In construction or contract businesses, assessment of income must consider the practical realities of the trade.
  • Additions cannot be sustained solely on suspicion or general assumptions.
  • Proper documentation and credible evidence remain crucial for both the assessee and the tax authorities.

 Link to download the order –

https://itat.gov.in/public/files/upload/1616736305-ITA%20%2029%20of%202020%20Harsha%20Constructions.pdf

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