These consolidated appeals and cross-objections arise out of search and post-search assessment proceedings conducted in the case of Shri Rakesh Kumar Pandey, a government contractor engaged in civil construction through his proprietary concern, M/s Alok Construction. A search and seizure operation under section 132 of the Income-tax Act, 1961 was carried out on 05.02.2022.

For Assessment Years 2014-15 to 2022-23, the Assessing Officer rejected the books of account by invoking section 145(3) and proceeded to frame assessments under section 144, estimating net profit at 11% of gross receipts primarily on the basis of statements recorded during search and profit disclosed by the assessee in subsequent years.

The assessee consistently contended that regular books of account were maintained, audited, and accepted in earlier scrutiny assessments, and that no incriminating material relating to enhancement of profit or suppression of income for the impugned years was found during the course of search. It was further submitted that the additional income offered for later years was voluntary and conditional, intended to cover deficiencies and issues arising only for those years, and could not be extrapolated retrospectively.

The Tribunal, after examining the facts, held that additions based solely on estimation of higher profit rates for pre-search years, without reference to any incriminating material unearthed during search, were not sustainable in law. Reliance was placed on the judgment of the Hon’ble Supreme Court in PCIT vs Abhisar Buildwell (P) Ltd., which categorically held that completed assessments cannot be disturbed in search proceedings in the absence of incriminating material.

On valuation-related issues, the Tribunal noted that marginal differences between the cost of construction declared by the assessee and the valuation made by the Departmental Valuation Officer, being within a reasonable tolerance range, could not justify additions. The Tribunal accepted that differences up to approximately 10% were liable to be ignored, particularly where the assessee himself was a civil contractor and construction was supported by records.

With regard to agricultural income, the Tribunal observed that ad-hoc disallowances without proper appreciation of land holdings, confirmations, and past acceptance by the Department were not justified. Similarly, technical disallowances under sections 40(a)(ia) and 40A(3) were held to be unsustainable once income was assessed on an estimated basis after rejection of books.

On legal grounds challenging reassessment proceedings under section 148, the Tribunal took note of the absence of incriminating material, non-compliance with amended statutory provisions, and lack of jurisdictional authority, holding that reassessment notices issued contrary to the faceless regime and statutory mandates were liable to be quashed.

Accordingly, the Tribunal substantially allowed the assessee’s appeals, dismissed the Revenue’s appeals, and allowed the cross-objections, granting relief on multiple issues across assessment years.

Source: https://itat.gov.in/public/files/upload/1765531066-gdadau-1-TO.pdf

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