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Issues involved: Assessment of income u/s 145(3) based on rejected books of accounts, genuineness of expenses debited by the assessee, rejection of books due to lack of stock register, trading addition sustained by CIT(Appeals), past history of trading results, application of net profit rate, disallowance of depreciation claimed by the assessee.
Assessment of income u/s 145(3) based on rejected books of accounts: The appeal was against the order of the ld. CIT(Appeals) for assessment year 2008-09. The AO rejected the books of accounts u/s 145(3) due to the assessee's failure to produce complete books of accounts, bill details, and persons to whom payments were made. The AO doubted the genuineness of expenses and rejected the books, leading to the determination of total taxable income at a net profit rate of 10%. Genuineness of expenses debited by the assessee: The assessee firm, engaged in civil contract works, debited various expenses in its Audit Report for the financial year 2007-08. The AO raised concerns about the genuineness of these expenses, especially regarding payments made to parties like casual laborers. The AO's observations led to the rejection of the books of account under section 145(3) and the application of a net profit rate for income assessment. Rejection of books due to lack of stock register: The rejection of books of account by the AO was primarily due to the assessee's failure to maintain a stock register. Despite providing names of parties to whom payments were made, the inability to produce them for examination raised doubts about the genuineness of expenses. The absence of a stock register and other discrepancies led to the rejection of the books of accounts under section 145(3). Trading addition sustained by CIT(Appeals) and past history of trading results: The ld. CIT(Appeals) sustained a trading addition but reduced the net profit rate from 10% to 8%. The past history of the assessee's trading results was crucial in determining the appropriate net profit rate. Comparing past and present turnover and net profit rates, the Tribunal modified the CIT(Appeals) order, directing the AO to apply a gross profit rate of 6% considering the past history and depreciation claimed by the assessee. Disallowance of depreciation claimed by the assessee: The assessee's claim for depreciation amounting to &8377; 25,24,388/- was not allowed by the AO. The Tribunal, citing jurisdictional High Court judgments, found the depreciation claim to be legitimate. Relying on past history and legal precedents, the Tribunal allowed the depreciation amount and directed the AO to apply a gross profit rate of 6% along with salary, interest to partners, and the approved depreciation amount.
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