2012 (5) TMI 752 - AT - Income Tax

Rejection of books of accounts - N.P. determination - Held that - We confirm the order of CIT(A) in rejecting the books of account of the assessee. After rejecting the books of accounts, the next step to be taken is estimation of profit for the year. The CIT(A) after considering the provisions of section 44AD and past history of the assessee found that the net profit rate of 7% will be reasonable rate. We notice that the assessee himself has shown the different net profit rates in different years i.e. 6.88% in A.Y. 2002-03 & 3.2% in A.Y. 2003-04. The calculation of net profit rate for the year under consideration comes to 5.1%. We find that the CIT(A) has rightly applied the net profit rate of 7% and contrary to that there is no material on record neither the same has been pointed out by any of the parties. Therefore, order of the CIT(A) on the issue is confirmed. Addition u/s 68 - Held that - Both the creditors have confirmed balance against their names. In respect of Shri Vijay Singh, it was informed and noted by the CIT(A) that he has died but the ld. Representative of the assessee produced the photocopy of accounts before the Assessing Officer and transaction was found genuine. In respect of Shri Jawahar Mishra & Shri Ashutosh Tripathi, the amount was through banking channel and the Assessing Officer did not dispute this fact. Thus, in the light of detailed discussions made by the CIT(A), we find that the CIT(A) has rightly deleted the addition made by the Assessing Officer under section 68 of the Act. Order of the CIT(A) is confirmed on the issue. Addition on account of refund of security - Held that - CIT(A) has rightly deleted the addition as the said amount was security deposit and not against the payment of contract work. There is no error in the order of CIT(A). Therefore, order of the CIT(A) is confirmed on the issue. Thus, ground raised by the Revenue in its appeal is dismissed.

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act (unexplained deposits).
2. Deletion of addition under Section 40A(3) (cash payments exceeding Rs. 20,000).
3. Deletion of addition on account of refund of security.
4. Application of Section 145 for book rejection and estimation of net profit rate.
5. Deduction under Section 80L.
6. Charging of interest under Section 234B and initiation of penalty under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68 (Unexplained Deposits):
The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 8,04,510/- made under Section 68, arguing that the assessee failed to produce depositors and prove their creditworthiness and the genuineness of transactions. However, the CIT(A) deleted the addition after the remand report confirmed the outstanding balances from the parties, except for one who had died. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had discharged the burden under Section 68 and the transactions were found genuine.

2. Deletion of Addition under Section 40A(3) (Cash Payments Exceeding Rs. 20,000):
The Revenue challenged the deletion of Rs. 1,51,400/- added under Section 40A(3) for cash payments exceeding Rs. 20,000. The CIT(A) found that the payments were recorded in the cash book and no single payment exceeded Rs. 20,000. The Tribunal confirmed that Section 40A(3) was not applicable as the payments were verifiable, and the CIT(A)'s order was upheld.

3. Deletion of Addition on Account of Refund of Security:
The Revenue argued against the deletion of Rs. 19,800/- added by the Assessing Officer as it was not deducted from contractual receipts. The CIT(A) deleted the addition, stating it was a refund of security and not a contractual payment. The Tribunal upheld this decision, finding no error in the CIT(A)'s order.

4. Application of Section 145 for Book Rejection and Estimation of Net Profit Rate:
The assessee contended that the CIT(A) wrongly applied Section 145 and rejected the books of accounts, estimating a net profit rate of 7% instead of the declared 5.32%. The CIT(A) found that the books were not properly maintained, and the true profit could not be determined. The Tribunal confirmed the CIT(A)'s application of a 7% net profit rate, considering the past profit rates and the assessee's inconsistent maintenance of books.

5. Deduction under Section 80L:
The assessee claimed a deduction of Rs. 12,000/- under Section 80L for bank/NSC interest. The Tribunal directed the Assessing Officer to allow the deduction as it was consequential in nature.

6. Charging of Interest under Section 234B and Initiation of Penalty under Section 271(1)(c):
The assessee argued against the charge of interest under Section 234B and the initiation of penalty under Section 271(1)(c). The Tribunal noted that the interest charge was consequential, directing the Assessing Officer accordingly. The penalty initiation was deemed premature and dismissed as infructuous.

Conclusion:
The Tribunal dismissed both the Revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s decisions on all contested issues. The Tribunal confirmed that the additions under Sections 68 and 40A(3) were rightly deleted, the application of Section 145 was appropriate, and the deductions and penalties were addressed correctly.

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