2014 (2) TMI 1329 - AT - Income Tax

N.P. determination - rate of NP Adopted - rejection of books of accounts - Held that - CIT(A) has not given any finding with regard to the applicability of net profit rate by the AO which shows on one hand he accepts the decision of the AO and on the other hand simply by accepting the submission of the assessee that too without confronting to the AO and without asking the remand report of the AO and relying upon the decisions which are comparable or not comparable to the present facts and circumstances of the case, proceeded to apply net profit rate of 6% for the reasons best known to him. In the facts and circumstances, the order of the ld. CIT(A) cannot be accepted and is bad in law in the present facts and circumstances of the case, for the reasons mentioned hereinabove. The order of the ld. CIT(A) is directed to be reversed and that of the AO is restored , who has applied net profit rate of 10% on the gross receipts - Decided in favour of revenue. Addition being cash credits u/s 68 - Held that - CIT(A) himself has just accepted the submission of the assessee and that too without confronting to the AO and without calling the remand report of the AO. Thus, the decision of the ld. CIT(A) is against the facts of the case, which in fact, has not been brought on record i.e. whether loans pertain to the impugned year or to the preceding year. It will be in the interest of justice, if the matter is set aside to the file of the AO, who will examine the issue whether the said loans pertain to the impugned year or to the preceding year. Whether the loans are genuine and whether at all, the same can be treated as income under section 68 or not but by providing adequate opportunity to the assessee. AO is accordingly directed to decide the issue denovo as regards the disallowance but by providing adequate opportunity of being heard to the assessee. - Appeal of revenue is partly allowed for statistical purposes.

Summary

Issues Involved:
1. Reduction of net profit rate on contract basis from 10% to 6%.
2. Deletion of the addition of Rs. 22,00,000/- on account of unsecured loans.

Issue-Wise Detailed Analysis:

1. Reduction of Net Profit Rate on Contract Basis from 10% to 6%:
The Revenue challenged the CIT(A)'s decision to reduce the net profit rate from 10% to 6% on contract receipts. The AO applied a 10% net profit rate based on the ITAT Amritsar Bench decision in the case of M/s. Pooja Construction Co., upheld by the Punjab & Haryana High Court. The assessee argued before CIT(A) that a 10% rate was excessive given the difficult working conditions in the hilly border area of Rajouri, high labor charges, and the fact that the assessee was a subcontractor who further subcontracted the work, thus distributing the profit among multiple parties. The CIT(A) accepted these arguments and applied a 6% net profit rate, referencing similar cases where lower rates were deemed reasonable.

However, the Tribunal found that the CIT(A) did not provide sufficient material or cogent reasoning to justify the deviation from the AO's application of the 10% rate, nor did it confront the AO or call for a remand report. The Tribunal held that the CIT(A)'s decision was based merely on the assessee's submissions without proper verification. Therefore, the Tribunal reversed the CIT(A)'s order and restored the AO's application of a 10% net profit rate, allowing the Revenue's ground on this issue.

2. Deletion of the Addition of Rs. 22,00,000/- on Account of Unsecured Loans:
The AO added Rs. 22,00,000/- as cash credits under section 68 of the IT Act, 1961, due to the assessee's failure to substantiate these unsecured loans. The assessee contended before the CIT(A) that these loans were raised in the financial year 2005-06 (assessment year 2006-07) and appeared in the financial statements of earlier years. The CIT(A) accepted this argument, noting that the loans were received through cheques and confirmed by the lender, Mr. Lalit Kumar. The CIT(A) ruled that no addition could be made in the current assessment year for loans received in a previous year.

The Tribunal observed that the CIT(A) accepted the assessee's submissions without confronting the AO or calling for a remand report. The Tribunal found that the CIT(A) did not verify whether the loans pertained to the impugned year or a preceding year and whether they were genuine. Therefore, the Tribunal set aside the CIT(A)'s decision and remanded the issue back to the AO for a fresh examination. The AO was directed to verify the genuineness and the relevant assessment year of the loans, providing adequate opportunity for the assessee to present their case.

Conclusion:
The Tribunal allowed the Revenue's appeal partially. It restored the AO's application of a 10% net profit rate on the gross receipts and remanded the issue of the Rs. 22,00,000/- unsecured loans back to the AO for further examination. The appeal was thus partly allowed for statistical purposes.