2015 (11) TMI 1434 - AT - Income Tax

Rejection of books of accounts - G.P. addition - sale of material treated as profit for working out the Gross Profit on contract receipts by AO - CIT(A) deleted part addition - Held that - Held that - CIT(Appeals) found that assessee had produced Hot Mix material from its plant for its contract work and the excess production was sold to outside parties leading to turnover of ₹ 43,06,319/- on this account. This finding of fact recorded by ld. CIT(Appeals) have not been rebutted through any material or evidence on record. It, therefore, stands established that amount of ₹ 43,06,319/- was the turnover and as such ld. CIT(Appeals) was justified in holding that it was not possible that there would be no cost of goods produced/sold as done by the Assessing Officer. It is well settled law that the turnover of the assessee could not represent the profit of the assessee. In the turnover of the assessee, only part amount is represented as income of the assessee. The cost of the material sold should have been deducted from the turnover in order to arrive at the profit of the assessee. The ld. CIT(Appeals), therefore, on the total turnover of ₹ 43,05,319/- of Hot Mix material correctly directed to apply profit rate for the purpose of making addition, therefore, rest of the addition of ₹ 39,61,815/- was rightly deleted. There is no error in the order of the ld. CIT(Appeals). - Decided against revenue.

Issues:
- Addition of Rs. 39,61,815/- challenged by revenue for assessment year 2008-09
- Rejection of books of account under section 145(3) of the Act
- Estimation of gross profit @ 8% of contract receipts
- Deletion of part addition by ld. CIT(Appeals)
- Justification of applying profit rate on total turnover of Hot Mix material
- Dismissal of departmental appeal

Analysis:

1. Addition of Rs. 39,61,815/- challenged by revenue:
The appeal was against the deletion of the addition of Rs. 39,61,815/- by the ld. CIT(Appeals) for the assessment year 2008-09. The Assessing Officer had initially estimated the gross profit at a lower rate, leading to the addition. However, the assessee contended that the Assessing Officer wrongly treated the entire sale value of Hot Mix material as profit without deducting the cost of material sold. The ld. CIT(Appeals) accepted the assessee's argument, stating that the cost of goods produced/sold should be deducted from the turnover to determine the actual profit. The deletion of part addition was deemed justified based on this reasoning.

2. Rejection of books of account under section 145(3) of the Act:
The Assessing Officer rejected the books of account under section 145(3) of the Act due to various defects in maintenance, leading to the estimation of profit at 8% of contract receipts. The ld. CIT(Appeals) confirmed this rejection, highlighting the lack of credible arguments from the appellant regarding proper bookkeeping. The rejection of books of account was considered a logical and inevitable conclusion, further supporting the addition made by the Assessing Officer.

3. Estimation of gross profit @ 8% of contract receipts:
The Assessing Officer estimated the profit at 8% of the contract receipts, which was not objected to credibly by the appellant during the proceedings. The ld. CIT(Appeals) upheld this estimation, emphasizing that the application of a gross profit rate on the Hot Mix materials sold was appropriate. The calculation and justification provided by the appellant regarding the gross profit on normal contract receipts led to the deletion of a significant portion of the addition.

4. Justification of applying profit rate on total turnover of Hot Mix material:
The ld. CIT(Appeals) found that the turnover of Rs. 43,06,319/- from the sale of Hot Mix material could not represent the profit entirely, as claimed by the Assessing Officer. It was established that the cost of goods produced/sold should be considered, and the profit rate should be applied accordingly. The correctness of the ld. CIT(Appeals)'s decision in directing the application of profit rate for making additions was upheld, resulting in the deletion of a substantial amount from the addition.

5. Dismissal of departmental appeal:
After considering the arguments from both sides, the Tribunal found no merit in the revenue's appeal. The findings of fact by the ld. CIT(Appeals) regarding the production and sale of Hot Mix material were deemed correct and unchallenged. The decision to delete a major part of the addition based on the application of profit rate on the turnover was upheld, leading to the dismissal of the departmental appeal.

In conclusion, the judgment addressed the issues of addition challenged by revenue, rejection of books of account, estimation of gross profit, deletion of part addition, justification of applying profit rate, and the ultimate dismissal of the departmental appeal. The detailed analysis provided insights into the reasoning behind the decisions made by the authorities involved in the case.

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