2015 (10) TMI 2789 - AT - Income Tax

Trading addition - Estimation of income - contract receipts - rejection of books of assessee - case was selected for scrutiny and an order u/s 143(3) passed - CIT-A allowed net profit rate at 6% of the gross receipts, before depreciation, interest and remuneration to partners - HELD THAT - We find from the records that in the absence of the any specific findings by the AO, the ld. CIT(A) has rightly applied the net profit rate of 6% by deleting the addition made by the AO considering the past history of the assessee. In absence of any specific finding by the AO to justify increase in net profit rate from 5.72% to 8% and in light of past assessment history of the assessee which has been duly considered by the ld. CIT(A) and following the decision of Gupta K.N. Construction Company 2015 (5) TMI 315 - RAJASTHAN HIGH COURT we find no infirmity in the order of the ld. CIT(A) where net profit rate of 6% before depreciation, interest and remuneration to partners had been adopted. - Decided against revenue.

Summary

Issues:
1. Whether the ld. CIT(A) was justified in deleting the addition made by the AO on account of trading addition.

Analysis:
The appeal was filed by the Revenue against the order of the ld. CIT(A)-1, Jaipur for the assessment year 2008-09. The AO observed that the assessee, engaged in civil construction work, had disclosed receipts of a certain amount and net profit rate before interest and remuneration was disclosed at 5.48%. The AO found discrepancies in the expenses, including wages and labor expenses paid in cash without proper verification, leading to the rejection of the books of account under Section 145(3) of the Act. The AO estimated the net profit rate at 8% of gross receipts. The ld. CIT(A) allowed a net profit rate of 6% and deleted the addition made by the AO.

The ld. CIT(A) based the decision on the past history of the assessee and the net profit rate applied by the AO. The Revenue contended that the AO's order should be upheld, while the assessee relied on the order of the ld. CIT(A) and cited a decision of the Hon'ble Rajasthan High Court. The ITAT found that the ld. CIT(A) rightly applied a net profit rate of 6% considering the past history of the assessee. The ITAT also referred to a similar case decided by the Hon'ble High Court to support its decision.

In another case cited during the proceedings, the Assessing Officer had disallowed certain expenses leading to a higher net profit rate determination. The Hon'ble High Court emphasized the need for concrete evidence to justify such disallowances. The ITAT, in the present case, found no specific findings by the AO to justify the increase in the net profit rate from 5.72% to 8%. The ITAT upheld the ld. CIT(A)'s decision to adopt a net profit rate of 6% based on past assessment history and the lack of evidence to support a higher rate.

Therefore, the ITAT dismissed the solitary ground of the Revenue and upheld the decision of the ld. CIT(A) to delete the addition made by the AO. The appeal of the Revenue was dismissed, and the order was pronounced in open court on a specified date.