2019 (8) TMI 899 - HC - Income Tax

Estimation of profit - NP determination - Tribunal applying net profit rate at 8% u/s 44AD - rejection of books of accounts - gross turnover of the Appellant exceeded 1 crore and books of accounts were maintained as per section 44AB - HELD THAT - From the perusal of the record, it reveals that the books of account of the assessee has been rejected and the authorities have rightly made the assessment enhancing the net profit @ 8%. Once, on finding of fact, it has been found that substantial amount has been spent by making payment in cash and that too, with vouchers having been self-made and not verifiable, admittedly, the appellant has not maintained the stock register and quantitative tally is not being made. Further, the assessee has also not shown the interest derived from FDR to the tune of ₹ 1,93,893/- as well as the lease rent of ₹ 1,52,590/- so received from leasing out of JCB machines. Once it has been found that the assessee has not voluntarily maintained its books of account, as required under the Act, the books of account have rightly been rejected and the net profit, which has been fixed at 8%, is quite reasonable. Moreover, all the authorities below have rejected the contention of the appellant. At this stage, no substantial question of law arises in the present appeal. - Decided against assessee.

Summary

Issues involved:
1. Application of net profit rate under section 44AD when gross turnover exceeds 1 crore and books of accounts are maintained as per section 44AB.
2. Justification of framing assessment by applying net profit rate at 8% based on the statement of assessee.
3. Treatment of interest income from FDR and rental income from JCB as income other than business income.

Analysis:
1. The appellant, a civil contractor, appealed against the Income Tax Appellate Tribunal's order for the Assessment Year 2011-12. The questions of law raised included the legality of applying a net profit rate of 8% under section 44AD when the gross turnover exceeded 1 crore and books of accounts were maintained as per section 44AB of the IT Act. The appellant's net profit was 5.09% on gross receipts of &8377; 8,37,12,896. The assessing authority enhanced the net profit to 8% due to cash payments, self-made vouchers, and lack of stock register maintenance. The Commissioner of Income Tax (Appeals) upheld this decision, noting the defects in the books of accounts. The Tribunal also dismissed the appeal, considering the appellant's admission of 8% net profit rate during assessment proceedings as justifiable, supported by judicial precedents for civil contractors.

2. The appellant argued that consent for accepting 8% net profit was conditional on no penal action, leading to retraction when penalty proceedings were initiated. The appellant contended that all books of account were produced, but wrongly rejected, citing the necessity of cash payments in the contractor business. However, the authorities found substantial cash payments without verifiable vouchers, lack of stock register maintenance, and unreported interest and rental income. The rejection of books of account and the 8% net profit assessment were deemed reasonable by the authorities, with no substantial question of law arising in the appeal.

3. The Tribunal's decision to dismiss the appeal was based on the rejection of books of account, the reasonable net profit assessment at 8%, and the lack of substantial legal questions raised by the appellant. The judgment favored the Revenue, concluding that the appellant's contentions were baseless, and the assessment was upheld. The appeal was dismissed, and the substantial questions of law were resolved against the Assessee and in favor of the Revenue.