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2020 (11) TMI 745 - AT - Income TaxRejection of accounts - estimation of income - failure on the part of the assessee to provide site wise expenses, labour, proof of address identity of labourers, the genuineness of the labour expenses was not established - reduction of Net Profit rate @ 6.5% on the total receipt by CIT-A instead of 12% applied by the A.O.- HELD THAT - In the present case it is not in dispute that the A.O. rejected the books of account by pointing out various discrepancies in the books of account mentioned by the assessee. It is well settled that in case the books of accounts are rejected the only way to work out the income is the application of gross / net profit rate on the turnover or receipts of the assessee. Net profit rate to be applied should be reasonable and the past history of assessee s own case is to be considered. Assessee had shown net profit rate of 6.36% for the year under consideration and in the earlier assessment year i.e; assessment year 2012-13 and 2013-14 it was at 5.87% and 6.01% respectively. Since the net profit rate was progressive and was higher in the year under consideration. Ld. CIT(A) was fair enough and fully justified in estimating the net profit rate of 6.5%. We do not see any valid ground to interfere with the findings given by the Ld. CIT(A) on this issue. Application of net profit rate of 12% by the A.O. based on the judgment of Shri Prabhat Kumar Contractor 2008 (11) TMI 723 - PUNJAB AND HARYANA HIGH COURT is concerned the Ld. CIT(A) clearly mentioned that in the case of CIT Vs. Shri Praveen Mittal 2011 (10) TMI 458 - PUNJAB AND HARYANA HIGH COURT after considering the earlier judgment in the case of Shri Prabhat Kumar Contractor(supra) upheld the application of net profit rate of 4%. We therefore do not see any merit in the submissions of the Ld. CIT DR that the net profit rate of 12% applied by the A.O. was based upon the judgment of the Hon'ble Jurisdictional High Court in the case of Shri Prabhat Kumar Contractor(supra) and the same to be upheld, particularly when the Hon'ble Jurisdictional High Court had considered the said judgment in its later decision in the case of CIT Vs. Praveen Kumar Mittal(supra) which has been considered by the Ld. CIT(A) while directing the A.O. to apply the net profit rate of 6.5% in the assessee s case. Depreciation after applying the net profit rate - HELD THAT - The present case it is not in dispute that the income of the assessee was worked out by applying the net profit rate and rejecting the books of accounts. we deem it appropriate to restore this issue to the file of the A.O. to verify as to whether the claim of the assessee for depreciation was allowed by him or not, as was claimed by the Ld. CIT DR during the course of hearing. Accordingly this issue is restored to the file of the A.O. for the limited purpose i.e; to verify as to whether the depreciation was already allowed to the assessee or not and if not allowed then by considering the ratio laid down by the Hon'ble Jurisdictional High Court, the claim of the assessee for depreciation is to be allowed from the income determined by applying the net profit rate of 6.5%. Addition u/s 69C - HELD THAT - As already pointed out that the books of accounts maintained by the assessee were rejected by the AO and the said rejection was upheld by the Ld. CIT(A). The income of the assessee was determined by applying the net profit rate, therefore in view of the ratio laid down in the aforesaid referred to cases by the Hon ble Allahabad High Court and Hon ble Andhra Pradesh High Court, no separate addition on account of expenditure was called for when the income was determined by applying the net profit rate. Accordingly we do not see any infirmity in the impugned order passed by the Ld. CIT(A) on this issue.
Issues Involved:
1. Rejection of books of accounts under section 145(3). 2. Application of net profit rate by the Assessing Officer (AO). 3. Allowance of depreciation after applying the net profit rate. 4. Addition of unexplained expenditure under section 69C. Issue-wise Detailed Analysis: 1. Rejection of Books of Accounts under Section 145(3): The AO rejected the books of accounts of the assessee citing various discrepancies, including the non-maintenance of site-wise records, the absence of identity proof for laborers, and the presence of circular trading to inflate expenses. The AO noted that the assessee failed to provide site-wise material consumption details and that the impounded wage records appeared freshly printed with signatures done by a few persons. The assessee contended that the labor expenses were genuine and essential for road construction contracts. It was argued that maintaining site-wise records was impractical due to the nature of the business. The assessee also highlighted that the books of accounts had been accepted in previous years without similar issues. The CIT(A) upheld the AO's decision to reject the books of accounts but noted that the application of a net profit rate should consider the assessee's past history. 2. Application of Net Profit Rate by the AO: The AO applied a net profit rate of 12% on the gross receipts based on a judgment from the Punjab & Haryana High Court in the case of M/s Parbhat Kumar Contractor. The AO calculated the net profit and made an addition of ?4,73,91,955/-. The assessee argued that the net profit rate should be based on past history and that the interest income from FDRs should be considered as part of the business income. The CIT(A) agreed with the assessee and applied a net profit rate of 6.5% on the contract receipts and FDR interest, noting that the interest income was incidental to the contract business. The CIT(A) referenced the Supreme Court's decision in CIT Vs. Laxminarain Badridas, which emphasized considering the assessee's past records for fair estimation. 3. Allowance of Depreciation after Applying the Net Profit Rate: The AO did not allow the depreciation claimed by the assessee. The assessee contended that even if a net profit rate is applied, depreciation should be allowed as per various judgments, including CIT Vs. Chopra Bros. India (P) Ltd. and CIT Vs. Bishambhar Dayal & Co. The CIT(A) directed the AO to allow the depreciation claimed by the assessee, amounting to ?1,48,89,912/-, as the prescribed particulars were available in the records. 4. Addition of Unexplained Expenditure under Section 69C: The AO made an addition of ?84,19,383/- under section 69C, citing unaccounted bills and expenses found during the survey. The assessee argued that these were rough memoranda and that no separate addition should be made when income is estimated by applying a net profit rate. The CIT(A) deleted the addition, noting that no separate addition on account of unexplained expenditure can be made when income is determined by applying a net profit rate. The CIT(A) referenced judgments from the Andhra Pradesh and Allahabad High Courts, which held that applying a net profit rate takes care of all deductions, including unexplained expenditure. Conclusion: The Tribunal upheld the CIT(A)'s decision to apply a net profit rate of 6.5%, allow depreciation, and delete the addition of unexplained expenditure. The Tribunal emphasized that the net profit rate should consider the assessee's past history and that no separate addition should be made when income is estimated by applying a net profit rate. The appeal of the Department was partly allowed for statistical purposes, and the Cross Objection of the assessee was dismissed.
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