2011 (1) TMI 1447 - AT - Income Tax

Summary

Issues involved:
The issues involved in this case are:
(i) Whether AO was justified in making addition of Rs. 12,12,509/- by applying the net profit rate of 5%.
(ii) Whether learned CIT(A) was justified in making a further addition of Rs. 33,82,487/- by enhancing the rate of net profit from 5% applied by the AO to 12%.

Details of the Judgment:

Issue (i):
The assessee, a proprietor of M/s Krishna Builders, filed a return of income for AY 2006-07 declaring taxable income of Rs. 11,97,694/-. The AO determined the total income at 5% of gross receipts, amounting to Rs. 22,92,698/-, as against the declared income of Rs. 12,80,189/-. The AO rejected the books of account due to incomplete records and lack of bills and vouchers for major expenses.

Issue (ii):
The CIT(A) upheld the AO's decision to reject the books of account and applied a net profit rate of 12% on total contract receipts, citing precedents. The CIT(A) noted the failure of the assessee to produce complete records despite opportunities. The assessee's counsel argued for the production of complete books of account, but failed to provide evidence supporting this claim. The comparative analysis of turnover and net profit over the years showed an increase in turnover, with varying net profit percentages.

The Tribunal found that the AO's application of a 5% net profit rate was reasonable based on past assessments. Considering the incomplete records and the failure to produce complete books of account, the Tribunal determined a net profit rate of 4% as justified. The appeal was partly allowed, directing the AO to modify the assessment order accordingly.