2015 (7) TMI 698 - AT - Income Tax

Rejection of books of accounts - adoption of GP rate of 20% - Since the assessee has already offered GP rate of 13.60% during the year under consideration the balance 6.4% on turnover of which comes to ₹ 55,08,898/- was treated by him as suppressed profit of the impugned assessment year - Held that - From the comparison of the profit and loss account for A.Y. 2008-09 and A.Y. 2009-10, we find the material consumption was 36.79% during the current year as against 28.89% in the preceding year. Similarly, as against ₹ 3,67,898/- incurred towards royalty charges in the preceding assessment year the assessee has incurred ₹ 23,43,403/- towards royalty charge during the impugned assessment year. The royalty charges has been paid to Government, thus, there is almost an increase of about ₹ 20 lakhs in the royalty payment. Further, we find merit in the submission of the Ld. Counsel for the assessee that the profit from sub-contract work will be less since the main contractor retains a part of the profit. Therefore, as against 17.96% profit from own contract work, the assessee has earned 10.38% from sub contract work and therefore profit from sub contract work cannot be at par with profit from contract work. The Hon ble Bombay High Court in the case of R.B. Jessaram Fatechand (1969 (7) TMI 10 - BOMBAY High Court ) has held that in the case of cash transaction where delivery of goods is taken against payment, it is hardly necessary for the seller to bother about the name and address of the purchaser. The account books of an assessee cannot therefore be rejected merely on the ground that the particulars of the assessee are not mentioned in the case of cash transactions. The Hon ble Punjab & Haryana High Court in the case of Om Overseas (2008 (3) TMI 44 - HIGH COURT PUNJAB AND HARYANA a) has held that in absence of any specific defects pointed out in the books of account, the book results cannot be rejected merely on the ground that there is fall in profit ratio. Since in the instant case, we have already held that the defects as pointed out by the Assessing Officer are trivial in nature which do not call for rejection of the book results, therefore, consideration the totality of the facts of the case and in view of our discussion in the foregoing paragraphs, we are of the considered opinion that the rejection of books of account in the instant case is not justified. We therefore hold that the income returned by the assessee has to be accepted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Rejection of books of accounts.
2. Estimation of gross profit by the Assessing Officer.
3. Addition of Rs. 20 lakhs by the CIT(A).

Detailed Analysis:

1. Rejection of Books of Accounts:
The Assessing Officer (AO) rejected the books of accounts of the assessee, a partnership firm engaged in civil construction, due to several discrepancies. The AO noted that the wage register lacked complete addresses and nature of work details for the laborers, with some signatures in English, which seemed doubtful. Additionally, transport bills lacked vehicle details and addresses, and sub-contractor bills had similar issues with incomplete information and overwriting. The AO concluded that the book results were unreliable and invoked Section 145(3) to reject them. The CIT(A) upheld this rejection, agreeing that the transport bills and vouchers were not fully reliable.

2. Estimation of Gross Profit by the Assessing Officer:
The AO observed a significant drop in the gross profit (GP) rate from 19.26% in the preceding year to 13.60% in the current year. Despite the assessee's explanation of increased costs, the AO was not satisfied and adopted a 20% GP rate, leading to an addition of Rs. 55,08,898/- as suppressed profit. The CIT(A) partially agreed with the AO but found some merit in the assessee's explanation for increased expenses. The CIT(A) determined that a lump-sum addition of Rs. 20 lakhs would be justifiable instead of the AO's estimation.

3. Addition of Rs. 20 Lakhs by the CIT(A):
The assessee challenged the addition of Rs. 20 lakhs, arguing that the AO's grounds for rejecting the books were insufficient. The assessee provided detailed records and explanations for labor, transport, and sub-contractor payments, including PAN numbers and TDS deductions. The Tribunal found the AO's reasons for rejecting the books, such as English signatures and minor overwriting, to be trivial. The Tribunal also noted that the assessee's increased material consumption and royalty payments justified the lower profit margin. Citing precedents, the Tribunal held that the rejection of books was unjustified and accepted the income returned by the assessee.

Conclusion:
The Tribunal allowed the assessee's appeal, rejecting the AO's and CIT(A)'s grounds for rejecting the books and making additions. Consequently, the Revenue's appeal was dismissed, and the assessee's declared income was accepted.