9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (9) TMI 907 - AT - Income TaxNP estimation - Ad hoc disallowance of contract expenses - assessee had shown net profit of 10.41% on the gross contract receipts - case was selected for scrutiny/s 143(3) of the Act on the basis of CASS - HELD THAT - It is evident from the record that the assessee has declared NP rate of 10.41% of gross receipt subject to further deduction of depreciation and interest which is much more than 8% therefore, no further trading addition should be made as held in so many cases by this Tribunal, as cited by the ld. AR of the assessee. In assessee s own case, the Tribunal 2018 (1) TMI 1608 - ITAT JAIPUR for the A.Y. 2013-14 had deleted all the additions wherein the NP declared by the assessee was at 8.09% of gross receipts. Thus, looking to the past accepted NP rate of the assessee, the net profit for the year under consideration at 10.41% is very reasonable, no further disallowance is warranted. Accordingly, we direct the A.O. to delete the disallowance so upheld by the ld. CIT(A). - Decided in favour of assessee.
Issues Involved:
1. Ad hoc disallowance of ?10.00 lacs out of contract expenses. 2. Justification for the rejection of books of account. 3. Estimation of net profit rate. 4. Comparison with previous assessment years and other similar cases. 5. Validity of the lump sum disallowance by the Assessing Officer (A.O.). Issue-wise Detailed Analysis: 1. Ad hoc Disallowance of ?10.00 lacs: The primary grievance of the assessee was the upholding of an ad hoc disallowance of ?10.00 lacs out of contract expenses by the CIT(A). The assessee argued that the net profit rate declared was 10.41% of gross contract receipts, which was higher than the 8% benchmark often accepted by the Tribunal and the Rajasthan High Court. The Tribunal noted that the net profit rate for the year under consideration was reasonable and directed the A.O. to delete the disallowance upheld by the CIT(A). 2. Justification for the Rejection of Books of Account: The Tribunal observed that the books of account were properly maintained and audited. The A.O. did not reject the books of account or apply the provisions of Section 145(3) of the Income Tax Act, 1961. Despite this, the A.O. made a lump sum disallowance of expenses without specific justification. The Tribunal found this approach to be unjustified given the proper maintenance of books and higher declared net profit rate. 3. Estimation of Net Profit Rate: The Tribunal highlighted that the net profit rate declared by the assessee was 10.41%, which was higher than the 8% rate generally accepted by the Tribunal and the Rajasthan High Court. The Tribunal referred to past decisions, including the assessee’s own case for A.Y. 2013-14, where a net profit rate of 8.09% was accepted. Given the higher net profit rate declared for the current year, the Tribunal found no basis for further trading additions. 4. Comparison with Previous Assessment Years and Other Similar Cases: The Tribunal compared the net profit rates and gross receipts of the assessee for the current and previous assessment years. It noted that the net profit rate for the year under consideration was better than the preceding years. The Tribunal also referred to the Rajasthan High Court’s decision in CIT Vs Jain Construction Co. & Ors., which supported the reasonableness of an 8% net profit rate subject to depreciation and interest deductions. 5. Validity of the Lump Sum Disallowance by the A.O.: The Tribunal found that the A.O.’s lump sum disallowance of ?37.35 lacs, later reduced to ?10.00 lacs by the CIT(A), was not justified. The A.O. made general remarks and disallowed expenses without rejecting the books of account or providing specific reasons. The Tribunal concluded that given the higher net profit rate declared and the proper maintenance of books, no further disallowance was warranted. Conclusion: The Tribunal allowed the appeal of the assessee, directing the A.O. to delete the ad hoc disallowance of ?10.00 lacs upheld by the CIT(A). The Tribunal emphasized the reasonableness of the declared net profit rate and the proper maintenance of books of account, which did not justify any further trading additions. The decision was pronounced in the open court on 18th August 2020.
|
