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TMI Blog2015 (11) TMI 297X X X X Extracts X X X X X X X X Extracts X X X X ..... 08 and 2010-11 respectively. The assessee raised the following grounds of appeal in ITA No. 3967/Del/2010: i. Learned Income-tax Officer is erroneous in law and on the facts of the case because it is the bounden duty of the Assessing Officer to give proper opportunity to the assessee to rebut the comparative cases relied (even not cited any particulars) by the Income-tax Officer before he can have the option to estimate the gross profit. Again, it is comparative instance that alone can be the foundation of such estimate in case the accounts are really found to be unreliable and requiring to be rejected. ii. On the facts and circumstances of the case Ld. CIT(A) is wrong in upholding the view of the Income-tax Officer in invoking the provision of the proviso to Section 145(3) which is not on the statute book. iii. Learned Income-tax Officer is erroneous in law and on the facts of the case in rejecting the book results under section 145 and estimating the income at 5 percent of gross receipts of the appellant which is calculated at Rs. 99,66,385/-. iv. Learned Income-tax Officer ought to have accepted income returned by the appellant as there is no case to prove that accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stimating the profit @ 5% of the gross receipts vide order dated 30th December, 2009, passed under Section 143(3) of the Act. During the course of assessment proceedings, the Assessing Officer noticed that appellant offered net profit @ 0.88% of the gross turnover after including the interest receipts of Rs. 2,93,81,144/- on delayed receipts of contract receipts pertaining to the earlier years. The Assessing Officer observed that if the interest component of Rs. 2,93,81,144/- is excluded from contract receipts, it results in negative profits @ 11.37% of the contract receipts. Therefore, he concluded that the book results cannot be accepted and estimated the profit @ 5% of the contract receipts and he taxed the interest receipts on account of delayed receipts of contract receipts of Rs. 2,93,81,144/-. Being aggrieved by this order, an appeal was filed before the CIT(A) who vide order dated 31st March, 2010 confirmed the rejection of book results vide para 7 of his order, which reads as under: "7. In the assessment order, the A.O. has pointed out that the appellant has shown net profit of 0.88% only and if the extraordinary items are excluded, there is a net loss of 11.37%. Clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities below. 6. We heard the rival submissions and perused the material on record. In the present appeals there are mainly two issues, one issue is regarding the rejection of book results and the other issue is regarding taxability of interest received by it due to delay in payment due to it, whether it is the business income or income from other sources. On perusal of the assessment order, it is clear that the Assessing Officer was driven to reject the book results, mainly on the ground that the profit returned on the contract receipt is very low and no stock register was maintained. It is also clear from the assessment order that the appellant had filed detailed explanation as to why there was fall in profit and produced all the books of account and vouchers for verification. The Assessing Officer simply rejected the explanation without giving any reason as to why the explanation was not accepted. Further the Assessing Officer had not pointed out any defect in the books of account maintained by the assessee. It is undisputed that the books of account were duly audited under the provisions of Section 44AB by a Chartered Accountant and the report was furnished in the prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record a clear finding that the system of accounting followed by the assessee is such that correct profits cannot be deduced from the books of account maintained by the assessee................" 7. In the present case, no finding was given by the Assessing Officer as to how the correct profit cannot be deduced from the books of account maintained by the assessee. The mere fact that there was lower rate of gross profit declared by the assessee as compared to the previous year would not by itself be sufficient to justify the addition. Nor does it lead to an inference that there was inflation of expenditure or suppression of receipts. The reliance for this proposition of law is placed on the decision of the Hon'ble Bombay High Court in the case of R.B. Bansilal Abirchand Spg. Wvg. Mills Vs. CIT (1970) 75 ITR 260 and on the decision of the Hon'ble Gauhati High Court in the case of Aluminium Industries(P.) Ltd. Vs. CIT, (1995) 80 Taxman 184. The another fact which driven the Assessing Officer to reject the books of account is non maintenance of stock register. In our own opinion, non-maintenance of stock register is not fatal enough to reject book results. It is most appropriat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its order does not give rise to any question of law to direct the Tribunal to make a reference to this Court. In our opinion, the findings of the Tribunal do not suffer from any legal infirmity which are based on appreciation of facts." 8. The stock register may be important for manufacturing industries but when it comes to the case of contractor, it may not be important as the entire material purchased, might have been consumed and charged to profit and loss accountant and the closing stock working progress has been shown by the assessee. In the circumstances, in our opinion, the non-maintenance of stock register alone cannot enable the Assessing Officer to reject the books of account. A coordinate bench of ITAT, Ahmedabad, in the case of DCIT Vs. Paras Dyeing and Printing Mills Pvt. Ltd., (2010) 4 ITR (Trib.) (Ahd.) after reviewing the entire case-laws, held that the low profit cannot be the reason for rejection of the book results. The Hon'ble Gujarat High Court in the case of CIT Vs. Vikram Plastic, 239 ITR 161 held that no specific discrepancies or defects in the books of account of the assessee has been pointed out, nor any material was brought to establish that the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was brought to this Court in appeal and has since been disposed of, which is CIT v. Govinda Choudhary & Sons [1993] 203 ITR 881. In the said decision, it is recorded that learned counsel for the assessee conceded that interest did constitute a revenue receipt. The court, however, held on the other question (arising in that appeal) that the said amount of interest cannot be taxed under the head "Income from other sources" which necessarily meant that it has to be taxed as a business receipt. It is true that on the question whether the interest constitutes income or not, the said decision is based upon a concession but we are of the opinion that it was a concession rightly made and is correct in law. Accordingly, we hold that interest is income and it has to be assessed as a business receipt. The question referred is accordingly answered in favour of the Revenue and against the assessee in the above terms. The appeals are disposed of accordingly. No costs." 11. Therefore, respectfully following the ratio laid down in the cases cited supra, we hold that the interest received by the assessee on account of delay in the payment of money due to it cannot be taxed separately but only as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 325 ITR 13 (Delhi) Commissioner of Income-Tax v. Paradise Holidays. 4. The appellant has not been provided with details of comparable cases relied upon 68 ITR 796 (Kerala) Joseph Thomas and Brothers. Vs. Commissioner of Income-Tax, Kerala & 210 ITR 103 (Calcutta) Commissioner of Income-Tax. V. Eastern Commercial Enterprises [relied upon 125 ITR 713 (SC)] Kishinchand Chellaram. V. Commissioner of Income- Tax, Bombay City 11. 5. The appellant should have been provided with an opportunity to rebut before rejecting the books of accounts and estimating the profits. 64 ITR 175 (AP) S. Sarabhaiah Setty and Sons. V. Commissioner of Income- Tax, A.P & 62 ITR 528 (AP) Yakub Versey Laljee & Another V. Commissioner of Income-Tax, A. P 6. Estimate should be based on some evidence and material 8 STC 770(SC) Raghubar Mandal Harihar Mandal v. The State of Bihar 7. Best judgment assessment to be made (estimation shall have a rational nexus to the available material and the circumstances of the case (60 ITR 239 (SC) State of Kerala C. Velukutty) In view of the facts and circumstances of the case and judicial pronouncements relied upon by the appellant, the Assessing Officer was not justif ..... X X X X Extracts X X X X X X X X Extracts X X X X
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