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TMI Blog2010 (9) TMI 1135X X X X Extracts X X X X X X X X Extracts X X X X ..... x liability of an assessee. Hence, we allow the same as ground No. 2. Validity of rejection of books of accounts without assigning any reasons y/s 145(3) - HELD THAT:- In absence of any specific detail mentioning by the AO, the assessee cannot take advantage that its books of account have not been rejected by the AO especially when the AO has pointed out several defects in the books of account sufficient to draw an inference that the same is not worth relying. The only requirement is that while proposing rejection of books of account, the AO is supposed to give opportunity to the assessee to defend its case against the proposed rejection. There is huge decline in the GP rates declared by the assessee during the year under consideration, observed by the AO. Under this background, the AO went through the books of account and observed some defects therein that the expenses are not fully vouched; assessee has prepared consolidated expenses against contract receipts and receipts from JCB; the wages and other direct expenses have been shown in common and that there is no bifurcation of these expenses. - CIT(A) also upheld the view of the AO that no proper books of account were ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal. The proposed additional ground which has been marked by the assessee as ground No. 2 is as under : In the facts and circumstances of the case and in law the learned CIT(A) has erred in holding that no question of net profit rate application arises and further erred in confirming the specific disallowances although learned CIT(A) has impliedly rejected the books of accounts. The action of the learned CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by appropriately estimating the income as per law. 3. In support of the above application for permission to raise the said additional ground (ground No. 2), the learned Authorised Representative submitted that the subject-matter of the present appeal is not just the specific disallowances made by the AO and confirmed by the CIT(A), but the real subject-matter of appeal is as to whether books have been rejected or not and if rejected whether whatever is done by the lower authorities may be called best judgment assessment. The learned Authorised Representative submitted that the issue raised in the additional ground is legal in nature which goes to the root of the matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax liability of an assessee. In view of this decision of Hon'ble Supreme Court and the others relied upon by the learned Authorised Representative, we allow the proposed additional ground for our consideration and adjudication and mark the same as ground No. 2. 6. Since the issue raised in additional ground (ground No. 2) goes to the root of the matter, we prefer to hear parties on the same firstly. In support of the ground, the learned Authorised Representative drew our attention to the contents of assessment order and first appellate order with the submission that several defects have been pointed out by these authorities in the books of account maintained by the assessee. Thus, by implication, both the authorities have found the books of account maintained by the assessee as not worth relying to deduce the correct income of the assessee. The learned Authorised Representative submitted that under these circumstances, books of the assessee were rejected by implication. The learned Authorised Representative submitted further that there is no necessity to reject the books of account under s. 145(3) of the Act with specific mentioning about it. He submitted that the Jaipur B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without any basis. The AO completely ignored past history of assessee's own case. 7. The learned Departmental Representative, on the other hand, tried to justify the actions of the lower authorities in making and upholding disallowances out of the claimed expenses and depreciation. He referred following decisions in support : 1. MCorp Global (P) Ltd. vs. CIT (2009) 222 CTR (SC) 110: (2009) 19 DTR (SC) 153: (2009) 309 ITR 434(SC); 2. S. Sarabhaiah Shetty Sons vs. CIT (1967) 64 ITR 175(AP); 3. CIT vs. Margadarsi Chit Funds (P) Ltd. (1985) 44 CTR (AP) 5: (1985) 155 ITR 442(AP). 8. Considering the above submissions in view of the orders of the lower authorities, material available on record and the decisions relied upon, we find substance in the contention of the learned Authorised Representative that books of accounts maintained by the assessee may be rejected by the AO, impliedly or specifically. In other words, if the AO has pointed out several defects in the books of accounts and has not found it reliable to deduce correct income of the assessee, rejection of books within the meaning of provision laid down under s. 145(3) is implied and there is no need to men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts pointed out by the AO in the books of account maintained by the assessee. He also observed further defects in the books of account maintained by the assessee. These defects have been noted by the learned CIT(A) in page Nos. 2 to 6 of the first appellate order. He has noted that the books of accounts have not been properly maintained by the assessee. These have not been maintained on regular basis and have been prepared at the end of the year. To support this observation, the learned CIT(A) has referred audit report dt. 15th July, 2006 wherein it has been also observed by the auditor that in some cases vouchers were not found. Besides, the auditor has also noted that the partners have failed to explain some bank entries. The learned CIT(A) has also noted that the assessee has not maintained separate books for civil contract work and JCB machine which was also given on hire, hence two separate trading activities were involved. In conclusion, the learned CIT(A) at page Nos. 5 and 6 of the first appellate order has noted that the books of account prepared at the end of the year are not able to give correct result of the trade. All these observations about the defects in the mainten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disregarded the provisions of s. 144 while making disallowance of various expenditures claimed by the assessee. From the assessment order, it is apparent that after rejection of books of account, the AO has arbitrarily and without considering past history of the assessee made lump sum disallowance at a very high figure. He completely ignored the past history of the assessee's own case which is apparent from yearwise details in the format given in Table in the foregoing para. It is a settled law that past history is the best guide for application of net profit rate and this has been held by this very Bench in assessee's own case in different assessment years mentioned above. The learned Departmental Representative has also furnished the copy of the assessment order for the asst. yr. 2007-08 in assessee's own case pertaining to subsequent assessment year wherein the AO on the same facts where the expenses were not vouched assessed the income of the assessee by applying the net profit rate of 8 per cent. Thus when in past and in subsequent assessment year the income is assessed by the AO by applying the net profit rate, then there is no reason to deviate settled history o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sult of the assessee after affording opportunities of being heard to the assessee in this regard. So far as the disallowance of claimed depreciation on J.S. machine is concerned, the AO has noted that the same was purchased for ₹ 4,42,05,000 on 31st March, 2006, hence it was not used during the year to justify the claimed depreciation of ₹ 6,63,750. Before the learned CIT(A) and the Tribunal, the assessee has claimed that the said machine i.e., J.S.-210 was purchased on 30th March, 2006 and was thus ready for use and, therefore, eligible for depreciation. In this regard, reliance has been placed on the decision of Hon'ble Delhi High Court in the case of CIT vs. Panacea Biotech Ltd. (2009) 29 DTR (Del) 110: (2010) 324 ITR 311(Del). The learned Departmental Representative, on the other hand, has placed reliance on the decision of Hon'ble Supreme Court in the case of Mcorp Global (P) Ltd. vs. CIT (supra). Since there is contradiction in the date of purchase of the machinery, we remand the matter back to the file of the AO to decide this issue afresh after verifying the very date of purchase of machine and that when it was ready to use in view of the decisions cited ..... X X X X Extracts X X X X X X X X Extracts X X X X
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