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TMI Blog2015 (3) TMI 1179X X X X Extracts X X X X X X X X Extracts X X X X ..... ate was totally misconceived. 3. That on facts, circumstances of the case and in law, the Worthy C1T(A) has erred in confirming the action of Ld. AO of applying net profit rate of 10% in civil contract business of the appellant even when such application of profit rate is extremely high, is arbitrary, without application of judicious mind and without looking into evidences and history. 3. Brief facts of the case are that a search was conducted in the premises of Talwar Group in Chandigarh. During the course of search it was gathered that M/s S.P. Constructions, H.No. 571, Sector 16-D, Chandigarh is a partnership firm having two partners. The firm was engaged in the business of civil construction and contract business and it mostly constructed private houses. The turnover of the firm was more than Rs. 40 lakhs for the last 5 - 6 years but the firm never got its accounts audited and did not file any return. From the examination of bank account, it was found that assessee received more than Rs. 5 crores but no return has been filed, therefore, notice u/s 148 was issued and served. In response to this notice the assessee filed return of income on 2.11.2012 declaring income of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... const. Rs. 15,83,311/- Total Rs. 1,83,30,016/- From the above, it was concluded that that in respect of Rs. 1,66,00,000/- the assessee was not knowing even the names of the parties from whom the amounts were outstanding. 5. The assessee had also shown salary and wages of Rs. 95,87,609/- but no muster roll or details of these expenses were filed and theses expenses were claimed to have been paid in cash. The details of opening and closing inventories were also filed. 6. In view of the above the Assessing Officer was of the opinion that various expenses cannot be verified and, therefore, he applied net profit rate of 10% on the receipts. 7. On appeal, it was mainly contended that profit could not be estimated without rejecting the books. The defects pointed out in the record are non-existent. There is no justification for estimation of profit at 10%. Separate deduction should be allowed for depreciation. Certain case laws were also relied. 8. The Ld. CIT(A) after examining these submissions noticed that assessee has not filed various details and supporting vouchers for various expenses. The Assessing Officer has applied the net profit rate which clearly shows that he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses exceeding Rs. 25,000/-. The assessee did not file copies of the bank account of the partners and, therefore, the Assessing Officer could not have verified the various payments received by the firm from bankers or payment taken directly from the customer by the partners. The assessee has shown wages payable of Rs. 9,38,500/- which were paid on 5.7.2007 and normally labour will not work for period of three months without receiving their payments. The assessee also did not file the details of purchases in the format given by the Assessing Officer. The assessee was having sundry creditors of Rs. 75,69,505/- and did not file any confirmation even in cases where sundry creditors exceeds Rs. 1 lakh. Even regarding sundry debtors no confirmation was filed and as noted by the Assessing Officer even in the balance sheet the names of the sundry debtors to the extent of Rs. 1,66,00,000/- were not shown. No details of opening and closing stock were filed. The Assessing Officer has discussed and summarized this issue at page 5 in the following para. "From the above discussion it is clear that purchases made by the assessee are not subject to any verification Sundry creditors and debtors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act by the discretion so vested is neither unbridled nor unguided as it must be guided by reason i.e should be preceded by reasons which, in turn, should be preceded by a perceptible process of reasoning based upon due consideration of all relevant facts. However, authorities under the Act appear to construe their jurisdiction as a discretion to apply a thump rule dependent almost entirely on the whims of a particular officer. The discretion to determine a net profit rate must necessarily be exercised on the basis of relevant factors which we shall enumerate but before doing so, would clarify that these factors are neither exhaustive nor a final word on relevant factors that may be considered while determining the net profit rate. A few significant factors are the past tax history of the assessee, if available, assessment order that may have been passed and accepted by the department, the nature of the assessee's business, an appraisal of the value of the contract, prevailing economic conditions vis-à-vis the assessee's business, the price of raw material, labour etc. the rise in price index as notified by the Central Government from time to time if applicable and if ..... X X X X Extracts X X X X X X X X Extracts X X X X
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