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TMI Blog2016 (6) TMI 937X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment has not been received till 31.3.2008 and actually received and accounted as revenue after 31.3.2008 during the next financial period which resulted in to increase in N.P. rate for A.Y 2009-10 to 10.19% of turnover. The assessee also explained that he operates from his residence and due to cut throat competition, the N.P. reduced during the relevant period, above explanation has not been controverted by the AO or by the co and thus their findings are not sustainable. On the basis of the foregoing discussion, we are satisfied that the explanation given by the assessee to justify the fall in N.P. rate, as noted above, is acceptable and we are inclined to accept the same. Consequently, addition made by the AO and upheld by the ld. CIT(A) on account of N.P. rate is not sustainable and we direct the AO to delete the same. - Decided in favour of assessee Addition u/s 69 - Held that:- On careful consideration of all we have no hesitation to hold that the assessee could not establish that the cash deposits to ICICI Bank was from the cash in hand of new business of the assessee and no details of cash book and cash flow has been furnished. However, we are in agreement with the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78%. 2. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciating the fact that the appellant followed cash system of accounting in which only cash transactions are booked. 3. On the facts and circumstances of the case, the Ld. CIT (A) has erred in holding that the appellant had not offered any satisfactory explanation for fall in net profit rate. 4. On the facts and circumstances of the case, the Ld. CIT (A) has erred in not appreciating the fact that the accepted net profit rate in the case of contractors u/s 44AD of the Income tax act, 1961 in the relevant assessment year is 8% and the appellant s net profit rate is 8.43%. 5. On the facts and circumstances of the case, the Ld. CIT (A) has erred in sustaining the net profit rate at 10.78% adopted by the Ld. A.O. in spite of the fact that; a) No discrepancy is pointed in the books of accounts b) No expenses are alleged to be bogus. c) No receipts are alleged to have been concealed. 6. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in sustaining the addition of ₹ 19.50,000.00 u/s 69 of the Income tax Act. 1961. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation, average rate of N.P. for the last three years, which came to 10.87% was applied to the gross receipts of ₹ 1,83,70,885.00 and an addition of ₹ 4,33,533/ was made to the returned income of the assessee on account of low net profit rate. Aggrieved, the assessee went in appeal before the ld. CIT(A) who sustained the addition made by the AO. Now the assessee is further aggrieve d and has come in appeal before the Tribunal. 5. Before us, the ld. AR reiterated the submissions made before the authorities and relied on the written synopsis filed on record and submitted that the above reasoning of the AO was incorrect for the following reasons: (i) Under Section 44AD of IT Act for assessment of contracts 8% is an acceptable net profit rate. Net profit rate of assessee for the year was 8.3%. (ii) AO has not doubted the expenses or pointed any discrepancy in the books. (iii) The AO did not resort to section 145 of the Act. (iv) AO is wrong in stating that no explanation was offered because of which she resorted to average net profit rate of three years. Last para of letter dated 16.12.2010 (pages 24 to 26) gives the reason for the fall in NP: The reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut any basis. The AO has not pointed out any defect or deficiency in the claim of expenditure nor any expenditure has been held as bogus by the AO. From the relevant operative para 2 of the assessment order, we note that the AO asked financial results of the last three years and proceeded to make addition in this regard without confronting the issue to the assessee which is not a justified approach. From the impugned order of the ld. CIT(A), we observe that the ld. CIT(A) noted from the assessee s explanation vide order dated 16.12.2010 as follows: The reason for fall in N.P. is attributable to the fact that the assessee maintains accounts on cash system. In this system it is possible that expenses have been incurred on a particular work order but the payment has not been received till 31.3.2008 and is received after 31.3.2008 thus falling into the subsequent year. Further also, because of cut throat competition, the assessee had to cut down the margin of profit. 9. In view of the above explanation of the assessee for reduction of N.P. rate is that the assessee follows cash system of accounting, wherein it is possible that expenses have been incurred on a particular work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee s paper book. The AO completed the assessment without considering such explanation. This was objected to by the assessee vide letter dated 16.12.2010, placed at pages 24 to 25, which reads as under: The other business is new and the assessee inadvertently without any malafide intention forgot to include the profit/ loss of this business in his income tax return. Accordingly the assessee is filing a revised computation of net income including therein the profit from the trading in electrical parts. The additional tax liability on this amount has been paid off. Photocopy of the deposit slip for ₹ 90,620.00 is enclosed. The aforesaid information has been given by the assessee suo-moto and before any detection by the department. The deposit of Rs./9,50,000.00 into the ICICI Bank bearing no. 629701502290 is out of this business. The deposits are out of cash in hand in the books. 12. The ld. AR further contended that the assessee having explained the source of deposit cash of ₹ 19,50,000/- into the ICICI Bank to be out of cash in hand in the books, the addition was unsustainable on facts and law without examining the supporting vouchers produced by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 19,50,000/- u/s 69 of the Act and the authorities below have erred in not considering the revised computation of net income submitted alongwith the statement of accounts of new business on 16.12.20110 the date fixed as per show cause notice dated 9.12.2010. The ld. AR also pointed out that the ld. CIT(A) has also erred in not considering the explanation of the assessee that the receipts in ICICI Bank were out of cash in hand of new business of the assessee. Alternatively, the ld. AR contended that the addition can only be made to peak balance. 14. The ld. DR supported the action of the AO. However, he pointed out that if addition is restricted to peak balance, then department has not serious objection to that. On careful consideration of the above, we have no hesitation to hold that the assessee could not establish that the cash deposits to ICICI Bank was from the cash in hand of new business of the assessee and no details of cash book and cash flow has been furnished. However, we are in agreement with the contention of the ld. AR and agreed by the ld. DR that in these set of facts and circumstances of the case, only peak balance can be taken for making addition and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked to substantiate the debit of ₹ 2,67,234/- in the profit and loss account under the head short and excess The ld. CIT(A) also observed that the term short and excess suggest, any amount small or big, less received or paid in the day to day course of business may be debited/credited under this account. However, the ld. CIT(A) did not agree with factual position placed by the ld. AR during the appellate proceedings and confirmed the addition. But at the same time, from careful reading of the first appellate order, we clearly observe that the ld. CIT(A) also not raised any query in this regard nor made any investigation or verification about this claim of the assessee. Hence, in our considered opinion, this issue requires proper examination and verification at the end of the AO and thus the issue is restored to the file of the AO for fresh adjudication after affording the assessee due opportunity of being heard. Consequently, Ground No. 10 of the assessee is allowed for statistical purposes. 19. In the result, the appeal of the assessee stands partly allowed in the manner as indicated above. The order is pronounced in the open court on 10.06.2016. - - TaxTMI - TMITa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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