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TMI Blog2011 (5) TMI 1058X X X X Extracts X X X X X X X X Extracts X X X X ..... unds raised in cross objection of assessee are as under :- 1) That, the learned C.I.T.(A) has wrongly confirmed the addition of unexplained purchase/sub contract expenses of ₹ 4,40,047/- 4. Grounds raised in appeal and cross-objection are based on identical set of facts. Both the ld. representative of parties made their submissions on all grounds of appeal together, therefore, for the sake of convenience we noted brief facts of all additions made by the A.O., thereafter noted contention of ld. representative of parties and issues of grounds are decided accordingly. The brief facts are that the assessee is a civil contractor constructing building and industrial structures and ware-houses. The assessee filed its return of income declaring total income of ₹ 45,19,703/- During the assessment year, the A.O. noticed that the assessee has shown contract of ₹ 12,34,68,750/-. The A.O. further noticed that the assessee has shown outstanding balance of ₹ 2,72,00,142/- as sundry creditors. The A.O. called information by issuing notice u/s.133(6) of the Act. In compliance of the notice u/s.133(6) of the Act, some of the notices received back from the postal authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 25,86,256/-. The relevant finding of the A.O. is reproduced below:- The assessee has claimed that the execution of such huge quantum of civil construction was possible as had deployed the machineries. The submission of the assessee is found contrary to the facts of the case. The assessee is claiming huge expenditure on account of labourers deployed through labour contractors. Further, it is also notice that the cases of major work executed, the last bill was not raised in March 2005. In view of the above facts, it was clear that the assessee had not considered the work executed till 31.03.2005 for valuation of the work in progress. The assessee has also not provided any documentary evidence to establish that the relevant work was executed in the first two months of subsequent financial year. The assessee could have discharged the onus that lay on it by providing copies of bills raised i.e. whether RA-1 or RA-5. If the running bill is first (RA-1), then work in progress would be there in preceding 1 or 2 months. The necessary certificate from Engineer certifying the quantum of work completed, has also not been furnished. Under the circumstances, the 15% of the billed amount i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t work of ₹ 12.84 crores and therefore the materials were required. 3. Momai Material Suppliers. 14,14,525/- Name:Kumbhabhai B.Lakhamashi Address:Village Lakdiya, Bhachau. Copy of Account Copy of Bills Copy of Confirmation Letter. The supplier filed confirmation and contra accounts with the A.O. against the notice u/s.133(6) on 18/07/2007. The appellant has purchased rati and stones from the said party. The details about the supply and also vehicle no. through which such supply was made was also furnished. 4. Shri Chamunda Materials 11,51,440/- Address:Village Vijapasar Bhachau, Kutch. Copy of Account Copy of Bills Copy of Confirmation. 5. Mahaveersing Narsangi V. 14,88,303/- Address::Village Ramdevpir, Dist. Bhachau-Kutch 370140 Copy of Account Copy of Bills Copy of Confirmation. The appellant has purchased rati and stones from the said party. The details about the supply and also vehicle no. through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on gross receipt would meet end of justice. The C.I.T.(A) accordingly applied net profit rate at the rate of 4% on contract receipt of ₹ 12,34,68,750/- of which calculation comes to ₹ 49,38,750/-. The assessee has already showed net profit of ₹ 44,98,703/-. Therefore, the addition to the extent of ₹ 4,40,047/- was as against the addition of ₹ 79,93,638/- made by the A.O. 11. The revenue filed appeal raising ground No.1 against deletion of the addition and assessee raised ground against addition sustained. 12. The C.I.T.(A) deleted the addition of ₹ 25,86,256/- made by A.O. on account of undervaluation of work in progress after considering assessee s submission and various details and chart filed by the assessee, observing that civil work was carried out for various private parties and it was time bound and it would not take long time to finish such work. The details of the work was also stated in the invoices. The tax was also deducted at source. The C.I.T.(A) further observed that the assessee has fully explained and justified the closing work in progress with cogent evidences and valid reasons. The A.O. has simply estimated 25% of the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of the parties. The ld. D.R pointed out that whatever documents and materials pointed out by C.I.T.(A) in his order have already been considered by the A.O. before making the addition. The day-to-day consumption record was not available with the assessee. The working progress and valuation of the closing stock adopted by the assessee is incorrect and without basis. The C.I.T.(A) allowed the assessee s appeal without considering any fresh facts than pointed out by the A.O. The assessee did not produce any cogent material before the C.I.T.(A). 15. The ld. A.R on the other hand relied upon the order of C.I.T.(A) and submitted that the C.I.T.(A) has examined all the issues in details ands found that 4% net profit rate is reasonable. The ld. A.R submitted that the addition should be based on some basis and estimation has to be based on some sound principles. The ld. A.R submitted that once net profit rate is applied, no separate addition is warranted. The ld. A.R in support of his contention relied upon the following Judgments:- 1. C.I.T. Vs. Jain Construction Co. 156 CTR 290 (Raj.), 2. Asstt C.I.T. Vs.Tulsidharan Bhaskaran Tax Appeal No. 989 of 2008 dated 20/1/2009 (Guj.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied the theory of net profit rate. We find that the way in which the A.O. examined the case of the assessee and noticed the defects in books of account which is evident from the various addition made by the A.O., under the circumstances, books of account of the assessee is required to be rejected by applying Sec.145 (3) of the Act which has been done by the A.O. indirectly. The various issues raised by the A.O. in support of addition made. However, we find that the fair and reasonable method under the circumstances of the case is estimation income for the year. We find that the C.I.T.(A) has rightly adopted the net profit theory for estimation of the profit for the year, which is one of the good basis of estimation of the income under such circumstances. We, therefore, inclined upon the order of the C.I.T.(A). The order of C.I.T.(A) is accordingly confirmed and ground No.1 raised by the revenue in appeal and ground raised in C.O. both are dismissed. 19. As regards the deletion of addition on account of work in progress and closing stock apart from the detailed examination by the C.I.T.(A), we find that once income is estimated by applying net profit theory is separate addition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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