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TMI Blog2017 (5) TMI 1522X X X X Extracts X X X X X X X X Extracts X X X X ..... profit and loss account. Therefore, we find no merit in the order of the ld. CIT(A) which is not justified in confirming the disallowance X X X X Extracts X X X X X X X X Extracts X X X X ..... iled on 31.10.2006 declaring total income of ₹ 1,69,36,640/-. During the year under consideration, the assessee had shown gross contract receipts at ₹ 24,27,14,639/- as against gross contract receipts shown of ₹ 23,62,72,053/-last year and Net Profit 2,66.97,007/- giving NP rate of 11.00% (before Interest & depreciation) as against N.P. shown at ₹ 1,89,85,180/-giving NP rate of 8.04% (before Interest & depreciation) last year. It is noted that the AO rejected the books of account of the assessee by applying the provisions Sec.145(3) of the Act and enhanced the GP rate @ 11.50% (subject to Interest & depreciation). Thus, the AO made addition of ₹ 12,15,176/- to the declared income. The relevant observation of the AO is as under:- ''The contract business of assessee is mainly in respect of constructon of canal and in such contract rate of profit is generally higher as compared to other civil works. Moreover, the assessee is deploying heavy capital assets by way of machinery in his business which is proved from the substantial depreciation claim made by the assessee. Due to such capital investment, the profit rate should also be higher. Considering all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication of Sec.145(3) of the Act and also confirmation of addition of ₹ 12,15,176/- made by the AO and the enhancement made therein of ₹ 1,84,824/- by the ld. CIT(A). It may be noted that at the time of the hearing of the appeal, the ld. AR of the assessee did not press the applicability of Sec.145(3) and hence, part of the ground no.2 is hereby dismissed. 4.4 During the course of the hearing, the ld. AR filed detailed written submissions along with comparative charts which are being reproduced as under:- "1.1 Settled Past History: The appellant is a civil contractor and the past history in this case is settled since long up to the stage of this Hon'ble ITAT, in the sense that though appellant claimed to have maintained complete books of account and other records yet however, all along the AO himself has rejected the books of account and invoked Sec.145(3) alleging defects and deficiencies in the same which, have also been upheld by the CIT(A) and when carried to the appeals by the Hon'ble ITAT in ITA No.586/JP/07 & 685/JP/207 for A.Y. 2003-04 & 2004-05 (PB 37-47). Kindly refer paper book page 39 at para 5 which is reproduced hereunder: "xxx……&he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the decisions of this Hon'ble ITAT Bench relying / falling back on the same set of accounts in the preceding various years i.e. from AY.2003-04 & 2004-05 and even in A.Y. 2005-06. 2. It is submitted that the computation of the income under the head "Profits and gains of Business or profession", can be made in two ways only. Firstly, where the assessee claims to have maintained books of accounts in regular course and in that situation Sec.145 makes it binding on the A.O. to compute the income in its accord only. Secondly, where he is not satisfied about the completeness or correctness of the accounts or the method of accounting employed or the accounting standard notified have not been regularly followed in that situation u/s 145(3), he may make an assessment in the manner provided u/s 144. Thus, the law has not visualized a situation where the Revenue on one hand do not accept the results declared in the accounts by rejecting the same but also wants to make an enhancement in the declared income. In the instant case, the A.O. has certainly adhered to the settled principle that once he rejected the account u/s 145(3), then has tried to make an assessment in the manner provided u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of account , together with past history of the case as also material collected by the AO should be considered for estimation of income. When accounts rejected- No separate addition / disallowance permissible:- 4.1 In the present case, the authorities below on one hand have completly rejected the accounts admittedly invoking Sec.145(3) however, the CIT(A) seriously contradicted his own stand because the ld. CIT(A) has again fallen back and having referred to the same books of account which he has already rejected, drawn inferences based on which he has tried to find some undisclosed profits. 5. Similarly in various cases after rejection of accounts, disallowance u/s 40A(3) was made on account of cash payment or addition of cash creditors was made u/s 68 and so on. The Courts in those cases have held that the moment accounts are rejected, revenue cannot rely on same accounts for further addition. 6. Supporting Case Laws: 6.1.1 ITO vs. Nardev Kumar Gupta (2013) 142 ITD 0303 (JP) (DPB 36-38) wherein it was held that "When assessee's income was assessed by estimating profit after rejection of books of accounts, no disallowance can be made separately u/s 40A(3)" 6.1.2 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdance with the provisions contained in ss. 30 to 43D. Sec. 40 provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under s. 29 is to be made under s. 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the ITO may reject those books and estimate the income to the best of his judgment. When such an estimate is made it is in substitution of the income that is to be computed under s. 29. In other words, all the deductions which are referred to under s. 29 are deemed to have been taken into account while making such an estimate. This will also mean that the embargo placed in s. 40 is also taken into account. 5. No doubt there is big difference between profit earned with own capital and profit earned with borrowed capital and such a difference could have been taken into account by the ITO while making an estimate. If the CIT had set aside the estimate on the ground that the vital fact that the business was carried on with own capital and not with borrowed capital has been ignored by the ITO, there may not have been any difficulty in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scope for further disallowance of any expenditure." 6.4 Enhancement, arbitrary, vindictive, based on surmises & conjectures: The theory applied by the ld. CIT(A), apart from being contradictory, was also against the prevailing trend being followed by the department itself consistently that in the cases of contractor where accounts are rejected continuously, NP rate is applied taking into account the relevant material and is also against the judicial recognition to such a practice. In addition, there are also serious defects/ mistakes which have rendered this theory completely incredible and illogical and hence, be not applied. The same is discussed hereunder: 7.1 The entire controversy has arisen from the conclusion drawn by ld. CIT(A) alleging from (-) negative stock which he noticed for the first time in October-2007 (AY 2008-09). There appears no sanctity of the cut-off date being 31st October, 2007 wherefrom the CIT(A) commenced his working taking the figure of the stock as nil and then applied the same in reverse manner. 7.2 Firstly, there is no logic why he should compute the closing stock on monthly basis at site and to compare with the books when it was submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 12,02,526/- without taking into account estimation of stock as mentioned above, the difference being was already added by the A.O. during the course of Assessment proceedings. 6) Also your good self has mentioned that assessee is showing lesser margin of profit was again based on a belief, rather than showing comparative cases or instances. Assessee is showing the best profit margin as against prevailing in the Industry on such a huge turnover and assessee has maintained such trend in coming year's also." 7.4 Recognized method adopted consistently: In the cases of civil contractor income is normally estimated in two ways/ methods. First, is known as Completed Contract Method (CCM) where income is recognized only after the completion of that particular project. Second, is known as Percentage of Completion Method (PCM) where income is recognized every year during the continuance of the project. This has been recognized even by the Institute of Chartered Accountants of India (ICAI) also in its accounting standard, AS-7. What is being followed by the department in the case of the assessee consistently, is the second method by applying varying NP rates depending upon the cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... left with the ld. CIT(A) was to appreciate the past history settled by superior authority i.e. ITAT which he could and should not have ignored and to decide the appeal in that light only. The ld. CIT(A) surprisingly, in a manner unheard, made enhancement in a very arbitrarily manner which was nothing short of an arbitrary, capricious and wild estimation in as much as in a lengthy discussion and conclusion, he did not refer to any material to justify his estimation. 7.7 Interestingly, in A.Y. 2009-10 & 2010-11 he did not apply his own theory. 8. Admittedly, it was not a case of a search or survey, where some evidences could be found justifying higher estimation of income and ignoring the past settled history based on the disclosed results nor the ld. CIT(A) appears to have got any purposeful enquiry conducted to justify his conclusions that expenses were inflated. There is no iota of evidence to show that a single penny of expenditure was inflated by the assessee to justify higher estimation nor there was any basis or cogent material to conclude that there was (-) negative closing stock resulting into undisclosed profits and hence, it was nothing but a surmises and conjectures. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0% (subject to interest & depreciation) in A.Y.2005-06 and the Hon'ble ITAT in assessees own case in ITA No.586/JP/2007 & ITA No.60/JP/2008 from A.Y. 2003-04, 2004-05 and 2005-06 has already upheld NP rate of 8.50% (subject to interest & depreciation) (PB 34-47). Thus from all angles the result are much better. *Even if the receipts of ₹ 1.37 Crores of earlier years are excluded NP rate will be 9.98%. Kindly refer para 4.2 of w/s of A.Y.2007-08. Hence, as such no addition was called for as was held in the case of Gotan Lime (supra). 11. Lastly, we also rely upon our written submissions (PB 1-12) filed before the ld. CIT(A).Hence, the impugned trading addition kindly be deleted in full." 4.5 On the other hand, the ld. DR relied upon the order of the authorities below and also relied on following case laws for enhancement of income and rejection of books of account. 1. CIT vs. Nuebheram Daluram,224 ITR 610 (SC) 2. Jute Corporation of India Ltd. vs. CIT, 187 ITR 688 (SC) 3. Popular Automobiles vs. CIT, 187 ITR 86 (Ker.) 4. CIT vs. Gotan Lime Khanij Udyog, 256 ITR 243 (Raj.) 5. CIT vs. Maharaja Shree Umed Mills Ltd. ,192 ITR 565 (Raj.) 6. Kachawala Gems vs. JCIT , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bt there is big difference between profit earned with own capital and profit earned with borrowed capital and such a difference could have been taken into account by the ITO while making an estimate. If the CIT had set aside the estimate on the ground that the vital fact that the business was carried on with own capital and not with borrowed capital has been ignored by the ITO, there may not have been any difficulty in upholding that order. But, when he proposes to add back an exact item in the P&L a/c, he was relying on the rejected books which he could not do as held by the Bench of this Court in Maddi Sudarsanam Oil Mills Co. vs. CIT (supra). There is also a further difficulty if s. 40, as argued by learned counsel, is to be taken into account even after making an estimate. When there are certain other deductions which are to be disallowed such as wealth-tax payment in s. 40, can it be said that after making an estimate, the wealth-tax charged in the P&L a/c should again be added back to the profit. This example, illustrates how the contention of the Revenue, that s. 40(b) makes a difference in the situation, is untenable. In our considered opinion, the answer to the question ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no justification for him to apply 11.50%. For the same reasons the enhancement made by the ld. CIT(A), which, in terms of NP rate comes to 11.58% is also unjustified. It is also noted that the AO has not provided any basis of applying 11.50%. He neither referred past history nor any comparable case. Considering the totality of facts & circumstances therefore, we are satisfied that the results declared by the assessee of this year at NP rate of 11% (subject to interest & depreciation) is justified and the addition made by the AO of ₹ 12,15,176/- and also the enhancement of ₹ 1,84,824/- made by the ld. CIT(A), totaling to ₹ 14 Lacs, was not fully justified. Since we have sustained the rejection of books of account and to plug the leakage of Revenue , we sustain addition of ₹ 2.00 lacs only. Thus ground of appeal no. 2 of the assessee is partly allowed. 5.1 The Ground of appeal no.3 of the assessee regarding the adhoc disallowances made by the AO totaling to ₹ 1,24,830/- on account of depreciation on vehicles and depreciation on mobiles which has been sustained by the ld. CIT(A). 5.2 Being aggrieved by the order of the ld. CIT(A), the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also in withdrawing interest u/s 244A of the Act. The appellant totally denies its liability of charging and withdrawal of any such interest. The interest so charged/withdrawn, being contrary to the provisions of law and facts, kindly be deleted in full." 8.1 During the course of hearing, the ld. AR of the assessee has not pressed the Ground No. 1. Hence, the same is dismissed being not pressed. 9.1 Apropos Ground No. 2 (2.1, 2.2 and 2.3) of the assessee, the brief facts of the case that the assessee is engaged in civil contractor business mainly in constructing of canals for irrigation purpose. During the period the assessee executed contract at different sites. The return of income was filed on 29.02.2008 declaring total income of ₹ 2,63,81,750/-. During the year under consideration the assessee had shown gross contract receipts at ₹ 41,14,68,583/- and NP rate of 9.73% (subject to Interest & depreciation) this year. The AO rejected the books of account, by applying the provisions of Sec.145 (3) of the Act and enhanced the NP rate @ 9.50% (subject to depreciation only) which NP rate comes to 10.36% (subject to Interest & depreciation ). Thus, the AO made add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45(3) of the Act, hence, the same is dismissed being part of Ground No. 2 9.4 During the course of the hearing, the ld. AR filed detailed written submissions along with comparative charts which are as under: "1. Firstly, the application of S.145 is not disputed. 2. As regards the enhancement: it is submitted that since the facts and circumstances of this case are identical with the assessee`s own case in ITA No.495/JP/13 for A.Y.2006-07 hence, the submissions made in that year on enhancement kindly be considered in the present case also. Moreover, the decision paper book filed in that case is equally relevant and relied upon in this case also apart from the paper book being filed in this case. On merits: 3. No fair Estimation made: 3.1 Past History-Best Guide: We may submit that past history has been held to be the best guide in the cases of fair estimation. Kindly refer Kindly refer CIT v/s Gupta K.N. Construction Co. (2015) 116 DTR 377 (Raj), Vaibhav Gems 112 DTR 84 (Raj), CIT v/s Popular Electric Co. Pvt. Ltd (1993) 203 ITR 630 (Cal), MA Rauf v/s CIT (1958) 33 ITR 843 (Pat), CIT v/s Inani Marbles 316 ITR 125 (Raj). 3.2 However, it will appear that in the present cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs. Bhawan & Path Nirman (Bohra) & Co. (2002) 178 CTR 526/258 ITR 440 (Raj.) and ITAT, Jodhpur Bench in the case of Rikhabdas Jain Contractor Vs. Income Tax Officer (2001) 72 TTJ (Jd) 526. In this case revenue had all along been allowing interest separately after applying NP rate however, without any special reason it is denied this year which is against the rule of consistency submitted earlier i.e. A.Y. 2006-07. Such interest of ₹ 35,52,581/- (PB-7), when allowed shall reduce NP rate by 0.86% and to 8.64% as per AO against which declared NP is already 9.73%. 6. Acceptable-Results: 6.1 It is pertinent to note that the assessee has declared acceptable results in the current year as against last year. Kindly refer the following Comparative chart. A.Y. Gross Receipt Net Profit NP Rate Shown (before Int. & Dep) Rate applied by AO Rate applied by CIT(A) Upheld by ITAT PB 35 2002-03 Rs.8,32,19,457/- Rs.74,82,721/- 8.99% - - - 2003-04 Rs.19,24,20,561/- Rs.1,51,59,037/- 7.87% 9.30% 8.75% 8.50% 2004-05 Rs.20,49,43,321/- Rs.1,63,82,443/- 7.99% 9.30% 8.75% 8.50% 2005-06 Rs.23,62,72,053/- Rs.1,89,85,180/- 8.04% 9.50% 8.50% 8.50% 2006-07 Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.6 We have carefully considered the rival contentions and perused the material available on record. As regards the enhancement made by the ld. CIT(A), we have already rejected such a working in A.Y.2006-07 in ITA No.495/JP/13 in assessee's own appeal (supra). Following the same, working adopted by the ld. CIT(A) for making the enhancement is hereby rejected and it is held that after application of Sec.145(3), it was only a case of fair estimation to be made keeping in mind the past history of the case or other comparable case as held by Hon'ble Jurisdictional High Court in the case of Popular Art Palace (P) Ltd. vs. CIT (supra). The average of past 5 years comes to 9%. As regards the estimation of income after rejection of the books of account from a perusal of the comparative charts, it is noted that the assessee has declared receipts of ₹ 41.15 Crores this year as against ₹ 24.27 Crores last year and the declared NP rate (subject to interest & depreciation) of this year was 9.73% which is better than A.Y.2005-06 at 8.04% and also better from preceding years from A.Y.2002-03 to 2004-05 wherein, it was declared at 7.87 % to 8.99% only. It may be also noted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirmed by the CIT(A) being contrary to the provisions of law and facts, the same may kindly be quashed. Consequently the trading addition of ₹ 70,46,571/- may kindly be deleted in full. Alternatively and without prejudice to above 2.2 The ld. CIT(A) further erred in law as well as on the facts of the case in confirming the addition of ₹ 70,46,571/- made by the AO (by applying NP @ 9.50%). The addition so made and confirmed by the CIT(A) is totally contrary to the provisions of law and facts on the record and hence the addition may kindly be deleted in full. 3. The AO & ld. CIT(A) further erred in law as well as on the facts of the case in charging interest u/s 234B & 234D of the Act. The appellant totally denies its liability of charging of any such interest. The interest so charged, being contrary to the provisions of law and facts, kindly be deleted in full." 12.1 During the course of hearing, the ld. AR of the assessee has not pressed the Ground No. 1.Hence, the same is dismissed being not pressed. 13.1 Apropos Ground No. 2 (2.1 and 2.2), of the assessee , the brief facts of the case are that the assessee is engaged in civil contractor business mainly in con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, in the case of sub-contract given to M/s. JPS Builders, the expenses were inflated by ₹ 62,36,937/- during the year. The turnover related to JPS Builders was only 20% of the turnover. During the year, the assessee has shown payment of ₹ 9,00,000/- in cash to M/s. JPS Builders, whereas only a payment of ₹ 5,00,000/- (refer Chart X) was made by self cheque on 28-05-2007 so there was excess cash payment shown by ₹ 4.00 lacs and eve ₹ 5,00,000/- paid by self cheque was disallowable u/s 43B. Even after giving benefit of telescoping, the minimum addition on specific points comes t ₹ 67,36,971/- (Rs. 62,36,973/- inflation of expenses + ₹ 5,00,000/- u/s 43B) Therefore, addition of ₹ 70,46,571/- by AO was most reasonable and therefore, confirmed.'' The ld. CIT(A) however, made no enhancement in as much as per his working, the total additions came to ₹ 67,36,973/- only which being below the addition already made by the AO at ₹ 70,46,571/- hence, the same was confirmed. Thus, in effect the NP rate @ 9.50% (subject to depreciation only) or 9.86% (subject to Interest & depreciation) , stood confirmed. 13.3 Being aggrieved, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Others (1999) 156 CTR (Raj) 290 and (2001) 168 CTR (Raj) 365, CIT vs. Bhawan & Path Nirman (Bohra) & Co. (2002) 178 CTR 526/258 ITR 440 (Raj.) and ITAT, Jodhpur Bench in the case of Rikhabdas Jain Contractor Vs. Income Tax Officer (2001) 72 TTJ (Jd) 526. In this case revenuer had all along been allowing interest separately after applying NP rate however, without any reason it is denied this year which is against the rule of consistency submitted earlier i.e. A.Y. 2006-07. 5. Acceptable-Results: 5.1 It is pertinent to note that the assessee has declared much better results in the current year as against last year. Kindly refer the following Comparative chart. A.Y. Gross Receipt Net Profit NP Rate Shown Rate Shown by AO Rate applied by CIT(A) Upheld by ITAT 2002-03 Rs.8,32,19,457/- Rs.74,82,721/- 8.99% - - - 2003-04 Rs.19,24,20,561/- Rs.1,51,59,037/- 7.87% 9.30% 8.75% 8.50% 2004-05 Rs.20,49,43,321/- Rs.1,63,82,443/- 7.99% 9.30% 8.75% 8.50% 2005-06 Rs.23,62,72,053/- Rs.1,89,85,180/- 8.04% 9.50% 8.50% 8.50% 2006-07 Rs.24,27,14,639/- Rs.2,66,97,007/- 11.00% 11.50% 11.58% Enhancement of ₹ 1,84,824/- Pending 2007-08 Rs.41,14,68,583 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er comparable case, if any cited by the parties and relevant material hence. As regards the estimation of income after rejection of the books of account from a perusal of the comparative charts, it is seen that the assessee has declared receipts of ₹ 54.73 Crores in this year as against ₹ 41.15 Crores of last year and the declared NP rate (subject to interest & depreciation) this year was 8.57% which is better from A.Y.2003-04 & 2004-05 wherein, it was declared at 7.87 % & 7.99% only. It may be noted that ITAT Jaipur Co-ordinate Bench in assessee's own case in A.Y.2003-04, 2004-05, 2005-06 have upheld NP rate of 8.50% (subject to interest & depreciation). The AO himself has applied 9.50% in A.Y.2005-06. Moreover, the gross receipts have gone up from ₹ 41.15 Crores last year to ₹ 54.73 Crores this year, which means an increase in the receipts by 33%. It is also settled that for the purpose of fair estimation an overall view should be formed, considering the past history of few years. Accordingly, the average of immediately past five years i.e. A.Y.2003-04 to 2007-08 (considering the adjusted NP rate of 9.98% in A.Y.2006-07), the average NP rate comes to 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 55 lacs (iii) G.P. comes to 19.40% as against declared G.P. of 12.92% (approximate) in earlier year. Considering the above in my opinion a token addition of ₹ 10,00,000/- would meet the ends of justice. The addition of ₹ 10,00,000/- is therefore confirmed, the assessing officer is directed to delete balance addition of ₹ 45,93,509/-. These grounds of appeal are, therefore, partly allowed. " 15.4 During the course of hearing, the ld. DR relied on the order of the AO and prayed that the ld. CIT(A) has erred in restricting the addition of ₹ 45,93,509/- to token addition of ₹ 10,00,000/- only while the rejection of books results of the assessee has been upheld. 15.5 On the other hand, the ld. AR of the assessee supported the order of the ld. CIT(A) . However, during the course of the hearing, the ld. AR filed detailed written submissions along with comparative charts which are being reproduced as under:- "1.1 Fair estimation required - Legal Position: At the very outset, it is submitted that even invoking of S.145 does not confer blind powers upon the AO and he is not at liberty to assess the income at whatever figure he wants. He is b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, which is completely contrary to the settled practice adopted by the assessee and department both and the settled law Kindly refer CIT Vs. Jain Construction Co. and Others (1999) 156 CTR (Raj) 290, Rikhabdas Jain Contractor Vs. ITO (2001) 72 TTJ (Jd) 526, Teja Construction vs. ACIT (2010) 129 TTJ 57 (Hyd)(UO), ITO Vs. Shri Ram Traders (2013) 90 DTR 217 (Jd.), in as much as to judge the reasonableness of the operating(trading) results, the indirect cost in the shape of interest, and depreciation should not be considered in as much as the same do not truly reflect the operating results having no nexus and keep on varying every year depending upon the facts. A heavy investment in the plant and machinery in one year will result in substantial increase in depreciation and the consequent reduction in the final NP rate, which is also one of the reasons of fall of NP rate this year. Similarly making payment of amount of interest in one year on huge amount of loan taken will also again reduce the NP rate. It is under this background therefore, the Hon`ble Tribunals and Courts have been taking a consistent view of considering the NP rate subject to such type of deductions so as to corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nent laborers and administrative staff, minimum light, water and electricity charges, telephone and other expenses, annual license fees etc and so on which, the businessman/contractor has to pay whether he runs the business or not and irrespective of the facts of the receipts increase or decrease. 3.2 Notably the percentage of claim of depreciation to turnover this year stood at 4.64% as compared to such ratio in the preceding year ranging between to 2.08% to 3.30%, showing increase of 1.34% to 2.56%. Kindly refer comparative chart (PB-21). Hence, the AO erred in enhancing the NP rate even by going his approach. The ld. CIT(A) was justified in not fully confirming the addition hence the appeal of revenue kindly be dismissed." 15.6 We have carefully considered the rival contentions and perused the material available on record. As regards the estimation of income after rejection of the books of account from a perusal of the comparative charts , it is seen that the assessee has declared NP rate (subject to interest & depreciation) of this year was 11.54% this year which is certainly better from 8.57 % & 9.73% in A.Y.2008-09 & 2007-08 respectively. The same was also better from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of ₹ 4,37,71,220/-. During the year under consideration the assessee had shown gross contract receipts at ₹ 57,57,96,344/- and NP rate of 9.39% (subject to Interest & depreciation ) or 7% (after all the deductions) this year. The AO rejected the books of account, applying provision of Sec.145 (3) of the Act and enhanced the NP rate @ 8% (after all the deductions) . The relevant para of AO's order for making addition is as under:- ''….However, the books of account are hereby rejected u/s 145(3) of the I.T. Act,1961.Considring the totality of the available on record, net profit rate @ 8% is applied on the gross contract receipts of ₹ 57,57,96,344/- after allowing claim of depreciation and interest. Accordingly, addition of ₹ 57,44,388/- is made to the total income as under:- Net profit shown as per P&LL account ₹ 4,03,19,320 Net profit rate applied at 8% as discussed above on Total contract receipts of ₹ 57,57,96,344 comes to ₹ 4,60,63,708 Addition ₹ 57,44,388 Thus, the AO made addition of ₹ 57,44,388/- to the declared income. 16.3 In first appeal, the ld. CIT(A) upheld the application of Sec. 145(3) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other hand, the ld. AR of the assessee supported the order of the ld. CIT(A) and during the course of the hearing, the ld. AR filed detailed written submissions along with comparative charts which are as under:- "A. Invalid application of Sec.145 (3): It is submitted that the appellant has maintained complete books of account consisting of cash book, ledger and journal. All the purchases and sales are fully vouched. All the expenses were fully supported by vouchers. The financial accounts and the other subsidiary records were duly maintained. Further the accounts were subjected to Tax Audit u/s 44AB (PB 4-9). The same were produced before the AO also along with other details from time to time. The AO has not at all judiciously considered submissions made before the AO. Minor irregularities, even assuming were there, cannot be made a basis of the rejection of the books of accounts or of trading addition. Kindly refer Padampath Ramgopal 76 ITR 719 (SC). Hence the invoking of section 145 please be quashed and consequently the impugned additions be deleted in full. B. On merits: Alternatively, on merits also, there was no case with the AO to have made this addition, as submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter all deductions) Thus the result declared this year is better than last year, if N.P. Rate after Interest, Salary & Deprn., is considered. 2.2 Much Better Result: A bare perusal of the chart clearly shows much better result from all angles in as much as: I Firstly, the NP declared (after interest and depreciation) at 7%, when compared with 5.46% and 6.13% in the preceding two years respectively. II The turnover has also increased from ₹ 36.39 crores last year to ₹ 57.58 crores resisting an sharp increase of 58.27% and despite such increase, the assessee has been able to show much better result. The gross receipts were higher even than the year before last. When from ₹ 54.73 crores in A.Y. 2008-09 to ₹ 57.58 crores in this A.Y. has been declared. III The AO himself had applied NP rate 7% (after all deductions) when the gross receipts were ₹ 36.39 crores whereas, in this year, despite the assessee showing heavyily increased gross receipts of ₹ 57.58 crores, could show NP rate 7%(after interest and depreciation) which, normally should have been lesser. IV Further, the AO itself had applied the maximum NP rate at 9.50% in A.Y.2005-06 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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