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TMI Blog2018 (7) TMI 1749X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, we find that having regard to the fact that this is the first year of the business activity of the assessee and therefore, the income declared by the assessee at GP rate 7.44% in our view cannot be defaulted with. Accordingly, we set aside the order of the authorities below on account of adopting the net profit at 8%. It is well settled law that the rejection of books of account may not necessary lead to an addition to the declared income of the assesee if the income declared by the assessee is reasonable and in line with the comparable bench mark. Having regard to the facts and circumstances of the case we are of considered opinion that no addition is called for even if the books of account are rejected u/s 145(3) of the Income Tax Act. Non grant of TDS credit arising on the amount received by the assessee under the work order - Held that:- As per the provisions of 219 of the Act tax credit on account of TDS is available in respect of the corresponding income offered to tax by the assessee. Since, in the case in hand the TDS was deducted on the amount which was received by the assessee as mobilization advance and the said amount has to be recognized as income of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading accounts of each contract work. The AO further noted that the assessee shown a very low gross profit from the work executed during the year under consideration. Further, the expenditure on account of wages was mostly incurred during the period from December to March whereas the assessee has received contract receipts throughout the year. The AO also noted that the assessee has not produced any supporting evidence for the expenditure incurred in cash on account of wages. The assessee given the major work of sub contractor but has not produced any agreement for giving the work to the sub contractor. Without having a written contract between the assessee and sub contractor the work got executed from sub contractor or through machinery taken on higher from the other persons. Accordingly, the AO doubted the correctness of the books of accounts of the assessee and rejected the same by invoking the provisions of Section 145(3) of the Income Tax Act. The AO adopted the net profit rate at 8% on the contract receipt of ₹ 8,53,64,148/- which comes to ₹ 68,29,132/-. The AO has also determined the income of the assessee from liasioning and consultancy of ₹ 37,50,222/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exus with the material on record. The ld. AR has further contended that the ld. CIT(A) has upheld the action of the AO in summary manner without discussing and giving findings on the issues raised by the assessee. He has further submitted that the assessee is maintaining the books of accounts on mercantile system of accounting. The books of account audited, they are certified that the accounts of the assessee reports true and fair profit. The ld. AR has pointed out that the entire receipts of the assessee is verifiable from certificates issued from the awarder and there is no allegation of the AO that the assessee has suppressed the receipts. The expenses recorded in the books of accounts are fully vouched and in most of the cases the payment is through account payee cheques. No defect in purchase bills was found by the AO, the wages is fully supported by wages register and all the required details in this regard has been submitted before the AO. The ld. AR has submitted that the AO has unnecessarily asked the assessee to prepare separate trading account on each work whereas the entire work was executed under composite work order. Further, the payments to sub contractors are verifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant material on record. During the year under consideration the assessee was awarded the work contract by M/s Lafarge India Pvt. Ltd. for construction of road and industrial township for their green field cement project at Nimbahera Tehshil, District Chittorgarh. The other contract was awarded by M/s ILFS Engineering and Construction Company Limited for construction of highway project however, since no Revenue was received under the said contract therefore, the assessee shown expenditure incurred under the highway project in the work in progress. The only Revenue received by the assessee during the year under consideration is from contract awarded by M/s Lafarge India Pvt. Ltd. The AO has not disputed the fact that the assessee is maintaining the books of accounts which are also audited however, the AO wanted to examine the financials of the assessee on each activity i.e. road, township and other supporting activity for execution of the work. Thus, the AO has segregated the business activity in the three categories and then, found that the assessee has reported very low profit in some of the activities carried out by the assessee whereas over all the assessee has declared con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scope of any doubt about the genuineness of the work done and payment made by the assessee to the sub contractor. Even if the AO has wanted to verify the genuineness of the claim then it was open to the AO to summons the concerned persons and examine. Accordingly, in view of the above facts and circumstances of the case when the assessee produce all the relevant details and evidence then insignificant defects in supporting evidence cannot a reason for rejection of books of account. In case the Assessing Officer proposed to examine the claim of expenditure then each and every item of expenditure has to be verified independently and disallow the same if it is not supported by a proper verifiable evidence. Once the expenditure claimed by the assessee is not found to be bogus or excessive then the low profit declared by the assessee cannot be a reasoned for rejection of books of account. The assessee produced the books of account and other record however, the AO insisted the production of separate trading account of each activity. Undisputedly the entire work is carried under a composite contract/ work order and assessee is working as one enterprise then in our view the production of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated GP by rule of thumb merely for making certain additions. We are, therefore, of the opinion that the findings arrived at by the Tribunal suffers from basic defect of not applying its mind to the existing material which were relevant and went to the root of the matter. When all the data and entries made in the trading account were not found to be incorrect in any manner, there could not have been any other result except what has been shown by the assessee in the books of account. We are, therefore, unable to sustain the order of the Tribunal. Accordingly in view of the above facts and circumstances of the case as well as the decision of Hon ble jurisdictional High Court (supra) we hold that the assessee s case does not warrant rejection of books of account u/s 145(3) and therefore, action of the AO is not justified as not in accordance with the provisions of Section 145(3) of the Act. 6. As regards estimation of income of the assessee at 8% we find that this issue is common in both appeals the AO has estimated the income of the assessee by applying at 8% net profit on one part of the contract receipt and a part of the receipt was segregated and assessed as income from con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable tax. The above contract price is on given Bill of Quantities (BOQ) however payment will be made by us as per actual work done basis. Scope of Work: Construction of Road and Drainage system as per instruction of site incharge at our Chittorgarh Cement Plant as per annexure A. You have to mobilize the resource as per attached annexure 'B to H'. Getting NOC from NHA (National Highway Authority of India). Dealing with local villagers is under contractor's scope. Getting NOC/ approval from Railway to widen the Gate No. 98C. LIPL pay the actual fee to consultancy for the above services shall be on actual after certification by commercial tern and duly approved by PL CPO. A. SERVICES: Civil Construction in accordance to latest construction drawings and specifications. Co-ordination of civil work interfacing with other contractors. Attend site co-ordination and project review meeting. Your representative shall be a senior level executive having authority of implementing all decision taken during meeting. Any other work required for execution of the construction work. B- OUR APPROVAL: Our representative shall have authority to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y basis. Since, we have already decided the issue of rejection of accounts therefore, this issue becomes academic in nature. However, we find that having regard to the fact that this is the first year of the business activity of the assessee and therefore, the income declared by the assessee at GP rate 7.44% in our view cannot be defaulted with. Accordingly, we set aside the order of the authorities below on account of adopting the net profit at 8%. It is well settled law that the rejection of books of account may not necessary lead to an addition to the declared income of the assesee if the income declared by the assessee is reasonable and in line with the comparable bench mark. Having regard to the facts and circumstances of the case we are of considered opinion that no addition is called for even if the books of account are rejected u/s 145(3) of the Income Tax Act. 8. Ground No. 3 is regarding non grant of TDS credit arising on the amount received by the assessee under the work order. The assessee received mobilization advance of ₹ 1,82,04,082/- from M/s ILFS Engineering Construction Co. Ltd. Since, the assessee has not carried out any work on the said project theref ..... X X X X Extracts X X X X X X X X Extracts X X X X
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