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TMI Blog2018 (10) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... und and reason to make addition by rejecting the books of accounts. Good and cogent reason why the financial results should be rejected has to be given. Books of accounts cannot be rejected as the assessee has suffered losses, where as in the immediate earlier year profit was made. Fall in gross profit ratio could be due to various reasons, and cannot be the sole and only ground to reject the book results in entirety and frame best judgment assessment [see Commissioner of Income Tax-XII v. Poonam Rani 2010 (5) TMI 57 - DELHI HIGH COURT], Action Electricals v. Deputy Commissioner of Income Tax [2002 (7) TMI 64 - DELHI HIGH COURT]. The reasoning given in the assessment order to compute income on hypothetical basis by applying gross profit ratio of 4% is completely fallacious, wrong and is contrary to well-settled law, as expounded vide judgments reported as Commissioner of Income Tax, West Bengal v. Calcutta Discount Co. Ltd. [1973 (4) TMI 6 - SUPREME COURT] X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,474,858 2. Depreciation 32,386,450 24,519921 7,866,529 3. Finance cost 11,337,894 8,648,891 2,689,003 4. Payment to & provision for employee 14,53,39,492 1293, 9271 3,24,00,221 5. Cost of service, administration & selling expenses 35,89,83,398 19,94,81,710 15,95,01,688 6. Net profit (1,641,966) 13,471,291 From the above table, it is clear that the above factors have caused a huge reduction in profit for the year. Also we are enclosing comparative chart for the Assessment years 2004-05, 2005-06, 2006-07, 2007-08 & 2008-09 showing net profit & turnover. Raghubar Mandai Harihar Mandai VIs State of Bihar 8 STC 770(SC) Aluminium Industries (P) Ltd. V/s CIT GLR 216 (GAU) Calcutta Discount Pvt. Ltd. v/s 91 ITR 8 (SC) Refer Annexure-1 2. The reasons for non disclosure of quantitative stock details in tax audit report for the year under consideration and non existence of closing stock & WIP The nature of business of the Company and the manner in which it is carried on by the Company is very peculiar and different from other trading or manufacturing organizations. Most of the purchases of IT equipments, software and license are from reputed OEMs (Origina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee which is purely working on order to order basis and is stated by the Assessee himself to have nil stock in its books at the end of the financial year. In response to the specific query given on this issues the submission made by the assessee was not found to be complete and satisfactory. He could not bring on record the exact details of the amounts written back by the assessee and the purpose thereof. I am of the firm view that the assessee has failed to bring on record the real facts pertaining to the matter under consideration. In subsequent years, expenses incurred/paid against this provision were debited to the provision account since these expenses were part of sale consideration. As per accounting practices, these expenses should be debited to respective expenses heads of accounts and corresponding amount should be transferred from provision account and to be shown as provision written back in the Profit & Loss account. In nutshell provision written back is an item against which expenses have been incurred/paid and debited to profit and loss account and corresponding amount has been transferred to Provision Written Back account from provision account and subsequently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act are invoked and reject the results as shown by the assessee and estimate total income of the assessee on a very conservative basis at the rate of 4% of the total turnover which comes to ₹ 2,13,72,000/-. This shall take care of the various specific disallowances as discussed above. The rate of 4% has been taken as the assessee has declared its NP @ 3.73% in the last year even with a lesser turnover. a) Provision for doubtful advances of ₹ 17,90,884/- has not been added back to the total income of the assessee as it is a ascertained liability as explained below and not unascertained liability as mentioned by the Ld. AO. i) This ascertained provision has been made for amount due from employees (Rs. 429787/-) but not recoverable from them as they have left the organization. Refer Annexure-4 This is also an ascertained liability and therefore specific provision has been made for it. ii) Provision was made for ₹ 1361096.90 in respect of amount due from the different parties but not recoverable from them. Refer. Annexure-4 All the details for provision for doubtful advances was filed with the Ld.AO at the time of assessment. The Ld AO was specifically r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which caused dentin the profitability of the company during the year is given hereunder: Sl.no. Particulars AY 07-08 AY 06-07 Impact on profit 1. Other income 12,013,931 15,488,789 3,474,858 2. Depreciation 32,386,450 24,519921 7,866,529 3. Finance cost 11,337,894 8,648,891 2,689,003 4. Payment to & provision for employee 14,53,39,492 1293, 9271 3,24,00,221 5. Cost of service, administration 35,89,83,398 19,94,81,710 15,95,01,688 6. Net profit (1,641,966) 13,471,291 From the above table, it is clear that the above factors have caused a huge reduction in profit for the year. Also we are enclosing comparative chart for the Assessment years 2004-05, 2005-06, 2006-07, 2007-08 & 2008-09 showing net profit & turnover. Refer Annexure-1 Therefore the contention the Ld AO that the company shown profit last year and loss in current year is not justified. We are relying on the follow judgments: Sh. Pyare Lal Mittal V/s ACIT (2007) 197 Taxation 186 (Gauhati) Dhakeshwari Cotton Mills V/s. CIT 26 ITR 775 (SC) Puspanjali Dying & Printing Mills (P) Ltd. 72 TTJ 886 (AHD) Raghubar Mandal Harihar Mandal V/s State of Bihar 8 STC 770 (SC) Aluminium Indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had written back substantial amount of ₹ 1.13 crore and had also claimed provision for doubtful advances of ₹ 17,90,884/-. The respondent-assessee had explained that they had acquired informatic division from M/s Crompton Greaves Ltd., with the objective of consolidating similar types of business under one company effective from 1.7.2005. As per terms, the respondent-assessee had agreed to take over future liability of the division towards unexpired warranty and the AMC. Clearly, the Assessing Officer did not consider the submission made and had failed to deliberate upon explanation given by respondent-assessee. With regard to the amounts written back, it was stated that these were expenses which had been incurred or paid and accordingly debited to the profit and loss account. Reference could made to the chart/table reproduced above from the order of the Commissioner of Income Tax (Appeals). 7. Section 145 (2) of the Act empowers the Assessing Officer to make best judgment assessment when he is not satisfied with correctness or completeness of the accounts of the assessee. Best judgment assessment in terms of Section 145 can also be framed when no method of accountin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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