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TMI Blog2018 (10) TMI 1447X X X X Extracts X X X X X X X X Extracts X X X X ..... ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER For The Appellant : Shri Sanjay Kumar Jain, Sr.DR For The Respondent : None ORDER PER O.P. KANT, AM: This appeal by the Revenue is directed against order dated 17/03/2015 passed by the Ld. Commissioner of Income-tax (Appeals)-1, Gurgaon [in short 'the Ld. CIT(A)'] for assessment year 2009-10, raising following grounds: 1. The Ld.CIT (A) has erred in cancelling the estimation of net profit @ 5% ignoring the findings of the Assessing Officer in rejecting the account books by invoking the provision of Appellant by Shri Sanjay Kumar Jain, Sr.DR Respondent by None section 145(3), where there were sound reasons for the said rejection. 2. The Ld.CIT (A) has erred in deleting the addition of ₹ 1,31,96,254/- made by the AO by invoking the provision of section 145(3) even though the assessee has not furnished the genuineness of incurring the expenses wholly and exclusively for the purpose of business. 3. The Ld.CIT (A) has erred in disregarding the merits of the present case in respect of business expenses, particularly when the assessee could not furnish the justification of claim and business contingency of incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion but failed to prove that these assets are used for business purposes during the year under consideration. V. The assessee has not maintained proper bills/vouchers for the expenses claimed and the hence the expenses are unverifiable. 3.1 In view of the defects pointed out by the Assessing Officer, he rejected books of accounts of the assessee invoking provision of section 145(3) of the Act and applied net profit rate of 5% on the receipt of ₹ 54,25,61,637/- and worked out business profit of ₹ 2,71,28,082/-. The Assessing Officer allowed depreciation of ₹ 1,11,90,166/- on the said business profit and computed net profit of ₹ 1,59,37,916/- for making addition. 3.2 The Assessing Officer also made other additions. The carried forward losses were allowed to be adjusted and total income was assessed at ₹ 1,40,47,851/-. 3.3 Aggrieved assessee filed appeal before the Ld. CIT(A) and filed detailed submission contesting the rejection on books of accounts and estimation of the net profit. The Ld. CIT(A) partly allowed the appeal of the assessee. Aggrieved with the finding on the issue of rejection of books of accounts and estimation of the profit, the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration, because of which the A.O rejected the books of account:- i) Rent paid:-The appellant claimed an amount of ₹ 62,51,809/-, on account of rent during the year, which was much higher than ₹ 12,29,448/- claimed in the immediately preceding year. Since the AO was not satisfied with the details provided by the appellant in respect of its claim of rent, he held the same as unexplained. During the course of appellate proceedings, the appellant drew the attention of the undersigned towards various documents filed by it during the course of assessment proceedings (filed along with letter dated 5.12.2011) which were ignored by the AO, resulting in treatment of claim on account of rent as unexplained. These details include rent agreement in respect to each premises together with the purpose for hiring the same on rent. Proof of deduction of tax at source, wherever applicable, was also filed by the appellant. In addition, the appellant submitted that the rent claimed during the immediately succeeding year was much higher at ₹ 88,95,424/- which was accepted by the A.O. in her order u/s 143(3) of the Income Tax Act. The full details of expenses on account of rent a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) As regards Director's Remuneration amounting to ₹ 51,91,667/-, the A.O noted that no claim was made by the appellant under this head in the immediately preceding year in sharp contrast to the amount of ₹ 51,91,667/-, claimed during the year under consideration. This was one of the reasons for rejection of books of account of the appellant. During the course of appellate proceedings, the appellant submitted that full details regarding Director's Remuneration had been given during the course of assessment proceedings. The details submitted include a certified true copy of the Resolution passed in the meeting of the Board of Directors of the appellant company on 03.10.2008 as per which Smt. Deepika Jindal was to be entitled for remuneration of ₹ 7,41,666 per month for a period of 3 years w.e.f 01.09.2008 to 31.08.2011. In addition to this, the appellant submitted that Smt. Deepika Jindal, to whom the remuneration was paid, belongs to business family of O.P Jindal Group and has experience of more than 21 years in corporate and business management. She was managing complete affairs of the company during the period the remuneration was given to her. More ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t only did the appellant gave copy of invoices to the A.O., but also the proof of installation of various machines to be used for the purpose of the business of the appellant was also provided. It is not comprehensible that even after getting the requisite evidence, the A.O held additions to fixed assets made during the year under consideration as unexplained. If, the depreciation was rightly claimed on the basis of capital asset acquired and installed by the appellant during the year under consideration, the A.O could not have held huge additions to capital assets as one of the reasons for rejecting books of account. v) Lastly, the A.O has submitted that the appellant has not maintained proper bill/vouchers because of which he rejected the books of account. However, the A.O has not given any specific expense in respect of which proper bills/vouchers had not been been maintained by the appellant. The appellant, during the course of appellate proceedings, stressed the point that all its expenses are properly vouched and the AO has not given any particular instance of any expense which could not be properly supported by requisite evidence. Accordingly, I hold that, the A.O's s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Pandit Brothers vs. CIT (1954) 26 ITR 159 (P&H) that before rejecting books of account, there must be material before the ITO to lead him to the conclusion that the method employed is defective or that the case required reconsideration and a new computation must be made. The mere fact that the profits are low is not material upon which finding regarding the rejection of books of account can be based. In the case of CIT vs. K. S. Bhatia (2002) 125 taxmann 454 (P&H), it was held that the mere fact that the profits are low compared to earlier years is not sufficient to make an estimate of net profits. 4.9 In another judgment of the Hon'ble Jurisdictional High Court in the case of CIT vs. Om Overseas (2008) 173 taxmann 185 (P&H) the assessee firm declared G.P rate of 25.38% as against 29.5% declared in the immediately preceding year. The A.O rejected the books of account and estimated G.P rate at 27%. On appeal, Commissioner(Appeals) deleted addition, holding that A.O made addition without pointing out any specific defect in books of account. The Tribunal upheld finding of Commissioner(Appeals). It was held by the Hon'ble High Court that there was no perversity in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature of the employee has not been mentioned. However, the facts remains that in this line of business, names are not mentioned in the receipts but as a proof of identity, the house numbers and sector is mentioned. The receipts are generally initialled only and neither the issuer of receipt nor the payer of the amount denies having paid the amount stated in the receipt. In the circumstances, the AO cannot reject the receipts issued on this flimsy ground that full signature of the employee who had actually issued receipt was not verifiable. The same could have been put to the assessee and who could have offered valid explanation in this regard. In the circumstances, we do not find any valid reason to reject the book results so as to sustain the addition made by the AO." 11. The Tribunal while affirming the findings of CIT(A) had recorded that the assessee had- Droduced receipts issued in respect of each connection and the assessing officer had adopted the method of estimation without there being any rational basis to support the guess work. Further, no specific defect in the books of account had been pointed out warranting rejection thereof. Learned counsel for the Revenue w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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