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TMI Blog2019 (6) TMI 838X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of Rs. 33,37,479/- for low profit without appreciating full facts and reasoning. 3. That the Ld. CIT(A) erred and confirmed the addition of 1% net profit rate, since the N.P rate applied by the Assessing Officer and same after giving 1% relief which is confirmed by CIT9A) is unjustified being excessive. 4. That the Ld. CIT(A) erred and confirmed the addition of Rs. 1,51,642/- on account of disallowance of testing charges u/s 40(a)(ia) without appreciating full facts. 5. That the appellant craves to leave, add alter or amend any of the ground at or before hearing." 3. Brief facts of the case as culled out from the cords are that the assessee is a private limited company engaged in construction work. E-return of income for Assessment Year 2013-14 was filed on 29.09.2013 declaring income of Rs. 2,43,37,640/-. Case picked up for scrutiny followed by serving notices u/s 143(2) and 143(1) of the Act. Various details as called for were filed. Further on the basis of following observations Ld. A.O rejected the book results u/s 145(3) of the Act and made addition of 2% of gross receipts over and above the net profit shown by the assessee thereby making addition of Rs. 66,74 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has shown purchase of stock in trade of Rs. 157391315/- . Further verification it is found that the said amount is the purchase of construction material i.e. Bitumen, Bricks, Cement, Diesel, Steel, Sand etc. Further,on verification of bills/vouchers of material purchased it has 'been found that various payments made in cash and in some cases bills of various payments not found in record. 4. Ld. A.O also made disallowance u/s 14A of the Act at Rs. 2,43,581/- and u/s 40(1)(ia) at Rs. 1,51,642/-. 5. Aggrieved assessee preferred appeal before Ld. CIT(A) and partly succeeded. 6. Now the assessee is in appeal raising following three issues; (i) Against rejection of books u/s 145(3) of the Act and estimating profits (ii) Confirming the addition of 1% as additional net profit as against 2% net profit rate adopted by the Ld. A.O. (iii) Disallowance u/s 40(a)(ia) of the Act. 7. Ld. Counsel for the assessee vehemently argued supporting following written submissions; The learned Assessing Officer applied the provisions of section 145(3) and rejected the books of accounts. Resultantly net profit Increased by 2 as against declared profit of 4.93 after depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer is duty bound to adopt a reasonable and scientific manner while making the addition in book results. Arbitrary and imaginary figures cannot be placed in the Assessment order. Reliance is placed on the following pronouncements: 1. CIT Vs Rajendra Prasad Jain, High Court of Punjab & Haryana 374 ITR 0545 2. Karnataka State Forest Industries Corporation Vs. CIT, High Court of Karnataka, 201 ITR 674 3. CIT Vs Ranicherra Tea Co. Ltd, High Court of Calcutta, 207 ITR 979 4. DCIT Vs Vishwanath Prasad Gupta, ITAT Jabalpur, 137 TTJ 385 Pankaj Diamond Vs ACIT, ITAT Ahmedabad, 32 DTR 462 However, Ld. AO as well as Ld. CIT(A) ignoring the above factual position and without pointing out any such major defect in the books of account other than as explained above, rejected the books of accounts uls 145(3) and applied net profit rate which is unjustified though. Ld. CIT(A) sustained the net profit rate of 1 only on the basis of previous years' appellate order without ignoring the increase or decrease in turnover of assessee company each year. The said addition was without taking care of this fact of changing turnover each year. Please find the enclosed chart where the net prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned DR supported the order of the Assessing Officer. 7. We have considered the submissions of both the sides. We find that the net profit for the A.Y. 09-10 and A.Y. 10-11 has been shown by the assessee at 5.28% and 5.75% respectively. Therefore, if 2% increase is 'considered, the net profit for the relevant assessment year with go up to 7.14% which is much higher than the average net profit in the above mentioned assessment years. We are, therefore. of the opinion that the estimation of profits by the A.O. has not been found based on some cogent and relevant increasing the profit by 1% which will take the net profit for the relevant year at 6.14% which will still be much higher than 5.50%, the 'average of two preceding assessment years. In view of the above discussion and the facts and circumstances of the case, we hold that the learned CIT(A) was justified in directing the Assessing Officer to recompute the profits by increasing the same @ 1% as against 2% applied by)he Assessing' Officer. We, therefore, confirm the order of the learned CIT(A) . 8. In view of the above discussion, we find no flaw in the order of the learned CIT(A) and confirm the same. 9. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts because in several case for the relevant AY booking of sales does not tally with the year of registration. Even the method of recognition of sale adopted by the assessee is inconsistent, defective and not in accordance with any recognized system of accounting. Even before the AO or before the CIT(A), the assessee could not explain the basis of booking of various construction expenses in respect of flats kept in stock in trade. In view of these differences, we find the CIT(A) has rightly rejected the books of account by applying the provisions of section 145(3) of the Act and we find no infirmity in the order of CIT9A) in applying profit rate of 8%. 6.In reply to other additions, it is clear that once net profit rate is applied, the expenses or other disallowances, since relating to business, cannot be made separately because the profit element of expenses or disallowances have already been considered while applying profit rate. Accordingly, we confirm the order of CIT(A). Appeal of revenue is dismissed". 15. In view of the above decision of the Tribunal there remains no dispute that once after rejecting the book results, net profit is estimated by applying net profit r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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