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TMI Blog2019 (7) TMI 739X X X X Extracts X X X X X X X X Extracts X X X X ..... rred on facts and in law in disallowing Rs. 27,692/- being 20% of total indirect expenses of Rs. 1,38,490/-. 3. The ld. CIT(A) has erred on facts and in law in confirming the addition of Rs. 9 lacs u/s 68 of IT Act by incorrectly holding that assessee has failed to satisfactorily explain the nature and source of the credit.'' 2.1 The Ground No 1 is regarding trading addition made by the AO by disallowing 25% of construction expenses. 2.2 The assessee is engaged in the business of real estate and construction work. The assessee filed its return of income for the year under consideration declaring total income of Rs. 4,93,870/-. The case was selected for scrutiny through CASS. The AO issued notices u/s 143(2) as well as u/s 142(1) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were filed before the AO. In the ledger account, the details of the expenses alongwith bill nos., names of the suppliers from whom purchases were made are duly recorded. Entries in the books of account are duly supported by bills and vouchers which were verified by the auditor. Thus the disallowance made by the AO and sustained by the ld. CIT(A) on account of purchase and direct expenses is unjustified and uncalled for. Alternatively, the ld.AR of the assessee has submitted that once the AO has invoked the provision of Section 145(3) of the Act then assessment ought to have been framed as per the provision of Section 144 of the Act for making best judgement assessment. The AO instead of framing the assessment by estimating the income has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejecting the books of account. Even the assessee has also not challenged the decision of the AO rejecting the books of account. In case the AO invoked the provisions of Section 145(3) due to the reason that the correct results of business activities of the assessee could not be deduced from the record then the AO ought to have framed the assessment based on best judgement u/s 144 of the Act. The best judgement means that the income of the assessee has to be estimated based on the material available with the AO. The AO instead of estimating the income on the basis of some reasonable and proper criteria being GP or NP has resorted to make disallowance of expenses which is not a permissible course of action under the provisions of section 145 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NP. Needless to say that the assessee be given proper opportunity of hearing before passing the afresh order. 3.1 Ground N. 2 is regarding disallowance of indirect expenses. 3.2 The assessee claimed indirect expenses of Rs. 1,38,490/-. The AO has made disallowance of 20% of the said expenses for want of supporting evidence. The ld. CIT(A) has confirmed the disallowance made by the AO on this account. 3.3 Before us, the ld.AR of the assessee submitted that looking at the turnover of the assessee for the year under consideration at Rs. 2,46,39,390/-, the expenditure claimed by the assessee is just 0.56% which is very reasonable for carrying out the day to day operation. Hence, no disallowance of indirect expenses is called for. 3.4 On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of indirect expenses arises. On the other hand, if the income of the assessee is estimated on the basis of NP Rate then no question of disallowance of indirect expenses arises. 4.1 Ground No. 3 is regarding addition made u/s 68 of the Act. 4.2 During the course of assessment proceeding, the AO noted that the assessee has taken loan from various persons. The assessee was asked to furnish the confirmation of the loan / cash creditors . The AO also issued notices u/s 133(6) of the Act calling information from the loan creditors. After considering the details of confirmations received from the loan creditors, the AO noted that there are discrepancies in the loans shown by the assessee in the books of accounts and the confirmati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld.AR further submitted that correctness of the loan taken by the assessee can be verified from the bank statement where this amount has been shown to each loan creditors. He has referred to the bank statement at page 47 of the paper book and submitted that since these cheques were received from the accounts of these parties, therefore, the entries in the books of account is only against one party whereas the confirmation was given by other parties. Accordingly, he has submitted that the transactions can be verified from the bank statement as well as loan creditors. The mere discrepancy in the names of the loan creditor on respective amount due to cross entry cannot be treated as unexplained cash credit. 4.5 On the other hand, the ld. DR ..... X X X X Extracts X X X X X X X X Extracts X X X X
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