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TMI Blog2019 (9) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... Department. It is not the case of the AO by drawing comparison with the past years Audited Accounts in the year under consideration assessee had either shown certain expenses in abnormal terms or that certain expenses were debited for an abnormal amount. Hon ble Delhi High Court in the case of Additional CIT Vs Jai Engineering Works [ 1978 (2) TMI 94 - DELHI HIGH COURT] had the occasion to consider a question that whether the report of the Auditor could be said to be material on which reliance could be placed by the Income Tax Authorities. The Hon ble High Court while approving the order passed by the Tribunal ruled that in case where books are not made available for AO s verification the AO should rely on the Audit Report because the said evidence is admissible under Indian Evidence Act, 1872. Reasonable rate of Net Profit - Since, the turnover, has gone up manifold in the year under consideration from 5,59,62,965/ to 27,72,26,469/- therefore, reliance to past years trading results may not be an appropriate guide. We reject the submission of the assessee to apply 2.65% as Net Profit as was applied in the case of M/s. Sri Siddheshwar Engineer India (P) Ltd. [ 2018 (3) TMI 1667 - IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion required by the AO due to which the AO had no alternative than to estimate assessee's income by applying net profit rate, and to complete assessment u/s 44 of the I.T. Act, 1961. 2. The Ld. CIT(A) has erred in law' and on facts in deleting addition to the tune of ₹ 1,10,89,0558/- by restricting net profit rate to 8% of Gross Receipts in place of net profit rate of 12% estimated by the A.O. without properly appreciating facts of the case. 3. The appellant craves leave to add. alter, amend one or more grounds of appeals before the appeal is heard and disposed off." 2. Since the cross appeals relate to the common issue of estimation of Net Profit by the AO and by the learned CIT(A) we take up appeal by the assessee first bearing ITA No. I.T.A No. 306/Agra/2017Vide Grounds No. 1,2 & 3 assessee has challenged the action of the authorities below in making trading addition by application of N.P rate @ 12%, which during the course of first appeal was reduced to 8% by the learned CIT(A) on contract receipts ignoring the fact that such a rate of profit is highly excessive in the line of business in which assessee is engaged. 3. The assessee is a civil contractor doing ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or at a different sum, can never be a question of law. It was also submitted that this Judgement by the Hon'ble Gujarat High Court stood affirmed by the Hon'ble Supreme Court. 6. We have heard both the sides, perused the material on records and the judgments relied upon. It is undisputed fact that books of account are rejected by invoking provisions of Section 145(3) of the Act, pointing out that during the entire assessment proceedings no compliance was made on any date. Though, assessee vide Ground No. 4 had raised ground challenging rejection of accounts and framing of assessment under section 144 of the Act. However, during the course of hearing before us it was specifically stated to be not pressed. Thus, in principle assessee has accepted to the rejection of the books of account. Therefore, in absence of any challenge by the assessee the rejection of accounts is final. After rejection of accounts keeping in mind the judicial guideline available on issue the income of the assessee is to be estimated and for the purpose of such an exercise history of the assessee and any comparable case is the best guide subject to parity in facts and circumstances. However, it is equally set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nor is the assessee subjected to unreasonable hardship as held by the Hon'ble Calcutta High Court in the case of CIT Vs Hazaribagh Coal Syndicate Pr. Ltd. 177 ITR 135 (Cal.) 9. In this background of the matter and in the light of precedents we bring ourselves to the order passed by the learned Assessing officer who has chosen to apply N.P rate of 12% without bringing on record any comparable case where such an exorbitant rate of N.P was either shown by the assessee or assessed by the AO which has become final. The AO while framing assessment has totally lost sight of the fact that during the year under consideration the turnover of the assessee has grown up by more than five times as compared to last year and therefore, assessee cannot be expected to report the same rate of Net Profit as was earned in last year. The Audited Accounts for year under consideration as well as for past assessment years were undisputedly available with the Department. It is not the case of the AO by drawing comparison with the past years Audited Accounts in the year under consideration assessee had either shown certain expenses in abnormal terms or that certain expenses were debited for an abnormal amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... timate is not made in accordance with law? The Hon'ble Supreme Court answered the question of law holding as under: 12. The ITO computed the profits from the business at a flat rate. The gross profits disclosed by the assessees yielded a rate of 3.8%. It appeared, however, that the normal rate of gross profits in similar business carried on by other merchants in the locality varied from 6 to 7%. The assessees furnished no explanation at all as to why profit at the normal rate was not earned. Once the books of account of the assessees were rejected and the rate of gross profit earned by them was found unreliable, it was open to the ITO to estimate the gross profit at a rate at which profit was earned in similar business by other merchants. We are unable to hold that the reasons recorded by the Tribunal in support of its order levying tax on profits computed on estimated turnover of ₹ 12 lakhs at the rate of 6.5% were "irrelevant". 12. We also make it clear that assessee shall not be entitled for any other deduction such as depreciation and interest paid. Thus, ground of appeal No.1 to 4 are partly allowed. 13. The revenue in I.T.A No. 296/Agra/2017, has challeng ..... X X X X Extracts X X X X X X X X Extracts X X X X
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