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TMI Blog2021 (3) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... n to hold that the assessee has shown and established a sufficient cause for condoning the delay of 206 days in filing the appeals. Hence, we condone the delay of 206 days and admit the appeal for adjudication. Rejection of books of accounts - rejection of books of account by invoking the provisions of section 145(3) - HELD THAT:- On careful and vigilant reading of the orders of lower authorities, we find that the AO before resorting to take any action under section 145(3) of the Act has properly analysed the facts and circumstances of the case and found 11 defects and deficiencies citing the correct and completeness of books of account and ld counsel of assessee could not controvert these defects barring a few. Therefore, same were not reliable and the AO was right in rejecting the same by following the decision of Hon ble Supreme Court in the case of CIT vs. British Paints India Ltd. [ 1990 (12) TMI 2 - SUPREME COURT ] We are satisfied that the AO has given sufficient reasons regarding defects deficiencies of completeness and correctness of books of account, which could not reflect and disclose the true state of affairs and correct income of assessee for the period un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee that the AO has committed an error while adding the amount of other revenue viz; income from NSC and insurance claim and other receipts despite the fact that in assessee s own case, ITAT has allowed miscellaneous income as business income by holding that they cannot be excluded from the normal profit and in furtherance to that dismissing the departmental appeal against such deletion. Accordingly, we hold that the AO was not correct in making addition pertaining to other income shown in the P L account when he has estimated business income after taking action of rejection of books of account. Thus, the AO is directed to delete the same. Unexplained liability claimed by the assessee towards sundry creditors - Whether CIT(A) was not justified in holding that since book result of the assessee was rejected by the AO, further addition on account of bogus liability was not permissible? - HELD THAT:- The impugned amount as on 31.3.2009 also includes closing balance brought forward from preceding financial period and it becomes opening balance as on 1.4.2009 from present financial year 2009-10 and in our humble understanding, this amount cannot be taken into consideration for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he first appellate authority, who deleted the addition of ₹ 9,32,70,290/- but confirmed the assessment made u/s.144 of the Act. Hence, both the sides are in appeal before the Tribunal. ASSESSEE S APPEAL IN ITA No.42/CTK/2015 3. The revised grounds of appeal filed by the assessee are as under: 1. For that the order of assessment dated 30.12.2011 as well as the order of the Ld. CIT (A)-II, Bhubaneswar dated 11.04.2014 are void abinitio, against the natural justice, unjustified, erroneous, arbitrary, contrary to facts, bad in law, without jurisdiction and/or in excess of jurisdiction and legally untenable. 2. For that the Learned Assessing Officer has acted either assuming proper jurisdiction and/or in excess of his jurisdiction, to complete the assessment U/s. 144 read with Section 143(3), when all the material facts as asked by him were furnished to him in pursuance to his notice U/s. 142(1) as such the assessment as framed are liable to be quashed the demand be annulled. 3. For that the assessment as well as the 1st appeal order as framed/passed are perverse on fact as well as erroneous in law. Both the forums have failed to show any cogent rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red on fact and law in utilizing two comparable cases i.e. M/s. D.D. Pati others AND ARSS Infrastructure Projects Ltd, behind the back of the assessee while applying the rate of profit at 11% to estimate the profit from gross contract receipt without confronting the same to the appellant, thereby depriving the assessee from reasonable opportunity of being heard and benefit of natural justice. Hence, the adoption of rate of profit @ 11% in the comparable case are not sustainable on fact law. 9. For that while estimating the contract income, the Ld. A.O. has failed to give due deduction to the materials supplied by the department, interest paid to financial institutions, sales tax etc, and therefore the estimated income is excessive, illegal and due deductions are to be allowed on these accounts as above. 10. For that even if assuming but not admitting that the Ld. A.O. is correct to estimate the income, but however, the Ld. A.O. has erred on fact and law in further making an addition of ₹ 9,32,70,920/- disallowing sundry creditors as well as ₹ 90,16,186/- reported as other revenue to the estimated income, which is contrary to the provisions of the I.T. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the Managing Director of the assessee company had gone with replacement of kidney few years back and all of a sudden fell ill and continued with the prolonged illness from 28.6.2014 to 16.1.2015. Therefore, the appeal could not be filed within the prescribed time limit and it was filed belatedly after 206 days. Ld counsel further drew our attention to medical certificate and affidavit of the MD and submitted that since the appeal memo, statements of facts, grounds of appeal and vakalatanama were to be signed by the MD but the assessee could not obtain the same and in absence of which, the assessee could not be prepared and filed within the prescribed time. Ld counsel further submitted that after being recovered from the illness as certified by the attending physicians to resume the duty from the isolation, MD of the assessee company in consultation with ld A.R. and Advocate of the company prepared the appeal memo, statement of facts grounds of appeal and thereafter the appeal was filed on 23.1.2015. Ld counsel submitted that the appeal could not filed within the time prescribed by the Statute due to illness of the MD, and, therefore, the delay was neither deliberate an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05 and prior to that, Hon ble High Court had no power to condone the delay but there is no power in the Statute in considering the application for condoning the delay filed by the assessee based on sufficient ground. Therefore, we respectfully hold that the facts and circumstances of the present case are dissimilar to the facts before the Hon ble Supreme Court in the case of Hongo India Pvt Ltd (supra). Therefore, we respectfully observe that the benefit of the said decision relied by ld CIT DR is not available for the revenue in the case at hand. 9. Further, from respectfully vigilant and careful reading of the decision of Hon ble Bombay High Court in the case of (supra), as also relied by ld CIT DR, we observe that in that case, application for condonation of delay in filing the appeals by the revenue, a collective excuse was given that the time was taken on the table of one officer or the other in drafting appeals, approval of the Chief Commissioner and in some cases, the files were not attended/dealt with for a considerable time. An additional ground was also taken that non-availability of the court fee stamps for some duration. Their Lordships after considering the rival su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnical considerations are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay. 5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. 6. It must be grasped that the judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so. 11. Respectfully following the ratio of the decision in the case of Collector, Land Acquisition vs Mst. Katiji (supra), and satisfying with the sufficient cause based on medical ground supported by an unrebutted affidavit of medical certificates, shown by the assessee in filing the appeals for condonation of 206 days, we have no hesitation to hold that the assessee has shown and established a sufficient cause for condoning the delay of 206 days in filing the appeals. Hence, we condone the delay of 206 days and admit the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 84 to 2012-13, the case of the assessee were under scrutiny proceedings and no doubts have been raised by the AO during assessment proceedings of any of the these years and, therefore, the baseless allegation levelled by the AO against the assessee in rejection of books of account may kindly be dismissed. 13. Replying to above, ld CIT DR submitted that the assessee has shown 1.98% of average profit from 2008-09 to 2010-2011, including present assessment year 2009-10, on total turnover during work contract business and the AO in para 2.1.2 at page 2 of the assessment order has categorically stated about the defects and doubts regarding correctness of the books of account of the assessee. Ld CIT DR submitted that complete books of account were not submitted by the assessee as called for by the AO despite several opportunities were given by the AO. Therefore, the AO was right in resorting to provisions of section 145(3) of the Act. Ld CIT DR further submitted that even during first appellate proceedings before the ld CIT(A), the books of account of the assessee were called for but the assessee did not submit the same for verification. Ld CIT DR also drew our attention to page 14 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng regularly employed by the assessee, the correctness of which had not been questioned in the past. There is no estoppel in these matters and the AO is not bound by the method followed by the assessee in the earlier years in the present case. We are satisfied that the AO has given sufficient reasons regarding defects deficiencies of completeness and correctness of books of account, which could not reflect and disclose the true state of affairs and correct income of assessee for the period under consideration. The assessee failed to do and thus, in our considered opinion, the AO was right in rejecting the books of account of the assessee. From the relevant part of the first appellate order at pages 12,13 14, we are also in agreement with the conclusion drawn and recorded by ld CIT(A) that since neither before the AO nor before the CIT(A), the assessee has not filed complete books of account and, therefore, the AO was right in rejecting books of account u/s.145(3) of the Act and to proceed to estimate profit on the basis of best judgment principles. In the present case also, the AO has categorically noted in para 2.1.2 of the assessment order found many glaring discrepancies and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... results of the assessee cannot be doubted in any manner. Ld counsel lastly submitted that the AO has estimated the income @ 11% of the gross turnover of the assessee without any reasonable and justified basis, which is very wild excessive, high and unreasonable. Therefore, same should be reduced to the declared percentage of profit as shown by the assessee or some reasonable percentage of 2.5% may be adopted keeping in view the entire facts and circumstances of the case and profit declared by the assessee during preceding and succeeding assessment years. 17. Pressing into service the preposition render by Hon ble M.P. High Court in the case of Vrajlal Manilal and Co vs CIT, (1973) 92 ITR 297(MP), ld counsel for the assessee submitted that the Hon ble High Court held that Income Tax Appellate Tribunal could certainly act on the basis of previous orders of assessment and acting on that the Tribunal could certainly justifiably hold that margin of profits for assessment year would be 17%, which is also basis adopted for previous year constituted good material or good evidence for Tribunal to arrive at conclusion that there was not only evidence, but good evidence before the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e P H High Court in the case of S.P.Construction vs ITO (2018) 68 taxmann.com 334 (P H) and submitted that the adoption of net profit of gross profit was justified when the AO could not verify the various details. Further placing reliance on the decision of Hon ble Calcutta High Court in the case of Amiya Kumar Roy Bros vs CIT (1994) 206 ITR 306 (Cal), ld CIT DR submitted that the disclosure of low rate of profit combined with further circumstances, after rejection of book results of the assessee, the gross profit at 6-7% is justified. 20. Further placing reliance on the order of ITAT Cuttack bench in the case of B.Banamber Co vs ITO (2017) 82 taxmann.com 69 (Cuttack), Ld CIT DR submitted that where the assessee firm derived income from work contracts, net profit of the assessee should be estimated at 8 per cent as against 10% adopted by the AO. 21. Further drawing our attention towards orders of lower authorities, ld CIT DR submitted that the Assessing Officer has rightly relied on the decisions in the case of D.D.Pati Others (supra) and ARSS Infrastructure Projects Ltd (supra) for estimating the net profit @ 11% of total contract receipts of the assessee from works co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o cases are comparable in the present case. In the case of the assessee at hand, the appellant is a limited company, whereas in comparable cases, one of them is individual or partnership firm. The volume of work is much higher than these two comparable cases and the appellant is working over 35 different site Projects, whereas the comparable cases are working on one or two sites located at a particular place. Therefore, the profit percentage on civil contract depends on various factors i.e. the period of execution of work, cost of materials, availability of land and funds, wages estimated at the time of tender and such expenses at the time of execution, use of further funds, scattered nature of establishment and nature of work involving technical aspects including drawing and designing. 26. On careful perusal of the decisions relied by the Ld. CIT D.R. we are of the view that the facts of the present case are clearly distinguishable to the facts relied by ld CIT DR. 27. In the case of Maddi Sudarsanam Oil Mills Co (supra), the assessment year involved is 1947-48 and governed under the Income tax Act, 1922 and in this case the Hon ble A.P. High Court held that flat rate of 9.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of B.Banamber Co. (supra), the assessee himself computed net profit @ 6.30% of gross contract receipts and taking into consideration that profit, the Tribunal held that the net profit @ 8% is reasonable. On the other hand, in the present case, the average net profit declared by the assessee is 1.77% for five years and for three years i.e. during immediately preceding, present year under consideration and immediately succeeding year was 1.98% and department has accepted net profit declared by the assessee for immediately preceding and succeeding assessment year without any dispute. Thus, facts and circumstances of the present case are quite dissimilar and distinct from the facts of the present case. Therefore, we respectfully hold that the orders/judgments relied by the ld CIT DR are not applicable in the present case. 31. When we analyse the case laws cited by ld Counsel for the assessee, we observe as under: 32. In the case of Vrajlal Manilal and Co (supra), the Hon ble M.P. High Court held thus: Income Tax Appellate Tribunal could certainly act on the basis of previous orders of assessment and acting on that the Tribunal could certainly justifiably hold that m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and succeeding assessment year alongwith present assessment year comes to 1.98%. The assessee has submitted copies of assessment years of preceding and succeeding assessment years and these facts and figures have not been controverted by the department in any manner. 36. The contention of ld counsel for the assessee is that keeping in view the net profit declared by the assessee and accepted by the department during preceding and succeeding assessment year, the net profit @ 2.5% of total contract receipts may kindly be adopted. We are in agreement with this contention of ld counsel for the assessee that as the profit declared by the assessee during present assessment year is 1.66%, which is very low and when the AO was not satisfied with the correctness and completeness of the books of account of the assessee raising serious doubts on the book results of the assessee, then the AO has to estimate the net profit keeping in view the entire facts and circumstances of the case to cover all the possible leakage of revenue. At the same time, we are also of the considered opinion that estimation of 11% of net profit by the AO and confirmed by the ld CIT(A) is also not reasonable, wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract and estimated the profit. We also find that at the last page of the assessment order, the AO has made addition of ₹ 90,16,186/- reported as other revenue as per profit and loss account but no details have been given either in the assessment order or in the computation of total income at last page of the order. In our humble understanding, since the AO after rejection of books of account u/s.145(3) of the Act, has estimated the business income of the assessee accrued to it from the business activities of works contract, therefore, it is not permissible to make another addition pertaining to the entries in the profit and loss account without specifying the same in the assessment order and without bringing out any adverse materials on record that the assessee has earned some other income which was not related to its business activities of works contract. 40. We are in agreement with the contention of ld counsel for the assessee that the AO has committed an error while adding the amount of other revenue of ₹ 90,16,186/- viz; income from NSC and insurance claim and other receipts despite the fact that in assessee s own case, ITAT has allowed miscellaneous income as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of sundry creditors are concerned, this contention would be considered and adjudicated alongwith appeal of revenue and Grounds of revenue therein, challenging the deletion of addition of sundry creditors by ld CIT(A) in the subsequent part of this order. 45. Ground No.14 of the assessee is not pressed, hence dismissed. Now, we take up appeal filed by the revenue in ITA No.293/CTK/2014 46. The revenue has taken the following grounds: 1. On the facts and in the circumstances of the case, the ld CIT(A) was not justified in law as well as on fact in deleting the addition of ₹ 9,32,70,920/- made by the AO on account of unexplained liability claimed by the assessee towards sundry creditors. 2. On the facts and in the circumstances of the case, the ld CIT(A) was not justified in holding that since book result of the assessee was rejected by the AO, further addition on account of bogus liability was not permissible. 47. Facts of the case are that during the course of assessment proceedings, the Assessing Officer noticed that the assessee has disclosed sundry creditors of ₹ 9,32,70,920/- in the balance sheet. The AO required the assessee to fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n appeal before the Tribunal. 51. Ld CIT DR placing reliance on the decision of Hon ble Allahabad High Court in the case of CIT vs G.S.Tiwari Co., (2014) 41 taxmann.com 17 (All) submitted that in an appropriate case, the Assessing Officer can make addition in respect of both cash credits under section 68 of the Act as well as business income estimated by him under section 44AD after rejecting books of account maintained by assessee finding those books as unreliable. Supporting the orders of lower authorities, ld CIT DR submitted that the AO has recorded detailed 11 reasons in para 2.1.2 of assessment order for rejection of books of account of assessee establishing that the assessee has not maintained proper books of account based on which profit from business could be deduced correctly as per the provisions of the Act. Therefore, he rejected books of account of the assessee and estimated the profit. Ld CIT DR further submitted that despite request of the AO, the assessee furnished list of creditors belatedly during December, 2011, which was also not complete. Therefore, the assessee prolonged the assessment deliberately and the AO could not make any enquiry about identity, gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sundry creditors. Ld counsel further submitted that after rejection of books of account, the amount shown in the balance sheet as sundry creditors cannot be a basis for making further addition because it is an off-shoot of the purchases or expenditures claimed by the assessee in its profit and loss account as per the decision of Hon ble A.P. High Court in the case of Indwell Constructions vs CIT (1998) 232 ITR 776 (AP), which is not permissible to the AO to rely on the rejections of books of account for making for an exact item depicted in the profit and loss account. Ld counsel submitted that in the present case, the AO has rejected books of account and income of the assessee has been estimated as a whole basing on the best judgment, therefore, no addition was called for in respect of sundry creditors and, therefore, the ld CIT(A) was right in deleting the impugned addition without any justified and reasonable basis. 55. Ld counsel submitted that the facts and circumstances of the present case are quite dissimilar and distinct with the facts and circumstances found by Hon ble Allahabad High Court in the case of G.S.Tiwari Co(supra), therefore, no benefit can be given to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account after being satisfied from the reasons recorded by the AO in para 2.1.2 of the assessment order, wherein, 11 grounds have been given by the AO in doubting the correctness of the books of account of the assessee and rejected the same. We have also confirmed the findings of the ld CIT(A), wherein, he has upheld the action of the AO in rejection of books of account and proceeded to estimate the profit on the basis of materials available before the AO by using bast judgment principles. 59. In this scenario, it is ample clear that the books of account of the assessee have been rightly rejected by the AO. Now the controversy remains as to whether as per the decision of Hon ble Allahabad High Court in the case of G.S.Tiwari Co (supra), the AO can make simultaneous addition in respect of both cash credit/sundry creditors as well as business income by way of estimation u/s 44 AD of the Act after rejecting books of account maintained by the assessee found them as unreasonable. On vigilant, respectful and careful reading of this judgment, we find that Their Lordships in para 10 of the judgment, firstly refer to the decision of Hon ble A.P. High Court in the case of CIT vs Mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) s order, at page 17, we observe that the ld CIT(A) has followed the subsequent decision of Hon ble A.P. High Court in the case of Indwell Construction (supra), wherein, Their Lordships held thus: The pattern of assessment under the IT Act is given by s. 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in ss. 30 to 43D. Sec. 40 provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under s. 29 is to be made under s. 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the ITO may reject those books and estimate the income to the best of his judgment. When such an estimate is made it is in substitution of the income that is to be computed under s. 29. In other words, all the deductions which are referred to under s. 29 are deemed to have been taken into account while making such an estimate. This will also mean that the embargo placed in s. 40 is also taken into account. Thus, where the income is estimated after rejecting books of account, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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