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TMI Blog2022 (9) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... income and the exercise undertaken by him of adopting the G. P. rate of 10.5% without any basis, is not sustainable. We find force from the decision of CIT Vs. Anil Kumar Co. [ 2016 (3) TMI 184 - KARNATAKA HIGH COURT] wherein it has been held that when the books of accounts are maintained by the assessee in accordance with the system of accounting, in the regular course of his business, same would form the basis for computation of income. It was also held that section 145(3) of the Act lays down that the AO can proceed to make assessment to the best of his judgment u/s. 144 only in the event of not being satisfied with the correctness of the account produced by the assessee. We are inclined to accept the contention made to restore the GP ratio @ 9.8% as claimed by the assessee and direct the Ld. AO to delete the addition made by the Ld. CIT(A) by adopting the rate of 10.5% - Decided in favour of assessee. - ITA No. 1333/Kol/2019 - - - Dated:- 6-9-2022 - SHRI SONJOY SARMA , JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL , ACCOUNTANT MEMBER Appellant by : Smt. Pinki Shaw , FCA Respondent by : Shri Sudip Kumar Bandopadhyay , Addl. CIT ORDER PER GIRISH AGRAW ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was submitted that expenses individually did not exceed the prescribed limits and majority of them were paid to the farmers/breeders who are out of the purview of the Act. Ld. AO completed the assessment by making the additions for which assessee went in appeal before the Ld. CIT(A). 5. In the course of first appellate proceedings, Ld. CIT(A) made certain categorical observations on the findings noted by the Ld. AO in the impugned order, which are reproduced as under: (i) The said para seeks evidence of the said expenses and also the necessity of such expenses. The appellant has responded by filing the relevant details and papers as recorded in the order sheet dated 06.12.2016, wherein there is no adverse note as to the failure of the assessee to furnish the details or papers against Salary Wages. (ii) It is for the first time on 09.12.2016 that the Assessing Officer sought explanation on abnormality of expenses under Staff Salary Bonus. The relevant portion of the Assessing Officer's said letter has been reproduced on Page 2 of his Order. The appellant responded with the Authorized Representative's letter dated 19.12.2016 which is also mentioned in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to this, on the other hand, he notes that most of the expenses were wrongly clubbed under salary or bonus which are not verifiable and the burden is on the assessee to prove these expenses and thus by taking this factor, he resorted to rejecting the books of account for computing the business profit. Again by referring to a decision of Coordinate bench of ITAT, Bangalore in the case of ITO Vs. Karnataka Poultry Farm [citation not mentioned by the Ld. CIT(A)], he observed that in the business of hatchery and poultry, gross profit percentage may hover around 9% to 12%. He also noted that assessee has also produced couple of Balance Sheet of the concerns engaged in the business of poultry and hatching and has re-casted his own gross profit ratio to 9.8%. Contrary to this observation, Ld. CIT(A) took the gross profit ratio of 10.5% for the purpose of current assessment year. 6.1 Also Ld. CIT(A) in para 10 noted that in the appellate stage, assessee had produced detailed submissions and paper book substantiating his claim. He also notes in para 9 that estimation has to be based on material and evidence and even the best judgment assessment gives no licence to add on the whims of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,78,28,956/- 9,43,37,851/- 26,23,19,627/- Gross Profit 36,13,553/- 1,03,85,137/- 2,56,77,120/- Net Profit 4,19,097/- 1,95,084/- 4,70,000/- G.P (%) 9.55 11.00 9.80 N. P (%) 1.10 0.21 0.18 8. Ld. Counsel for the assessee further submitted that assessee has been maintaining books of account regularly and were produced before the Ld. AO in the course of assessment, fact of which is noted in the assessment order itself. She also pointed out that books have been subject to audit and have not been rejected in the assessment proceedings. She also stated that the assessment has been completed u/s. 143(3) of the Act without referring to the provisions of section 144 by rejecting the books in terms of section 145(3) of the Act. It was also pointed out by her that assessee had submitted all the details and expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audited books of account. We also note that the books of account of the assessee have not been rejected in compliance to the provisions of section 145(3) and assessment having not been framed u/s. 144 of the Act. Action of Ld. CIT(A), in such a situation, is erroneous in resorting to an estimation of income and the exercise undertaken by him of adopting the G. P. rate of 10.5% without any basis, is not sustainable. 10.2 For our finding, we find force from the decision of Hon ble High Court of Karnataka in the case of CIT Vs. Anil Kumar Co. (2016) 67 taxmann.com 278 (Kar.) wherein it has been held that when the books of accounts are maintained by the assessee in accordance with the system of accounting, in the regular course of his business, same would form the basis for computation of income. It was also held that section 145(3) of the Act lays down that the AO can proceed to make assessment to the best of his judgment u/s. 144 only in the event of not being satisfied with the correctness of the account produced by the assessee. Relevant extract from the said decision is reproduced as under: 11. Insofar as the estimation of gross profit made by the Assessing Officer modif ..... X X X X Extracts X X X X X X X X Extracts X X X X
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