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TMI Blog2022 (11) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... should rely on the Audit Report because the said evidence is admissible under Indian Evidence Act, 1872. What would be the reasonable rate of Net Profit? - Since, the turnover has gone down but higher than the earlier years. Therefore, relying the past years trading results, in the present case, it may be an appropriate guide to go by past history. We are of the view, that it would be just fair, therefore, to apply N.P rate of 6% on gross receipts - We also make it clear that assessee shall not be entitled for any other deduction such as depreciation and interest paid. Thus, ground no. 1 is partly allowed. - I.T.A. Nos. 606 & 607/Asr/2018 - - - Dated:- 26-9-2022 - DR. M. L. MEENA , ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE , JUDICIAL MEMBER Appellant by : None ( Written submission ) Respondent by: Ms. Amanpreet Kaur , Sr. DR ORDER Per Dr. M. L. Meena , AM Both the appeals have been filed by the assessee against the order dated 10.10.2018 passed by the Ld. Commissioner of Income Tax (Appeals)-1, Amritsar (Camp at Jammu), in respect of the Assessment Years 2009-10 2010-11. 2. The assessee has raised the following grounds of appeal in ITA No. 606/A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR No. 166/167/183/184 of 2007 without considering assessee past history of the assessee or net profit shown by other assesses in the same line of business in the state of J K, net profit rate of 10%applied by the AO cannot justified and that the Ld. CIT(A) restricted net profit rate of 8% without appreciating the facts of the case. It is submitted that assessee is a regular tax payer filing its ITR regularly duly supported with audited accounts. The Ld. AO didn't point out any material defect in the books of accounts for applying such abnormal Net profit rate. The relevant part of the written submissions reads as under: Ground 1 2:- The assessee is individual by status filed its ITR voluntary and declared income of Rs. 650372.00 against Gross sales of Rs. 11824952.00, which works out to be Net profit rate of 5.50%, which is highly reasonable in this kind of trade. The assessee is a regular tax payer and during the year was engaged in the business of electrical, mechanical, mining operation of plant contractor. The Ld. CIT (Appeals) has upheld the Net Profit Rate of 8% on the basis, that Hon'ble ITAT Bench Amritsar has upheld Net profit rate of 7% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imation of income after rejecting the Book results. However, Assessing Officers must exercise this power prudently and not act arbitrarily, which has not been adopted m this case In the instant case, the AO ignored book results and assessees past results and proceeded for estimation of income, which is not only unjustified but also illegal. The assessing officer had not specifically identified any specific defects in the book results nor the assessing officer held that the expenses so claimed by the assessee in his books of accounts were not incurred by the assessee for the purpose of its business. The assessee provided all possible cooperation and the AO without pointing out any material mistake and error in the book results estimated income @ 10% is legally incorrect, which stands reduced to 8% by CIT(A)s. Further the AO is a quasi judicial authority in case the books results of the assessee are to be rejected, the income of assessee is to be estimated on some reasonable basis for which comparable case and history of assessee could be taken as a guide. 7. The respondent, Addl. CIT D.R. strongly disputed the arguments raised by the Ld. A.R, and supported the Impug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly lost sight of the fact that during the year under consideration 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 amount. Hon'ble Delhi High Court in the case of Additional CIT Vs Jai Engineering Works 113 ITR 389 (Del.) 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. 11. This brings us to the second part of the controversy as to the fact that upon above facts what would be the reasonable rate of Net Profit. Since, the turnover has gone down but higher than the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source thereof or the explanation offered by him is not in the opinion of the assessing officer satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. Section 68 is a deeming provision and applies on fulfillment of three conditions: a. The existence of books of accounts maintained by assessee b. A credit entry in the books of accounts c. Absence of a satisfactory explanation by the assessee about the nature source of the sum credited. The source of credit of these entries is clear from debit to wages account and the same stands accepted by AO/CIT(A), when books results of the assessee are accepted and the wages debited to PL account are accepted and not doubted. Therefore, this addition stands made without application of mind. It is further submitted, that section 68 of the Act is not applicable to credit representing a liability payable by the assessee rather to credit representing monies received from another person. In support of this contention, kind attention is invited towards following judgments. ITO Vs Ashok Transport Co. (ITAT Jodhpur) There is a difference betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on records, written submission filed by the assessee 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. 17. From the above, it evident that after rejection books of account by applying section 145(3) of the Act, the AO has estimated the income of the assessee as above. It is settled law that once books are rejected and income assessed by the AO on estimate basis, the provisions of section 68 of the Act cannot be invoked. 18. Without prejudice to above, the assessee has claimed wage expenses and the said liability was accounted for as credit entry in its books of account. Thus, for the purpose of discharging burden to prove veracity of said expenses and he had duly recorded said expenses in its books of account, Assessing Officer was not justified in disallowing said expenditure by treating same as unexplained expenditure or bogus liability under section 68 of the Act. 19. In the above view, we hold that the order of the Ld. CIT(A) is perverse on the facts of the case and thus, section 68 of the Act was wrongly invoked in the present case in respect of the wage liability. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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