9911796707
TMI Blog2024 (11) TMI 1293X X X X Extracts X X X X X X X X Extracts X X X X ..... h observations, ground no. 1 of the present appeal of the assessee stands rejected. Estimation of profit at 10% before interest and depreciation which was scaled down by the Ld. CIT(A) to 6% - we find force in the contention of the Ld. AR that the estimation should be on a logical basis, might be on the basis of comparable instances and in case no comparable instances available then the best ratio to be adopted should be the past performance of the assessee itself. As relying on Action Electricals vs. DCIT [ 2002 (7) TMI 64 - DELHI HIGH COURT] in absence of any comparative instances of similar assessee s in the same line of business, dehors any explanation, reasoning supported with evidence to show as to how the profit of the current year is low, any other factor brought to our knowledge by the either side in support of their contentions, we are of the considered opinion that the past history of the assessee herself would be best indicator / major / benchmark to estimate the profits, particularly in a situation, wherein the assessee is unable to produce proper books and evidence before the Ld. AO. Accordingly, in the present case, we find it appropriate to estimate the profit of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was also engaged as Civil Contractor during the year under consideration. Assessee s books of account are duly audited u/s 44AB of the Income Tax Act, 1961. During the course of scrutiny proceedings, the assessee was asked to furnish the comparative chart of gross profit and net profit of civil contract work. The comparative position of GP/NP are culled out as under: A.Y. Turn over GP %age NP %age 2014-15 73319299 24500008 3.34 734573 1.00 2013-14 48549250 1286227 2.65 590190 1.22 2012-13 5763200 616529 10.70 452852 7.86 3.1 Referring to the aforesaid Profit chart, the Ld. AO has asked the assessee to explain regarding decline in gross profit and net profit. The assessee responded stating that due to increased competition the assessee had worked at lower percentage of margin, also the contract rate fixed at the time of allotment of tender were honoured by the assessee, whereas any further increase in the price of raw material was to be borne by the assessee. 4. The contentions advanced by the assessee was not considered convincing by the Ld. AO, who had exhaustively narrated various reasons and have pointed out defects in the books of the assessee. Adverting to such observatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure wholly and exclusively for the purpose of business. The AO has observed following defects in the accounts of the assessee. (1) Non maintenance of stock register of material purchased and consumption on day to day basis, quantitative details of stock in hand and in absence thereof and no verifiable records of consumption of materials. (2) Non maintenance of details and value of material at the site and work in progress. (3) Non maintenance of any register or books to verify quantity and quality wise work completed, expenditure incurred on various items used at different stages of the contract work. (4) Non maintenance of proper wages register, attendance register and complete expenses vouchers in respect of labour, Rasoda, Machinery, repairing, loading, unloading, fuel etc. These expenses are not properly vouched. As a result of this, the A.O. has held that due to non-furnishing of complete details of the books of account as well as discrepancies therein he is constrained to reject the Books of Accounts and the total income before interest and depreciation is assessed at of the gross receipts OCRs. ,930/-. 4.6 During the appellate proceedings, the assessee has tried to j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectness as well as completeness of the accounts of the assessee and estimating the profit of the appellant. Ground no. 1 is accordingly dismissed. 4.9 The other grounds relate to the estimation of net profit before interest and depreciation @ 10% of gross receipts. Though the appellant in its submission before me has stated that their net profit percentage has been 1.22% and 7.86% in the preceding two years, yet owing to the fact that is no scrutiny by the AO for these two years whereas the assessment order for the assessment year under consideration makes it clear .that there is discrepancy and lack of proof in accounts books, I am unable to agree with the profit percentage offered In the said books of accounts for preceding years. For the current year the appellant has shown a net profit of 1.00% only. Though the A.O. should have taken comparable instances, yet even the appellant has not provided any evidences from his side to show as to how its profit percentage is comparable to other similar businesses. In such circumstances, estimation is the only way to arrive at the profits. 4.10 Reliance in support of the stand taken by the AO can be placed on the case of Sanjay Kundu vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not constitute defect within meaning of sec. 145(3). 2. AO has not pointed out even a single defect or discrepancy either in the books or in the supporting documents. Observations made in assessment order are general, unsubstantiated could not lead to rejection of books. 3. In St. Teresa's Oil Mills vs state of Kerala (1970) 76 ITR 365 (Ker) Books could be rejected if important transactions are omitted or proper particulars or vouchers are not forthcoming or they do not include entries relating to one particular class of business. 4. Books of account audited, audited accounts at PN 75 to 88 of PB. Auditors have not expressed any qualification. 5. Rejection of books u/s 145(3) only possible under specified conditions. Presence of one or more of the specified conditions is necessary. It is imperative on the part of AO to record a specific finding about the existence of any of the stipulated conditions. 6. AO has not recorded any. finding whatsoever as to how any or all of the conditions prescribed in sec. 145(3) was attracted. Foundation for invoking sec. 145(3) grossly missing. 7. Comments on specific observations of AO are at PN 11 to 17 of PB. 8. Reliance on following cases, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... margin, this cannot automatically lead to estimation of income. It could give rise to enquiry and if any adverse finding arises on such enquiry, then the AO can reject the books and estimate the profit. 8. Estimate cannot ignore past results. Reliance on Action Electricals vs DCIT (2002) 258 ITR 188 (Del.) Vrajalal Manilal co. (1973) 92 ITR 287 (MP). 8. Based on aforesaid submissions, Ld. AR of the assessee submitted that a rejection of books of accounts by the Ld. AO was not in accordance with the provisions of Section 145(3) of the Act. Ld. AO was supposed to recall specific finding about the existence of stipulated conditions prescribed in this respect. The foundation of invoking the provisions of Section 145(3) was grossly missing, therefore, the action of Ld. AO in rejecting the books of assessee and applying the estimated NP of 10% is bad in law, illegal, arbitrary and thus, is liable to be struck down. Another contention raised by the Ld. AR under ground no. 2 3 of the present appeal that the estimation of Net Profit rate by the Ld. AO at 10% and reducing the same to 6% by Ld. CIT(A) are totally baseless wherein such rates were adopted under presumptions without any materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Ld. AR that the estimation should be on a logical basis, might be on the basis of comparable instances and in case no comparable instances available then the best ratio to be adopted should be the past performance of the assessee itself. Reliance was placed on the judgment in the case of Action Electricals vs. DCIT (2002) 258 ITR 188, wherein Hon ble Delhi High Court has held as under: 5. We are unable to persuade ourselves to agree with learned counsel for the assessed. Section 145(2) of the Act empowers the assessing officer to make a best judgment assessment when he is not satisfied about the correctness or completeness of the accounts of the assessed. It is not possible to categorise various types of defects which may render rejection of books of account of an assessed on the ground that the accounts are not complete or correct. Each case has to be considered on its own peculiar facts, having regard to the nature of business. Though it is true that the absence of stock register, in a given situation, may not per se lead to an inference that the accounts are incomplete or false the absence of such a register, coupled with other factor, like fall in profits, etc., may lead ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
