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TMI Blog2025 (3) TMI 1047X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has pointed out several discrepancies in the books of the assessee which would make it evident that the books of the assessee were not complete and correct in all respects. Therefore, his decision to reject the books u/s 145(3) of the Act is upheld.
Keeping in mind this fact and the nature of inconsistencies observed in the books, we believe that the ends of justice would be served if the net profit declared @ 2.87% is increased to 3.5% of contractual receipts (excluding sales, on which there is no controversy). Accordingly, we order that the net profit of the assessee be assessed @3.5% on contractual receipts of Rs. 4, 79, 52, 517/-. For the balance receipts from sale, the declared profits of the assessee can be accepted. X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the amount of Rs. 56, 69, 837/- are suppressed receipts and such allegation as made by the Assessing Officer and Confirmed by the Commissioner of Income Tax (Appeal) in their Orders is highly unjustified and incorrect. Out of the said alleged receipts. a. Rs. 3464577/- was already taken into account/taxed either in the year under consideration or in earlier years. b. Rs. 939029 was never received/accrued to the assessee from the Govt. Department due to reduced scope of work from what originally in the tender. c. and likewise Rs. 1266231/- was received in subsequent years & duly taxed/considered in the gross receipts of those years. Hence it is a duplicate addition during the year. 6. That in any view of the matter a net profit of 5% as against 7% applied by the Assessing Officer on estimated receipts as considered by the Commissioner of Income Tax (Appeal) is totally incorrect, and illegal hence the declared profit on the basis of closed books of accounts should have been accepted in the facts and Circumstances of the case. 7. That in any view of the matter the learned Commissioner of Income Tax (Appeal) also failed to consider the nature of appellant's busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payments were made in contravention of the provisions of section 40A(3) of the Act; there were differences in the figures of Bank Guarantee and payment of commission as disclosed by the assessee and bank; payments made to LED Power in the months of November, December, 2009, January, February and March, 2010 were all recorded in the books on a single day, i.e., on 31.03.2010; purchases amounting to Rs. 2, 52, 000/- were not verifiable from vouchers; certain telephones were found installed at the residences of the partners, expenses of which have been claimed in the profit and loss account; expenditure had been claimed with regard to vehicle that was not in the books of the firm; vouchers for office expenses, salary and wages, labour charges and site expenses were found to be self-made; payment of electricity had been made relating to residences of the partners, etc. On the basis of these, the Assessing Officer held that the books of the assessee were - both incomplete and incorrect and he proposed to reject the same under section 145(3) of the Act. To the show cause notice, the assessee pointed out that it was maintaining its books of account on mercantile basis and the income was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. Regarding payment of electricity and telephone on account of partners, Shri Pawan Kumar Deora and Shri Ashok Kumar Deora, it was submitted that a part of their house was used for office premises and hence the payment relating to business expenses were claimed. It was further submitted that in previous years, the same issue had arisen and the Assessing Officers had examined and verified the same and also considered the practical problems. Thereafter, no adverse view had been taken. It was, therefore, prayed that adverse inference should not be taken in this regard. 3. The AO did not agree with the explanations offered by the assessee. He made enquiries from some of the Departments concerned and collected information from BSNL (ED), Kanpur and The Garrison Engineer (West), Allahabad. From the accounts of BSNL (ED), Kanpur, he ascertained that the date of completion of work was 29.06.2009 and the date of final payment was 17.06.2010. From the analysis of the reply, he concluded that an amount of Rs. 98, 750/- which was paid in financial year 2010-11, ought to have been disclosed in the books of account on the basis of mercantile system of accounting. The correspondence made with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade additions without appreciating that of the added receipts of Rs. 56, 69, 837/-, seven sundry debtors of Rs. 34, 64, 577/- had been shown in the balance sheet as on 31.03.2010. Therefore, the Assessing Officer was wrong in alleging suppression of receipts. A chart was submitted by the assessee before the ld. CIT(A) to reconcile this amount of Rs. 56, 69, 837/-, with its accounts. It was pointed out that with regard to Rs. 98, 750/- stated to have been suppressed on account of BSNL(ED), Kanpur, it was submitted that the same amount was appearing in the balance sheet under the head 'Sundry Debtors receivable', as was the sum of Rs. 4, 69, 067/-. The assessee also questioned the application of rate of 7% to the net receipts of the assessee ignoring the past results of the assessee and the fact that those past results have been accepted in successive assessments under section 143(3) of the Act. It was further submitted that the reduction of amount was not correct because the profit declared by the assessee in this year was more than the profits declared in previous year and no specific faults have been found in the books of account. 5. The ld. CIT(A) was not convinced with the repl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estimation of lower profit. The Assessing Officer had also overlooked the fact that receipt of Rs. 5, 87, 25, 039/- was related to the supply of Generators, which were not Civil Contract works. Therefore, he directed the Assessing Officer to estimate the net profit rate at 5% instead of 7% and accordingly granted relief to the assessee of Rs. 29, 59, 826/-. 6. The assessee is aggrieved against this order of the ld. CIT(A) and has accordingly come in appeal before us. Shri Praveen Godbole, C.A. (hereinafter known as Ld. A.R.), arguing the case of the assessee, pointed out that in the assessment proceedings, the books of account were produced on a number of times and thoroughly examined by the Assessing Officer, but no specific defects have been found. He submitted that the assessee was not engaged in Civil Construction, but in electrical contract business, and in such type of work, the margin of profit was much lower as compared to Civil Contract work. Apart from this, there was cut-throat competition and work was allotted by competitive tender bid. The price variation in materials after bid was awarded had also to be absorbed by the Contractor. Therefore, it was not proper for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account had been felt to be unreliable, then there was no justification to insist that the books of account of the same assessee for previous years ought to be relied upon, because the past history would not give a vested right to the assessee to insist on those same profits. For this proposition, he placed reliance on the following case laws: 1. Aggarwal Construction Company vs. ACIT (2011) 198 Taxman 426 (P&H). 2. S.P. Construction, 390 ITR 314, Hon'ble Punjab & Haryana High Court. 3. Skyline Builders (2010) 194 Taxman 61 (Cochin 0 Trib.). 8. We have duly considered the facts and circumstances of the case and heard both the parties. At the outset, it is important to point out that, of the turnover of Rs. 10, 66, 77, 556/-, that has been declared by the assessee, receipts amounting to Rs. 5, 87, 25, 039/- do not relate to Civil Contracts, but they relate to sales of Generators, for which no inconsistency in the books of account have been pointed out by the Assessing Officer or upheld by the ld. CIT(A). Therefore, we are only concerned with the receipts amounting to Rs. 4, 79, 52, 570/- (as disclosed by the assessee from contractual business), and receipts amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee that of the sum of Rs. 56, 69, 837/-, which has been added back, a sum of Rs. 34, 64, 577/- had been shown as sundry debtors. The same has not been accepted by the ld. CIT(A) as accounting for the receipts, on account of his belief that the assessee was obliged to disclose the same upon accrual and since the work had been completed, the amount had been accrued. We believe that the ld. CIT(A) has omitted to consider the explanation of the assessee that in the case of the Government Departments, the amount accrues only when the measurements are taken and payable amounts recorded in the books of the concerned agency. Prior to that, it is only a claim and, therefore, if the work was completed on a particular day, but the measurement was delayed and consequently quantification of the amount payable was delayed on account of measurement, then the amount cannot be said to accrue in the hands of the assessee till this exercise was completed. We, therefore, do not see any reason to doubt the version of the assessee that the amounts were carried to the balance sheet as sundry debtors, pending measurements and acknowledgement of the amounts due. We further note that the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X
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