TaxTMI 
TaxTMI 
2015 (9) TMI 1173
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....s were not fully verifiable. 2. Apropos ground No.1, it is noticed that during the course of assessment proceedings, the Assessing Officer noticed from the balance sheet that out of liabilities amounting to Rs. 2,48,96,412/-, the payments of Rs. 2,44,87,614/- pertain to sub-contractors. The assessee provided list of 1050 sub-contractors giving their names & addresses, gross amount payable, amount paid and payment due to them, to the Assessing Officer. Out of 1050, notices were issued to 44 persons by the Assessing Officer on random basis and 36 notices were returned back with the postal remark that the persons did not reside at the given address. In one case, notice was served upon Shri. Sanjai Kumar who denied having any transaction with the assessee and in certain notices though served but no reply was received. On being confronted by the Assessing Officer, the assessee submitted that the addresses given by him are the same as provided by the sub-contractors and the petty contractors were paid the amount in due course of business depending upon the availability of funds. The Assessing Officer found it is incomprehensible that the payments to petty labourers/sub-contractors rem....
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....sessee is a contractor working for the Northern Railway, the expenditures are bound to be incurred in execution of tender issued by the Northern Railway. The Assessing Officer has made a simple check on random basis and at the most addition can be made with respect to those cases in which notices were issued, but the entire liabilities cannot be disallowed for the same reason. It was further contended that the payment could not have been made on account of receipt of delayed payments from the Railways. However, outstanding liabilities were cleared in succeeding months and these facts are not disputed by the Revenue authorities. Therefore, in the given facts and circumstances, the ld. CIT(A) has taken cognizance of all the relevant facts while deleting the addition. The ld. CIT(A), however, estimated the profit of the assessee by applying 7.5% rate of the gross receipts. 7. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that the nature of activities undertaken by the assessee was not disputed by the Revenue. The Revenue has also not disputed the contract receipts received by the assessee. Therefore, in execution of wor....
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....e not found at the given addresses hence the genuineness of such payments remained unverifiable. However the appellant's argument that 45% labour charges debited in the profit and loss account cannot be treated as bogus that too only on the basis of enquiries conducted from 44 persons is also found to be justified. Also net profit rate of 46.20% assessed by the AO is very high in the case of a contractor. In view of the discussions made above it is held that the best option available to the AO was to reject the book results since he could not have satisfied himself about the correctness and completeness of the books of accounts maintained by the assessee and the Only alternative available was to complete the assessment in the manner provided under section 144 of the Act in view of provisions of section 145(3) of the Act In the case of Dhondiram Dalichandy. GIT, 81ITR 609 (Bom.) the Hon'ble High Court has held that while exercising the powers u/s!45ofthe Act it is not necessary for revenue authorities to record aforesaid findings in specific words before exercising power, particularly in view of the fact that circumstances of case otherwise justified invoking of said power. ....
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....inciples of justice. Though there is an element of guesswork in a 'best judgment assessment', it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case." It is evident from what has been stated above that the authority making a best judgment assessment must make an honest and fair estimate of income of assessee and though arbitrariness cannot be avoided in such estimate the same must not be capricious but should have a reasonable nexus to the available material, circumstances of the case and business of the appellant. The appellant in the impugned assessment year has declared net profit rate of 6.07% whereas in the preceding year it was 5.48% only. However, past history of the case of the appellant cannot be relied upon as returns filed for the preceding year has not been subject matter of scrutiny. The Hon'ble 1TAT, Lucknow SMC bench in ITA No. 574/Luc/05 dated 10.03.2006 in the case of M/s Gupta Constructions has confirmed the action of AO in estimating the profit at @ 7% of total turnover. The ITAT Allahabad Bench in case of Rajesh Kumar Singh, Gorakhpur v. ITO in ITA No. 425/Alld/2003 for AY 2000-01....