AI Drafter 
TaxTMI 
TaxTMI 
2010 (9) TMI 1135
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....for adjudication by the Tribunal. The proposed additional ground which has been marked by the assessee as "ground No. 2" is as under : "In the facts and circumstances of the case and in law the learned CIT(A) has erred in holding that no question of net profit rate application arises and further erred in confirming the specific disallowances although learned CIT(A) has impliedly rejected the books of accounts. The action of the learned CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by appropriately estimating the income as per law." 3. In support of the above application for permission to raise the said additional ground (ground No. 2), the learned Authorised Representative submitted that the subject-matter of the present appeal is not just the specific disallowances made by the AO and confirmed by the CIT(A), but the real subject-matter of appeal is as to whether books have been rejected or not and if rejected whether whatever is done by the lower authorities may be called best judgment assessment. The learned Authorised Representative submitted that the issue raised in the additional ground is legal in nature ....
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....allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. In view of this decision of Hon'ble Supreme Court and the others relied upon by the learned Authorised Representative, we allow the proposed additional ground for our consideration and adjudication and mark the same as ground No. 2. 6. Since the issue raised in additional ground (ground No. 2) goes to the root of the matter, we prefer to hear parties on the same firstly. In support of the ground, the learned Authorised Representative drew our attention to the contents of assessment order and first appellate order with the submission that several defects have been pointed out by these authorities in the books of account maintained by the assessee. Thus, by implication, both the authorities have found the books of account maintained by the assessee as not worth relying to deduce the correct income of the assessee. The learned Authorised Representative submitted that under these circumstances, books of the assessee were rejected by implication. The learned Authorised Representative submitted further that there is no necessity to reject the books of ....
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.... of s. 144 while making the lump sum disallowance of various claimed expenditure without any basis. The AO completely ignored past history of assessee's own case. 7. The learned Departmental Representative, on the other hand, tried to justify the actions of the lower authorities in making and upholding disallowances out of the claimed expenses and depreciation. He referred following decisions in support : 1. MCorp Global (P) Ltd. vs. CIT (2009) 222 CTR (SC) 110: (2009) 19 DTR (SC) 153: (2009) 309 ITR 434(SC); 2. S. Sarabhaiah Shetty & Sons vs. CIT (1967) 64 ITR 175(AP); 3. CIT vs. Margadarsi Chit Funds (P) Ltd. (1985) 44 CTR (AP) 5: (1985) 155 ITR 442(AP). 8. Considering the above submissions in view of the orders of the lower authorities, material available on record and the decisions relied upon, we find substance in the contention of the learned Authorised Representative that books of accounts maintained by the assessee may be rejected by the AO, impliedly or specifically. In other words, if the AO has pointed out several defects in the books of accounts and has not found it reliable to deduce correct income of the assessee, rejection of book....
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....n the basis that it is not verifiable. The learned CIT(A) agreed with the defects pointed out by the AO in the books of account maintained by the assessee. He also observed further defects in the books of account maintained by the assessee. These defects have been noted by the learned CIT(A) in page Nos. 2 to 6 of the first appellate order. He has noted that the books of accounts have not been properly maintained by the assessee. These have not been maintained on regular basis and have been prepared at the end of the year. To support this observation, the learned CIT(A) has referred audit report dt. 15th July, 2006 wherein it has been also observed by the auditor that in some cases vouchers were not found. Besides, the auditor has also noted that the partners have failed to explain some bank entries. The learned CIT(A) has also noted that the assessee has not maintained separate books for civil contract work and JCB machine which was also given on hire, hence two separate trading activities were involved. In conclusion, the learned CIT(A) at page Nos. 5 and 6 of the first appellate order has noted that the books of account prepared at the end of the year are not able to give correc....
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....basis or without making any reference of comparable cases. The AO has completely disregarded the provisions of s. 144 while making disallowance of various expenditures claimed by the assessee. From the assessment order, it is apparent that after rejection of books of account, the AO has arbitrarily and without considering past history of the assessee made lump sum disallowance at a very high figure. He completely ignored the past history of the assessee's own case which is apparent from yearwise details in the format given in Table in the foregoing para. It is a settled law that past history is the best guide for application of net profit rate and this has been held by this very Bench in assessee's own case in different assessment years mentioned above. The learned Departmental Representative has also furnished the copy of the assessment order for the asst. yr. 2007-08 in assessee's own case pertaining to subsequent assessment year wherein the AO on the same facts where the expenses were not vouched assessed the income of the assessee by applying the net profit rate of 8 per cent. Thus when in past and in subsequent assessment year the income is assessed by the AO by ap....