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2016 (5) TMI 196

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....l was justified in upholding the application of net profit rate on an estimated basis without there being any specific rejection of books of account by the AO? iii) If the answer to question No.(ii) is in affirmative,whether on the facts and in the circumstances of the case, the learned AO had sufficient reasons not to rely upon the books and documents produced by the appellant and applying an estimated net profit rate? iv) Whether in the facts and circumstances of the case, the learned ITAT is justified in applying a net profit rate of 9% on the total gross receipts without giving any reasons or relying upon any comparable case especially when in the case of appellant itself, the net profit rate of 2.48% had been accepted by the department for the assessment year 2005-06? v) Whether the finding of learned ITAT is perverse in so far as it has observed that the rate of 9% gross profit is applicable because the appellant is engaged in construction of residential buildings whereas the appellant is primarily involved in construction of industrial buildings?" 2. A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. On 24.7.200....

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.... bounced cheques/total mistakes could also not be considered for the purpose of examining gross receipts from business. The net profit rate of 10% was however upheld. The appellant filed appeal, Annexure A.6 before the Tribunal pleading that the CIT(A) erred in confirming the application of net profit rate of 10% on the turnover even though books of account had not been rejected by the Assessing Officer. Vide order dated 31.3.2015, Annexure A.7, the Tribunal partly allowed the appeal observing that net profit rate of 9% appeared to be reasonable though in the normal course the net profit rate of 8% would have been estimated. Hence the instant appeal by the assessee. 3. We have heard learned counsel for the appellant. 4. Learned counsel for the appellant-assessee submitted that the the Tribunal erred in applying the gross profit rate of 9% without thoroughly examining the matter. It was incumbent upon the authorities to have rejected the books of account first while adopting a certain rate of gross profit keeping in view the comparative cases. 5. A perusal of the impugned order passed by the Tribunal shows that after considering the overall facts and circumstances of the case, th....

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....ing Rs. 25,000/-. The assessee did not file copies of the bank account of the partners and, therefore, the Assessing Officer could not have verified the various payments received by the firm from bankers or payment taken directly from the customer by the partners. The assessee has shown wages payable of Rs. 9,38,500/- which were paid on 5.7.2007 and normally labour will not work for period of three months without receiving their payments. The assessee also did not file the details of purchases in the format given by the Assessing Officer. The assessee was having sundry creditors of Rs. 75,69,505/- and did not file any confirmation even in cases where sundry creditors exceed Rs. 1 lakh. Even regarding sundry debtors no confirmation was filed and as noted by the Assessing Officer even in the balance sheet the names of the sundry debtors to the extent of Rs. 1,66,00,000/- were not shown. No details of opening and closing stock were filed. The Assessing Officer has discussed and summarized this issue at page 5 in the following para:- "From the above discussion, it is clear that purchases made by the assessee are not subject to any verification. Sundry creditors and debtors are also n....

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.... the Act by the discretion so vested is neither unbridled nor unguided as it must be guided by reason i.e. should be preceded by reasons which, in turn, should be preceded by a perceptible process of reasoning based upon due consideration of all relevant facts. However, authorities under the Act appear to construe their jurisdiction as a discretion to apply a thump rule dependent almost entirely on the whims of a particular officer. The discretion to determine a net profit rate must necessarily be exercised on the basis of relevant factors which we shall enumerate but before doing so, would clarify that these factors are neither exhaustive nor a final word on relevant factors that may be considered while determining the net profit rate. A few significant factors are the past tax history of the assessee, if available, assessment order that may have been passed and accepted by the department, the nature of the assessee's business, an appraisal of the value of the contract, prevailing economic conditions vis a vis the assessee's business, the price of raw material, labour etc. the rice in price index as notified by the Central Government from time to time if applicable and i....