TaxTMI 
TaxTMI 
2015 (9) TMI 1505
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....to the case of the assessee with regards to rejection of books of accounts; 3. On the facts and a circumstances of the case and in law the CIT(A) erred in allowing the appeal of the assessee by not appreciating the ratio laid down in the case of Mis Arihant Builders Developers and investors (P) Ltd. Vs ACIT (ITAT -Indore SB) 106 ITD 10 with regards to application of 8% as net profit of the business after rejection of books of accounts. 2. In this case upon examining the books of the assessee and seeking assessee's responses AO inferred that the assessee has worked out the work in progress on cash basis and the expenses actually incurred and shown as payable in respect of unbilled and incomplete work have not been taken into account while valuing the work In progress. The AO thus observed that closing work in progress is not reflected in the accounts on the basis of Mercantile system of accounting, therefore, profit declared by the appellant at Rs. 2,41,56,235/- is not the true reflection of its business affairs. The AO accordingly proposed to reject the book results u/s 145 of the Act and estimated the net profit @ 8% as against 6.95% declared by the appellant. The AO a....
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....such books of accounts have duly been audited by the auditor. The appellant since inception has been following mercantile system of accounting which is reflected in the books of account maintained by the appellant for the purpose of his business. The appellant has maintained all the books of account required for his business as per the accounting standards prescribed by ICAI. The submission filed by the AR of the appellant shows comparative figures of net profit declared by the appellant In the last 4 years as under: COMPARATIVE FIGURES FOR NET PROFIT SHOWN Sr.No. PARTICULAR 2008-09 2009-10 2010-11 2011-12 1. GROSS RECEIPTS 20.60CR 37.99CR 35.37CR 32.71CR 2. GP RATIO 11.90% 10.64% 11.32% 16.67% 3. NET PROFIT 1.32CR 2.41CR 2.20CR 2.45CR 4. NP RATIO 6.42% 6.35% 6.95% 6.74% That it is seen from the above that the net profit ratio in the case of the appellant in the past 4 years has been ranging between 6.35% to 6.95%. That in the year under appeal the NP ratio declared by the appellant is 6.95% which is the highest ~in the past 4 years. That it thus transpires from the above that the profit....
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....ile system is followed consistently. The total value of the items which constitute the stock of the end of the year is Rs. 36,67,528/- consisting of the following item. a. Iron and Steel: 732000/- b. Bitumen: 2030627/- c. L.D. Oil: 360000/- d. ement: 544904/- These items have been valued at cost to the assessee and it is not part of the work in progress or as understood in the case of paints referred to in the decision of Supreme Court in CIT v/s. British Paints India Ltd. 188 ITR 44 (SC). In that case no overhead or other expenses are includable in the above stock so as to have a direct impact on the true profits in order to invoke section 145(3). This has no impact on the work in progress as styled by the AO as against stock of material not consumed in the road making." From the above Ld. CIT(Appeals) observed that it is quite manifest from the above that the total value of items of stock at the end of the year as mentioned above have been valued at cost and do not form part of work in progress. Therefore, the ratio of the decision relied upon by the Ld. AO is not applicable to the facts and the circumstances of the present....
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.... GROSS RECEIPTS 20.60CR 37.99CR 35.37CR 32.71CR 2. GP RATIO 11.90% 10.64% 11.32% 16.67% 3. NET PROFIT 1.32CR 2.41CR 2.20CR 2.45CR 4. NP RATIO 6.42% 6.35% 6.95% 6.74% Thus the profitability declared by the assessee is quite normal as compared to preceding years. In these circumstances there is no case of rejection of books of accounts on account of variation in profitability shown by the assessee. The prime reason given by the AO in rejecting the books of accounts is regarding his reservation on valuation of work in progress and large outstanding liability for labour payments. As regards valuation of work in progress is concerned as explained by the assessee in his submission to the learned CIT(Appeals), AO's inference that valuation of work in progress is on cash basis is flawed. As the assessee is a contractor, the purchased materials and they are straight away used without any processing or conversion into other items where some overheads expenses are incurred. The items purchased and remained to be consumed in the construction of road are treated as stock in trade. Their value is the cash actually paid for a....
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....nik Lal vs, CIT 42 ITR 780 we find that in that case the Hon'ble High Court has expounded that when both the authorities below have found that the profits are not computable, no interference is called for. In our considered opinion in the present case it is not at all the finding of the learned CIT(Appeals) that the assessee's profits are not computable and we have also agreed with the above. Hence it cannot be said that the ratio from the Hon'ble Patna High Court decision is applicable in this case. Hence the Revenue's reliance on the same is misplaced. The decision of the Special bench of ITAT in the case of M/s Arihant Builders, Developers and Investors (P) Ltd. 106 ITD 10 has been relied upon by the Revenue in the grounds of appeal for the proposition that the application of 8% as net profit of the business after rejection of books of accounts is correct. In this regard since we have already found that the books of accounts are not liable to be rejected, this decision does not help the case of the Revenue. Furthermore the Hon'ble Delhi High Court has held in the case of Action Electricals vs. DCIT 258 ITR 188 that when books of accounts are rejected the estimation of sales/gros....