TaxTMI 
TaxTMI 
2015 (3) TMI 1319
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.... erred in law and on facts of the case in not accepting the contention of the assessee that the estimation of profit rate are made by the AO at 10 per cent amounting to Rs. 1,45,32,793 on the contract receipts of Rs. 14,53,27,930 as against 4 per cent declared by the assessee amounting to Rs. 58,13,117 is arbitrary and without any basis and reduced the net profit rate of 10 per cent to 7 per cent only resulting in addition of Rs. 43,59,838 to the returned income which is sought to be deleted." 3. In ITA No. 84/Asr/2012, the Revenue has raised following grounds of appeal : "1. On the facts and circumstances whether the learned CIT(A) was right in directing the AO to adopt net profit rate of 7 per cent of the total receipts instead of 10 per cent applied by the AO where no books of account had been maintained by the assessee. 2. On the facts and circumstances whether the learned CIT(A) was right in directing the AO to adopt net profit rate of 7 per cent of the total receipts instead of 10 per cent applied by the AO in view of the decision of Hon'ble Tribunal Chandigarh 'A' Bench in the case of Shivam Construction Co. and affirmed by the Hon'ble High Court of Punj....
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....P & H High Court in their order in IT Appeal No. 183 of 2007, dt. 14th May, 2007. In the said decision, it was held by the Tribunal that in the case of a civil contractor, net rate of 10 per cent of gross receipts was a fair estimate to substantiate the books of account with the evidences. In the case of the assessee, it is admitted that books of account have not been maintained nor can the evidences for purchases and expenditure relating to the contract business be furnished in the absence of books of account. In view of the above reason, the assessee was required to explain why the net profit of the assessee from contract business should not be taken at 10 per cent of the contract receipts of the assessee for the year as against 4 per cent declared by the assessee. The assessee requested for time upto 12th Dec, 2008 to furnish the explanation in this regard. 5. The assessee submitted the explanation dt. 12th Dec, 2008 which is reproduced at pp. 3 to 9 of AO's order. After considering the submissions of the assessee, the AO vide pp. 10 to 15 of his order observed and the relevant findings of the AO are reproduced for the sake of convenience as under : "The submissions made ....
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....sessee would not have factored in the expenditure on account of freight while quoting the rates for different contracts. As mentioned earlier, both Punjab where Ludhiana is situated and Jammu and Kashmir are part of India and the model of business as well as the modus operandi of business would be more or less the same. 4. Assessee's contention that the rate of profit depends on the nature of contract work, amount of contract-big or small, place of contract whether normal or difficult and restricted area, etc. and the same rate cannot be applied in all contract cases all over India is not acceptable. It is possible that the rate of profit may vary from contract to contract, depending on various factors. However, the onus would be on the assessee to prove, from its audited books of account and also supporting evidences that the rate of profit disclosed by it is true and correct. The assessee cannot claim, without any basis that what it has disclosed as its net profit rate is correct and should be accepted. He has to back his claim with evidences in support of the claim. The assessee has failed to do so in respect of its claim that the rate of profit declared by it is correct. ....
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....t possible for the assessee in as far as the expenses debited to the P&L a/c is concerned or the correctness of the income disclosed. There may be a possibility that the assessee may have inflated its purchases or inflated its expenses for the asst. yr. 2006-07, but the AO is not in a position to verify these facts because the assessee has failed to produce either the books of account or the details of expenses and purchases nor has it been able to furnish the evidences in support of the various purchases and expenses. The assessee cannot unilaterally fix the profit percentage as per its own wish without justifying the same with material evidences. Hence, to base the profit percentage of the assessee on the profit percentage for the asst. yr. 2005-06 would not be the correct course of action. Further, in the absence of the books of account and supporting documents and evidences, it cannot be ascertained whether the assessee, being a contractor, is hit by the provisions of s. 40(a)(ia) of the Act for any transaction. All the above factors are therefore material while estimating the profits of the assessee for the asst. yr. 2006-07. 6. The main contention of the assessee for workin....
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....he Hon'ble Tribunal noted that "in order to determine the correct rate of profit, we are regularly seeking guidance from this section and applying 8 per cent net profit rate". (d) CIT v. Ajay Construction The AO had applied the net rate of 8 per cent which was reduced to 4 per cent by Tribunal. The Hon'ble High Court did not sustain the order of the Tribunal. The matter was remanded to the AO for redetermination of rate of profit. The above decision would show that the reliance of the assessee on the above case laws is misplaced. In fact, it has been clearly held by the Tribunal in the case of Ram Jhanwar Lal that guidance can be sought from the provisions of s. 44AD. It has also been observed by the learned Members in the case of Shivam Construction Co. Ltd. there are many cases of the Chandigarh Bench where the net profit has been determined at 10 per cent. The contention of the assessee about crashing of the hard disc in which the books are claimed to have been maintained is not verifiable. In any case, since the trial balance was available and if all supporting vouchers/bills for expenses were available, the assessee could have reconstructed th....
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....sed under s. 143(3) of the Act without invoking the provisions of s. 145(3) of the Act. 2. That the learned AO has erred in law by making the best judgment assessment under s. 143(3) without invoking the provisions of s. 145(3) of the Act instead of making assessment under s. 144 of the Act." 8. The learned counsel for the assessee relying upon the decision of the Hon'ble Supreme Court, in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 argued that it is a legal issue and goes deep into the root of matter and having a great bearing on the tax liability of the assessee and therefore, prayed to admit the additional evidence. 9. The learned Departmental Representative, on the other hand, opposed the same. 10. We have heard the rival contentions and perused the facts of the case. The additional grounds raised by the learned counsel for the assessee are legal ground and the same go deep into the root of the matter and have a bearing on the tax liability of the assessee and accordingly in view of the judgment of the Hon'ble Supreme Court, in the case of National Thermal Power Co. Ltd. (supra), we admit both the additional grounds raised by the assessee.....
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....eas in the present Act, the AO is empowered not only to determine the total income, but also the loss and determine the sum payable by the assessee or refundable to the assessee, as the case may be, on the basis of such assessment. The assessment i.e. best judgment assessment is a distinct procedure assumed by tax law. For the sake of convenience, we reproduce s. 144 of the IT Act, 1961, hereinbelow: "Sec. 144(1) If any person- (a) fails to make the return required under sub-s.(1) of s. 139 and has not made a return or a revised return under sub-s. (4) or sub-s.(5) of that section, or (b) fails to comply with all the terms of a notice issued under sub-s. ( 1) of s. 142 or fails to comply with a direction issued under sub-s. (2A) of that section, or (c) having made a return, fails to comply with all the terms of a notice issued under sub-s. (2) of s. 143.' the AO, after taking into account all relevant material which the AO has gathered, shall, after giving the assessee an opportunity of being heard, make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment." 14. From the r....