TaxTMI 
TaxTMI 
2018 (10) TMI 1585
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.... business of execution of civil construction contracts. During the course of the scrutiny assessment proceedings the assessee was asked to submit comparative chart GP/NP ratio for the current assessment year and for the preceding assessment year. The assessee furnished the requisite details. In the light of a low profit rate declared by the assessee, the financial results declared by the assessee and observations from the assessment completed u/s 143 (3) of the Act was analyzed as under :- Description / F. Y. F. Y. 2010-11 F. Y. 2009-10 F. Y.2008-09 Gross Receipts as per P & L Account 53,95,72,657/- 73,92,42,831/- 52,17,54,048/- Net Profit before interest and salary as per P & L A/c 1,13,42,266/- 1,13,25,562/- 67,50,752/- Net profit ratio as per tax audit report of the relevant F. Y. 2.10% 1.53% 1.29% Assessed u/s 143 (3) of the IT Act, 1961 Year under consideration 5% 5% 6. Having analyzed the profit rate. The Assessing Officer found that certain purchases/ creditors were unverifiable. The Assessing Officer further observed that wages and labour charges are also unverifiable and therefore, the Assessing Officer concluded by holding that the books of acco....
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....f book results and the other issue is regarding taxability of interest received by it due to delay in payment due to it, whether it is the business income or income from other sources. On perusal of the assessment order, it is clear that the Assessing Officer was driven to reject the book results, mainly on the ground that the profit returned on the contract receipt is very low and no stock register was maintained. It is also clear from the assessment order that the appellant had filed detailed explanation as to why there was fall in profit and produced all the books of account and vouchers for verification. The Assessing Officer simply rejected the explanation without giving any reason as to why the explanation was not accepted. Further the Assessing Officer had not pointed out any defect in the books of account maintained by the assessee. It is undisputed that the books of account were duly audited under the provisions of Section 44AB by a Chartered Accountant and the report was furnished in the prescribed form. Before rejecting the books of account, the Assessing Officer is duty-bound to give a finding as to how the correct profits cannot be deduced from the method of accounting....
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....ssessee......................" 7. In the present case, no finding was given by the Assessing Officer as to how the correct profit cannot be deduced from the books of account maintained by the assessee. The mere fact that there was lower rate of gross profit declared by the assessee as compared to the previous year would not by itself be sufficient to justify the addition. Nor does it lead to an inference that there was inflation of expenditure or suppression of receipts. The reliance for this proposition of law is placed on the decision of the Hon'ble Bombay High Court in the case of R. B. Bansilal Abirchand Spg. Wvg. Mills Vs. CIT (1970) 75 ITR 260 and on the decision of the Hon'ble Gauhati High Court in the case of Aluminium Industries (P) Ltd . Vs. CIT (1995) 80 Taxman 184. The another fact which driven the Assessing Officer to reject the books of account is non-maintenance of stock register. In our own opinion, non-maintenance of stock register is not fatal enough to reject book results. It is most appropriate in this connection to quote the observations of the Hon'ble Allahabad High Court decision in the case of Awadhesh Pratap Singh Abdul Rehman and Ors. Vs. CIT (1994) 210 ....
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.... from any legal infirmity which are based on appreciation of facts." 8. The stock register may be important for manufacturing industries but when it comes to the case of contracts of it may not be important as the entire material purchased, might have been consumed and charged to profit and loss accountant and the closing stock working progress has been shown by the assessee. In the circumstances, in our opinion, the non-maintenance of stock register alone cannot enable the Assessing Officer to reject the books of account. A coordinate bench of ITAT, Ahmedabad in the case of DCIT Vs. Paras Dyeing and Printing Mills Pvt. Ltd. (2010) 4 ITR (Trib.) (Ahd.) after reviewing the entire case- laws, held that the low profit cannot be the reasons for rejection of the book results. The Hon'ble Gujarat High Court in the case of CIT Vs. Vikram Plastic, 239 ITR 161 held that no specific discrepancies or defects in the books of account of the assessee has been pointed out, nor any material was brought to establish that the purchases and expenses had been inflated or the sales had been suppressed and in the absence of any such material or finding given, there was no justification in invoking the....
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....ssee conceded that interest did constitute a revenue receipt. The court however, held on the interest did constitute a revenue receipt. The court, however, held on the other question (arising in that appeal) that the said amount of interest cannot be taxed under the head "Income from other sources" which necessarily meant that it has to be taxed as a business receipt. It is true that on the question whether the interest constitutes income or not, the said decision is based upon a concession but we are of the opinion that it was a concession rightly made and is correct in law. Accordingly, we hold that interest is income and it has to be assessed as a business receipt. The question referred is accordingly answered in favour of the Revenue and against the assessee in the above terms. The appeal are disposed of accordingly. No costs." 11. Therefore, respectfully following the ratio laid down in the cases cited supra, we hold that the interest received by the assessee on account of delay in the payment of money due to it cannot be taxed separately but only as an income from business. Accordingly, this ground of appeal filed by the assessee is allowed in its favour. 12. In the resu....
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....pellant has not been provided with details of comparable cases relied upon 68 ITR 796 (Kerala) Joseph Thomas and Brothers. Vs. Commissioner of Income-Tax, Kerala & 210 ITR 103 (Calcutta) Commissioner of Income - Tax V. Eastern Commercial Enterprises [relied upon 125 ITR 713 (SC) ] Kishhinchand Chellaram V. Commissioner of Income- Tax. Bombay City 1] 5. The appellant should have been provided with an opportunity to rebut before rejecting the books of accounts and estimating the profits 64 ITR 175 (AP) S. Sarabhaiah Setty and Sons. V. Commissioner of Income - Tax, A. P & 62 ITR 528 (AP) Yakub Versey Laljee & Another V. Commissioner of Income - Tax, A. P. 6. Estimate should be based on some evidence and material 8 STC 770 (SC)_ Raghubar Mandal Harihar Mandal V. The State of Bihar 7. Best judgment assessment to be made (estimation shall have a rational nexus to the available material and the circumstances of the case) 60 ITR 239 (SC) State of Kerala C. Velukutty). In view of the facts and circumstances of the case and judicial pronouncements relied upon by the appellant, the Assessing Officer was not justified in rejecting the books of accounts by applying section 145 (3) o....