TaxTMI 
TaxTMI 
2010 (10) TMI 1197
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....c. (4) This issue is about sustaining addition of Rs. 39,30,000/- made by AO u/s 41(1) of the Act. (5) This issue is about addition of Rs. 80,000/- made under section 69C. 3. The facts of the case are that the assessee is running a proprietary concern of civil contractorship under the name of 'Quality Construction'. It is carrying out construction activities with various public limited listed companies. During the course of assessment proceedings the AO noted that in the audit report auditors have mentioned that assessee is not maintaining any quantitative details regarding stock. This fact was also accepted by the ld. AR during the course of assessment proceedings. The AO then issued a show cause notice to the assessee asking why the books be not rejected. It was pointed out that books of account cannot be rejected merely on the ground that assessee is not maintaining quantitative stock register. The AO did not agree and held that assessee's stock details are not available because of non-maintenance of quantitative details. In absence of quantitative details, the books of accounts cannot be relied upon and, therefore, section 145 can be invoked. ....
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....uantities or otherwise with the final output. Accordingly it is not possible to fairly deduce the income of the assessee in absence of quantitative stock register and verification of closing stock. Our view is also supported by the decision in Ramchandra Ramniklal vs. CIT (1961) 42 ITR 780 (Pat). We accordingly uphold the finding of authorities below in rejecting the books. This ground of assessee is accordingly rejected. 6. Ground No.1, 2 & 3 are about rejection of books and estimation of net profit. The AO found that assessee has shown a net profit of 1.13% on a gross receipt of Rs. 4,63,01,650/-. Since in a case gross receipts are less than Rs. 40 lacs a net profit rate of 8% is applied under section 44AB. Considering this fact the AO applied net profit of 5% and enhanced the income by 3.87% resulting in addition of Rs. 17,91,873/-. The ld. CIT(A) confirmed the addition holding that application of net profit rate of 5% is reasonable. 7. We have heard the parties and carefully perused the material on record. In our considered view the authorities have not brought out any definite material for applying net profit rate 5% except estimating the net profit at that rate. Before ....
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....ed to exist on account of some contractual agreement between the parties or because of operation of law and accordingly assessee derives benefit from such remission or cessation. In the present case there is no overt act on behalf of the creditor or the assessee so as to infer that there is a remission by the creditor or cessation of liability by agreement or by operation of law. It is only a change of head from trading liability to unsecured loan. The genuineness of the trading liabilities have not been doubted either in the year when they were debited in the profit and loss account or in the current year. Therefore, it cannot become income of the assessee or the assessee cannot be said to have derived any benefit out of this conversion of trading liability into unsecured loan. Our view is supported by following judgments:- "(i) Chief CIT Vs. Kesaria Tea Co. Ltd. 254 ITR 434 (SC) The question is whether the circumstances contemplated by section 41(1) exist so as to enable the Revenue to take back what has been allowed earlier as business expenditure and to include such amount in the income of the relevant assessment year, i.e. 198586. fn order to apply sect....
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....sessment for any year in respect of loss, expenditure or trading liability which is incurred by the assessee, and subsequently during any previous year the assessee obtains, whether in cash or in any other manner, any amount in respect of such trading liability by way of remission or cessation of such liability. In that case, either the amount obtained by the assessee or the value of the benefit accruing to the assessee can be deemed to be the profits and gains of business or profession and can be brought to tax as income of the previous year in which such amount or benefit is obtained. Held,_ that it was an admitted position that there had been no allowance or deduction in any of the preceding years and, hence, there was no question of applying the provision as such. Section 28 of the Act deals with profits and gains of business or profession and clause (iv) thereof says that the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable as income under the head "Profits and gains of business or profession". In the facts of the present case, it could not be said that the assessee-com....
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....ies vs. ITO 277 ITR426 (Mad) All the income tax authorities treated the amount of Rs. 23,66,695 (the amount which was written off by the sister concern of the assessee) as income in the hands of the assessee and taxed it under section 41(1) of the Income-tax Act, 1961. On appeal the assessee contended that there was no finding that there was deduction of allowance made in the assessment of the assessee for any year and hence the provisions of section 41(1) had no application. Held -that section 41(1) creates a legal fiction and hence has to be strictly complied with if any addition to the income is sought to be made by the Revenue. Unless an allowance or deduction had been made in an earlier year in respect of loss, expenditure or trading liability there can be no addition under section 41(1). There was no finding of the Tribunal that any deduction or allowance was made in the assessment of the assessee in an earlier year. Therefore, the order of the Tribunal was set aside and the matter was remitted to the Tribunal for fresh consideration in accordance with law. (vii) Smartalk (P) Ltd. vs. ITO ACIT vs. Smartalk (P) Ltd. (2009) 313 ITR (A.T.) 96 (IT....
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....t telescoping effect should be given in case some trading addition is confirmed. Since while disposing of ground No.1 we have directed to apply net profit rate of 3.5% it will result into some addition. The AO will give telescoping effect. If net profit addition is more then no addition on account of household expenditure should be made. Accordingly, this ground of assessee is disposed of. The appeal filed by the assessee is partly allowed. ITA No.3372/Ahd/2008 Asst. Year 2005-06 (Assessee's appeal) 12. In this year the assessee has raised following issues - one is about estimation of net profit rate of 5%, second is about rejection of books, third is about claim of expenses of Rs. 4,86,503/- which has been disallowed by the AO. 13. The issue regarding rejection of books has been considered by us while disposing of the appeal of assessee for Asst. Year 2004-05. Since the facts and circumstances of the case are same to those of Asst. Year 2004-05 we uphold the rejection of the books for the reasons mentioned therein. The relevant ground of assessee is accordingly rejected. 14. Regarding applicability of net profit rate, we observe that while disposing of the appeal of as....
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....eal) 17. Following grounds have been raised by the Revenue :- 1. The ld. CIT(A)-XV, Ahmedabad has erred in law and on facts in deleting the penalty levied in respect of the addition made on account of net profit addition Rs. 1791873/- 2. The ld. CIT(A) XV, Ahmedabad has erred in law and on facts in deleting the penalty levied in respect of addition made on account of household withdrawals of Rs. 80000/- ITA No.2797/Ahd/2009 Asst. Year 2004-05 (Assessee's appeal) 18. The assessee has raised the following grounds :- 1. On facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in sustaining the penalty u/s 271(1)(c) of the Act on addition of Rs. 39,30,000/- on the ground of alleged remission of trading liability, even though the ld. AO & CIT(A) had accepted the fact that the trading liabilities were not remitted but existed in the books and were classified as unsecured loans. 2. On facts and in the circumstances of the case and in law, the ld. CIT(A) has while sustaining the penalty erred in treating the act of the appellant of classifying trade liabilities as unsecured loans as remission of trade liabilities. 19....
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....ce. With regard to the amount received from S the matter was in the realm of appreciation of evidence. Even if it is held that two views are possible, the inference drawn by the Tribunal, being the final fact finding authority, could not be held to be perverse. The cancellation of penalty was valid." Similar view has been taken in the following judgments also: Addl. CIT v. Badri Kashi Prasad (1993] 200 ITR 0206 (All) Prabhat Oil Traders v. ITO(No. 3) (1996) 218 ITR (A.T.) 0039 ITAT, Ahd. City Dry Fish Company v. CIT (1999) 238 ITR 0063 (A.P.) CIT vs. Mohd. Bux Sokat Ali (2004) 265 ITR 326 (Raj) ACIT vs. VIP Industries (2009) 122 TTJ 289 (Mum) 22. Our view that no penalty is leviable if impugned amount is disclosed in the return of income is supported by the decision of Hon. Allahabad High Court in the case of Smt. Govinda Devi vs. CIT (2008) 304 ITR 0340 (All). In that case assessee received lottery prize money in January, 1992 and disclosed the same in the return filed for Asst. Year 1992-93 and paid the taxes. The assessing authority passed an ex parte assessment order and ex parte penalty order in Asst. Year 1991-92. It wa....
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....of estimate and not on account of any concrete evidence of concealment, penalty cannot be imposed. Since no specific form of disclosure has been contemplated by the Income-tax Act, 1961 or the Rules there-under and the form of return prescribed, an assessee cannot be held guilty of non disclosure of income which was determined by applying the provisions of section 40A(2)(b). The assessee had made payments to its sister concern for a job work done. The Assessing Officer held that the assessee had made payment with a view to reduce its tax liability on the ground that the payment was far in excess of the actual expenditure incurred by the sister concern. The Assessing Officer imposed penalty. The Commissioner (Appeals) upheld the order. On further appeal, the assessee, inter alia, contended that penalty could not be imposed when the amount had been disallowed by invoking the provisions of section 40A(2)(b) of the 1961 Act ; that the quantum of the amount paid had been restricted by the Assessing Officer on estimation and there was no concealment of any income or furnishing of inaccurate particulars to invite penalty under section 271(1)(c) : Held, allowing the appea....