TaxTMI 
TaxTMI 
2014 (3) TMI 1149
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.... ld. CIT(A) has grossly erred in confirming the rejection of books of account by the AO u/s 145(3) and in further holding that section 144 was implied invoked, when even the basis to apply NP rate of 12% was not confronted to assessee in assessment. 2. That the ld. CIT(A) has grossly erred in law and on facts to restrict the estimation of income by application of NP rate of 10% on gross contractual receipts, against 12% applied by the A.O. 2.1. That the NP rate of 10% substituted by the ld. CIT(A) is not only arbitrary, highly excessive and without material, but also not consistent with the accepted past history of the case 2.2. That most plausible contentions raised before the ld. CIT(A) supported by cogent material, justifying the declared results, has been wrongly brushed aside by the ld. CIT(A). 3. That the ld. CIT(A) was not justified in allowing depreciation, after upholding estimation of income by application of flat NP rate. 4. That the order under appeal, to the extent disputed hereinabove, is wholly against law and facts of the case." 3. The brief facts of the case as per AO's order, are reproduced hereunder for the sake of ....
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....t component of the expenditure claimed by the assessee contractor, the books of account of the assessee are being rejected after invoking provisions of section 145(3) of the Act. 2.2. Keeping in view the nature of business i.e. contractor business, the next relevant question is of application of appropriate net rate of profit on gross turnover to arrive at correct income of the assessee. For this purpose, a net profit rate of 12% is being applied on the gross turn over of Rs. 12,14,41,449/-. Gross receipt for the year under consideration Rs. 12,14,41,449/- Less: Material supplied by the department Nil Balance Gross Receipts Rs. 12,41,41,449/- For this purpose, a net profit rate of 12% is being applied on the gross turn over of Rs. 12,14,41,449/-. Therefore, the income of the assessee is being determined at Rs. 1,45,72,974/-. 4. The AO while applying net profit rate of 10% relied upon the decisions of various courts of law, as under: i) Decision of Hon'ble Punjab & Haryana High Court in the case of M/s. Parbhat Kumar in ITA No.293 of 2008 dated 14.11.2008. ii) Decision of ITAT Chandigarh in the case of M/s. Ess Ess Builders (P....
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....ners are statutorily allowable whereas interest has been paid to Bank for the term loan and working capital loan for the running of business as the firm is short of its own capital. Hence the same is also allowable. In case the above expenses are added to the net profit it will give net profit rate of 16.15% which is quite high in this business. The AO while framing the assessment rejected the books of account and made best judgment assessment by applying net profit rate of 12% and assessed the income at Rs. 14572974 which is more than 6 times of the returned income. 6.3. The Ld. counsel further submitted t hat the ld.CIT(A) confirmed the rejection of books of account but reduced the net profit rate to 10% from the rate of 12% applied by the A.O. That in all the earlier years books of account have always been accepted and assessments have been framed at the declared result except for minor disallowances out of expenses. The method of Accounting followed by the appellant firm is consistent from year to year and the books of account for the year under appeal have also been maintained on the same lines as in the earlier years. There is neither any change in the method of accounting....
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....not possible to produce all the workers before the AO after a gap of more than 4 years. During the course of assessment proceedings the appellant was not required to produce any worker. As regards the non availability of addresses of workers it is submitted that these workers mainly come from far flung places and the assessee has no means to verify their addresses. Even the AO's remark that proper authentication of various expenses debited to Profit & Loss A/c such as Tipper Maintenance expenses is not there is absolutely vague and wild as nothing specific has been pin pointed suggesting lack of authentication of any such expenses. Books of account were duly audited and all bills/vouchers, muster/rolls etc were produced before and verified the AO. Hence there was no reason for the AO to invoke the provisions of section 145(3). Kind attention was invited to the following decisions of Hon'ble Punjab & Haryana High Court where the Hon'ble Punjab & Haryana High Court has held that in the absence of specific defects, the rejection of books and application of higher G.P. rate is not sustainable:- i) CIT V Ludhiana Steel Roll Mills 295 ITR 111 P&H) ii) CIT V Om Overseas ....
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....guided either by previous results of the assessee or some comparable case. v) 256 ITR 243 (Raj.) held after invoking the provisions of section 144 the AO is not bound to make additions to the declared results vi) DCIT V. Allied Construction (2007) 105 ITD 1 (Del.) (SB) - The ITAT while upholding the rejection of books u/s 145(3) primarily because of wrong system of accounting did not approve of estimation of income by application of net profit rate of 8% on the analogy of provisions of section 44AD observing that past results, as assessed finally, formed a reasonable basis of such estimation. AO was not justified in applying net profit rate of 8% to the contract receipts if past results show loss or nominal net profit rate. The AO while applying the 12% net profit rate relied on various Tribunal & High Court cases especially in the case of Parbhat Kumar where the rate of net profit was restricted to 12% by ITAT when the CIT(A) had enhanced the assessed income. The revenue's appeal before the high Court was dismissed on the ground that no substantial question of law emerged. Thus it was not mandated by High Court that civil contractor be assessed by applying ....
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....the facts of the cases relied upon by the A.O. and CIT(A) are not comparable and even the Hon'ble High Court has held that application of fixed rate of profit depends on facts of each case and no rate can be fixed for all the cases. The working results of the year under appeal are already much higher as compared to the preceding two years as is reflected from the enclosed statement. From the perusal of above statement it will be observed that the net profit before salary and interest to partners, bank interest and deprecation for the year under appeal comes to 16.51% of contract receipt as against 12.86% for the assessment year 2008-09 and 9.87% for the assessment year 2007-08. The working results for the preceding two years were accepted by the department as the assessment for the assessment year 2007-08 was made u/s 143(3) and assessment for the assessment year 2008-09 was made u/s 143(1). In view of the working results for the year under appeal are much better as compared to the preceding two years. The AO & CIT(A) had no basis to apply the net profit rate of 12% without allowing the interest and salary to partners, depreciation and bank interest. Accordingly the working results....