TaxTMI 
TaxTMI 
2021 (3) TMI 120
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....ned proper books of account, the Assessing Officer rejected the book results and completed the assessment u/s.143(3) r.w.s 144 of the Act, determining total income at Rs. 14,13,90,320/-, inter alia, disallowing Rs. 9,32,70,290/- on account of sundry creditors. The AO also estimated the net profit at Rs. 3,91,03,845/- before depreciation, provision for taxation and other statutory disallowacnes. Being aggrieved, the assessee carried the matter in appeal before the first appellate authority, who deleted the addition of Rs. 9,32,70,290/- but confirmed the assessment made u/s.144 of the Act. Hence, both the sides are in appeal before the Tribunal. ASSESSEE'S APPEAL IN ITA No.42/CTK/2015 3. The revised grounds of appeal filed by the assessee are as under: "1. For that the order of assessment dated 30.12.2011 as well as the order of the Ld. CIT (A)-II, Bhubaneswar dated 11.04.2014 are void abinitio, against the natural justice, unjustified, erroneous, arbitrary, contrary to facts, bad in law, without jurisdiction and/or in excess of jurisdiction and legally untenable. 2. For that the Learned Assessing Officer has acted either assuming proper jurisdiction and/or in....
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....ng the accounts and estimate the income, but however, estimating the income @ 11% adopted on the facts and particular circumstances of the case without looking into the assessee's past record, when the net profit for various years, preceding and succeeding assessment years have been accepted by the department on year to year basis are without jurisdiction, arbitrary, illegal and not sustainable on fact and law. 8. That the Ld. A.O. as well as the Ld. CIT (A) has erred on fact and law in utilizing two comparable cases i.e. M/s. D.D. Pati & others AND ARSS Infrastructure Projects Ltd, behind the back of the assessee while applying the rate of profit at 11% to estimate the profit from gross contract receipt without confronting the same to the appellant, thereby depriving the assessee from reasonable opportunity of being heard and benefit of natural justice. Hence, the adoption of rate of profit @ 11% in the comparable case are not sustainable on fact & law. 9. For that while estimating the contract income, the Ld. A.O. has failed to give due deduction to the materials supplied by the department, interest paid to financial institutions, sales tax etc, and therefor....
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....nd law while confirming the estimation on profit relying upon the low profit which are again are not permissible to invoke the powers for rejecting the account. Hence, the order of the ld CIT(A) are liable to be set aside,.." APPLICATION DT.23.1.2015 FOR CONDONATION OF DELAY OF 206 DAYS 4. Ld counsel for the assessee referring to the affidavit of Shri Tushar Mishra, Managing Director of the assessee company, medical certificate dated 17.1.2015 and 28.6.2014 submitted that the Managing Director of the assessee company had gone with replacement of kidney few years back and all of a sudden fell ill and continued with the prolonged illness from 28.6.2014 to 16.1.2015. Therefore, the appeal could not be filed within the prescribed time limit and it was filed belatedly after 206 days. Ld counsel further drew our attention to medical certificate and affidavit of the MD and submitted that since the appeal memo, statements of facts, grounds of appeal and vakalatanama were to be signed by the MD but the assessee could not obtain the same and in absence of which, the assessee could not be prepared and filed within the prescribed time. Ld counsel further submitted that after being recove....
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....od of 180 days under section 35H(1) of the Central Excise Act, 1944, prior to its omission by Act No.49 of 2005 with effect from December 28,2005. The present case is not related to the Central Excise Act,. 1944 and relate to Direct Tax case covered under the Income tax Act, 1961 and Income tax Rules, 1962 made thereunder. In this judgment, Hon'ble Supreme Court noted that Section 35H(1) of Central Excise Act, 1944 was omitted by the Act, No.49 of 2005 w.e.f. 28.12.2005 and prior to that, Hon'ble High Court had no power to condone the delay but there is no power in the Statute in considering the application for condoning the delay filed by the assessee based on sufficient ground. Therefore, we respectfully hold that the facts and circumstances of the present case are dissimilar to the facts before the Hon'ble Supreme Court in the case of Hongo India Pvt Ltd (supra). Therefore, we respectfully observe that the benefit of the said decision relied by ld CIT DR is not available for the revenue in the case at hand. 9. Further, from respectfully vigilant and careful reading of the decision of Hon'ble Bombay High Court in the case of (supra), as also relied by ld CIT DR, we observe tha....
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....quite dissimilar and distinct from the case relied upon by ld CIT DR. Therefore, the benefit of the judgments of Hon'ble Supreme Court (Supra) and Hon'ble Bombay High Court (supra) is not available to the revenue in the present case. From the judgment of Hon'ble Supreme Court in the case of Collector, Land Acquisition vs Mst. Katiji (supra), as strongly relied by the ld counsel of the assessee, wherein, it has been held as under: "4. When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay. 5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. 6. It must be grasped that the judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so." 11. Respectfully following the ratio of the decisi....
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.... action for rejecting books of account by the AO. Ld counsel submitted that the rejection of books of account may kindly be set aside and book results of the assessee reflecting the audited books of account should be accepted and considered for calculating the estimated income of the assessee. Ld counsel submitted that the AO has rejected the books of account of the assessee in violation of principles of natural justice. He also pointed out that right from AYs 1983- to 1984 to 2012-13, the case of the assessee were under scrutiny proceedings and no doubts have been raised by the AO during assessment proceedings of any of the these years and, therefore, the baseless allegation levelled by the AO against the assessee in rejection of books of account may kindly be dismissed. 13. Replying to above, ld CIT DR submitted that the assessee has shown 1.98% of average profit from 2008-09 to 2010-2011, including present assessment year 2009-10, on total turnover during work contract business and the AO in para 2.1.2 at page 2 of the assessment order has categorically stated about the defects and doubts regarding correctness of the books of account of the assessee. Ld CIT DR submitted that ....
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....'ble Supreme Court in the case of CIT vs. British Paints India Ltd., 188 ITR 44 (SC). 15. In this judgement, Their Lordships speaking for the Hon'ble Supreme Court clearly held that it is not only the right but the duty of the AO to consider whether or not the books of account disclose the true state of affairs and whether the correct income can be deducted therefrom. It was also observed that it is incorrect to say that the AO is bound to accept the system of accounting regularly employed by the assessee, the correctness of which had not been questioned in the past. There is no estoppel in these matters and the AO is not bound by the method followed by the assessee in the earlier years in the present case. We are satisfied that the AO has given sufficient reasons regarding defects & deficiencies of completeness and correctness of books of account, which could not reflect and disclose the true state of affairs and correct income of assessee for the period under consideration. The assessee failed to do and thus, in our considered opinion, the AO was right in rejecting the books of account of the assessee. From the relevant part of the first appellate order at pages 12,13 & 14, we....
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....ing assessment years 2006-07 to 2008-09 and subsequent assessment years 2009-10 to 2011-12 including profit percentage declared by the assessee during present assessment year 2009-2010 and submitted that in the immediately preceding, succeeding assessment year present assessment year, the assessee has shown average profit at 1.98%, which was higher than the succeeding assessment year 2010-2011, wherein, the assessee has shown net profit at 1.86%. Therefore, the book results of the assessee cannot be doubted in any manner. Ld counsel lastly submitted that the AO has estimated the income @ 11% of the gross turnover of the assessee without any reasonable and justified basis, which is very wild excessive, high and unreasonable. Therefore, same should be reduced to the declared percentage of profit as shown by the assessee or some reasonable percentage of 2.5% may be adopted keeping in view the entire facts and circumstances of the case and profit declared by the assessee during preceding and succeeding assessment years. 17. Pressing into service the preposition render by Hon'ble M.P. High Court in the case of Vrajlal Manilal and Co vs CIT, (1973) 92 ITR 297(MP), ld counsel for the a....
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....ndly be reduced to 2.50% of total contract receipts granting justice to the assessee. 19. Replying to above, ld CIT DR placing reliance on the judgment placing reliance on the judgment of Hon'ble A.P. High Court in the case of Maddi Sudarsanam Oil Mills Co vs CIT reported in MANU/AP/0334/1059 submitted that addition on the flat rate of 9.5% adopted by the Tribunal in estimating the gross profit is proper. Ld CIT DR further placed reliance on the decision of Hon'ble P& H High Court in the case of S.P.Construction vs ITO (2018) 68 taxmann.com 334 (P&H) and submitted that the adoption of net profit of gross profit was justified when the AO could not verify the various details. Further placing reliance on the decision of Hon'ble Calcutta High Court in the case of Amiya Kumar Roy &Bros vs CIT (1994) 206 ITR 306 (Cal), ld CIT DR submitted that the disclosure of low rate of profit combined with further circumstances, after rejection of book results of the assessee, the gross profit at 6-7% is justified. 20. Further placing reliance on the order of ITAT Cuttack bench in the case of B.Banamber & Co vs ITO (2017) 82 taxmann.com 69 (Cuttack), Ld CIT DR submitted that where the assessee ....
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....er, we observe that the Assessing Officer has given two comparable cases viz: D.D.Pati & Others (supra) and ARSS Infrastructure Projects Ltd (supra) and estimate the net profit @11% without considering the book results of the assessee for immediately preceding and succeeding assessment years, which has been declared by the assessee and accepted by the department at the back of the assessee because the assessee was not given opportunity to give his comments how the two cases are comparable in the present case. In the case of the assessee at hand, the appellant is a limited company, whereas in comparable cases, one of them is individual or partnership firm. The volume of work is much higher than these two comparable cases and the appellant is working over 35 different site Projects, whereas the comparable cases are working on one or two sites located at a particular place. Therefore, the profit percentage on civil contract depends on various factors i.e. the period of execution of work, cost of materials, availability of land and funds, wages estimated at the time of tender and such expenses at the time of execution, use of further funds, scattered nature of establishment and nature ....
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..... He also cited comparable cases of a dealer in solid spices and shown gross profit @ 22.2%. Hence, the AO rejected the book version and applied a flat rate of 10%. The matter travelled upto the level of Hon'ble High Court and the adoption of profit rate was confirmed. But in the present case, the assessee is doing contract works not dealing in solid spices. Therefore, the preposition of Hon'ble Calcutta High Court is not applicable to the present case. 30. In the case of B.Banamber & Co. (supra), the assessee himself computed net profit @ 6.30% of gross contract receipts and taking into consideration that profit, the Tribunal held that the net profit @ 8% is reasonable. On the other hand, in the present case, the average net profit declared by the assessee is 1.77% for five years and for three years i.e. during immediately preceding, present year under consideration and immediately succeeding year was 1.98% and department has accepted net profit declared by the assessee for immediately preceding and succeeding assessment year without any dispute. Thus, facts and circumstances of the present case are quite dissimilar and distinct from the facts of the present case. Therefore, we....
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....r i.e. 2009-10 comes to 1.77% of gross contract receipts after depreciation. The rate of net profit of contract receipts accepted by the department in the immediately preceding assessment year 2008-09 was 2.10%, net profit shown in the immediately succeeding assessment year 2010-11 is 1.86%, whereas the net profit shown by the assessee in the present assessment year is 1.66%, which is very low. However, the average of net profit for three years including immediately preceding and succeeding assessment year alongwith present assessment year comes to 1.98%. The assessee has submitted copies of assessment years of preceding and succeeding assessment years and these facts and figures have not been controverted by the department in any manner. 36. The contention of ld counsel for the assessee is that keeping in view the net profit declared by the assessee and accepted by the department during preceding and succeeding assessment year, the net profit @ 2.5% of total contract receipts may kindly be adopted. We are in agreement with this contention of ld counsel for the assessee that as the profit declared by the assessee during present assessment year is 1.66%, which is very low and whe....
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....to disallow the same. He deleted the addition of Rs. 57,14,131/- which was considered as other revenue income only taxed against by the AO." 39. On careful consideration of the rival submissions, first of all, we may point out that from the careful and vigilant reading of the assessment order, we find that after rejection of books of account, the AO proceeded to estimate the business income of the assessee from gross revenue accrued to him from woks contract and estimated the profit. We also find that at the last page of the assessment order, the AO has made addition of Rs. 90,16,186/- reported as other revenue as per profit and loss account but no details have been given either in the assessment order or in the computation of total income at last page of the order. In our humble understanding, since the AO after rejection of books of account u/s.145(3) of the Act, has estimated the business income of the assessee accrued to it from the business activities of works contract, therefore, it is not permissible to make another addition pertaining to the entries in the profit and loss account without specifying the same in the assessment order and without bringing out any adverse mat....
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....also submitted that the closing balance of sundry creditors as on 31.3.2009 i.e. at the end of present financial year 2008-09 was brought forward as opening balance as on 1.4.2009 and the same had been accepted by the AO without any disturbance for succeeding assessment year 2010-2011. Therefore, this amount cannot be disturbed in A.Y. 2009-10. 44. So far as the contention of the assessee regarding addition made by the AO on account of sundry creditors are concerned, this contention would be considered and adjudicated alongwith appeal of revenue and Grounds of revenue therein, challenging the deletion of addition of sundry creditors by ld CIT(A) in the subsequent part of this order. 45. Ground No.14 of the assessee is not pressed, hence dismissed. Now, we take up appeal filed by the revenue in ITA No.293/CTK/2014 46. The revenue has taken the following grounds: "1. On the facts and in the circumstances of the case, the ld CIT(A) was not justified in law as well as on fact in deleting the addition of Rs. 9,32,70,920/- made by the AO on account of unexplained liability claimed by the assessee towards sundry creditors. 2. On the facts and in the circumsta....
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....Hon'ble A.P. High Court in the case of Indwell Construction vs CIT (1998) 232 ITR 776 (AP). Ld CIT(A) further observed that though sundry creditor is an item of the balance sheet, it is an off-shoot of the purchases or expenditure claimed by the assessee in its profit and loss account. Therefore, ld CIT(A) deleted the addition of Rs. 9,32,70,920/- made on account of sundry creditors. 50. Hence, the revenue is in appeal before the Tribunal. 51. Ld CIT DR placing reliance on the decision of Hon'ble Allahabad High Court in the case of CIT vs G.S.Tiwari & Co., (2014) 41 taxmann.com 17 (All) submitted that in an appropriate case, the Assessing Officer can make addition in respect of both cash credits under section 68 of the Act as well as business income estimated by him under section 44AD after rejecting books of account maintained by assessee finding those books as unreliable. Supporting the orders of lower authorities, ld CIT DR submitted that the AO has recorded detailed 11 reasons in para 2.1.2 of assessment order for rejection of books of account of assessee establishing that the assessee has not maintained proper books of account based on which profit from business could be....
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....ixed date i.e. 10.8.2011, the assessee submitted all required documents called by the AO pertaining to the contract work undertaken and completed by the assessee during the relevant period. 54. Further, ld counsel submitted that the AO himself asked the assessee details at a very belated stage, which was submitted by the assessee on 30.11.2011 that was site-wise details of sundry creditors alongwith statement of sundry creditors. Ld counsel further submitted that after rejection of books of account, the amount shown in the balance sheet as sundry creditors cannot be a basis for making further addition because it is an off-shoot of the purchases or expenditures claimed by the assessee in its profit and loss account as per the decision of Hon'ble A.P. High Court in the case of Indwell Constructions vs CIT (1998) 232 ITR 776 (AP), which is not permissible to the AO to rely on the rejections of books of account for making for an exact item depicted in the profit and loss account. Ld counsel submitted that in the present case, the AO has rejected books of account and income of the assessee has been estimated as a whole basing on the best judgment, therefore, no addition was called fo....
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....of the case, which has been done in the present case. Hence have we upheld the rejection of books of account of the assessee by the Assessing Officer in the earlier part of this order. 58. On careful consideration of the rival submissions, first of all, we may point out that in the earlier part of this order, we have upheld the action of the AO and findings recorded by the ld CIT(A) regarding rejection of books of account after being satisfied from the reasons recorded by the AO in para 2.1.2 of the assessment order, wherein, 11 grounds have been given by the AO in doubting the correctness of the books of account of the assessee and rejected the same. We have also confirmed the findings of the ld CIT(A), wherein, he has upheld the action of the AO in rejection of books of account and proceeded to estimate the profit on the basis of materials available before the AO by using bast judgment principles. 59. In this scenario, it is ample clear that the books of account of the assessee have been rightly rejected by the AO. Now the controversy remains as to whether as per the decision of Hon'ble Allahabad High Court in the case of G.S.Tiwari & Co (supra), the AO can make simultaneou....
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....w of foregoing discussion, we respectfully observe that since the facts and circumstances of the present case are distinct and dissimilar from the facts of the case in the case of G.S.Tiwari & Co (supra),, therefore, the benefit of the ratio of judgment of Hon'ble Allahabad High Court in the case G.S.Tiwari & Co.(supra) cannot be extended to the revenue in the present case. 61. From the relevant part of the ld CIT(A)'s order, at page 17, we observe that the ld CIT(A) has followed the subsequent decision of Hon'ble A.P. High Court in the case of Indwell Construction (supra), wherein, Their Lordships held thus: "The pattern of assessment under the IT Act is given by s. 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in ss. 30 to 43D. Sec. 40 provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under s. 29 is to be made under s. 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the ITO may reject those books and estimate the income to the b....