TaxTMI 
TaxTMI 
2022 (9) TMI 343
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.... for the assessment year 2013-14 as the lead matter. Before us the department has assailed the impugned order on the following grounds of appeal: "1. On the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in deleting addition of Rs.12,52,24,366/- made by the A.O on account of rejecting books of account u/s.145 and adopting the net profit at the rate of 10% of the gross contract receipt of Rs.125,22,43,661/- without appreciating the facts and evidences brought into light by the A.O during assessment proceedings. 2. Without prejudice to the above, the learned CIT(A) failed to appreciate the fact that the assessee himself had computed the net profit rate @10% of the gross contract receipt before the Hon'ble ITSE, Addl. Bench, Kolkata for the last seven A.Ys. 2006-07 to 2012-13 and the same has also been considered by the ITSE while passing the order u/s.245D(4) of the Income Tax Act, 1961. 3. The appellant reserves his right to add, amend or alter the grounds of appeal on or before the date, the appeal is finally heard for disposal." On the other hand the assessee as a cross-objector (CO No.04/RPR/2018) has assailed the impugned order on the following gro....
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....5 that was filed before the ITSC, Kolkata enhanced his aforesaid offer to declare his income from the contract business @ 10% of the amount of his gross contract receipts for all the aforementioned years. It was observed by the AO that the ITSC, Kolkata on the basis of the aforesaid offer of the assessee, had thereafter vide its order passed u/s 245D(4) of the Act, dated 28.09.2015 determined his total income for the aforesaid period i.e AYs 2006-07 to 2012-13 @10% of the gross contract receipts, which was accepted by the assessee and the corresponding amount of demand therein raised was paid by him. Also, it was observed by the A.O that ITSC in the case of the real brother of the assessee, viz. Shri Sanjay Kumar Agarwal who too was engaged in a business akin to that of the assessee had in his case for A.Y.2013-14 applied the net profit @10% of his gross receipts. 5. On the basis of the aforesaid facts, it was observed by the AO that as the assessee had voluntarily rejected his books of accounts for all the preceding years i.e AYs 2006-07 to 2012-13, therefore, the correctness of the opening and closing balances of different ledger accounts pertaining to the books of accounts of t....
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....ounts and had finally admitted profit rate of 10% of his gross receipts; and (ii). that the assessee in his application filed before the ITSC, Kolkata for the earlier years i.e AYs 2006-07 to 2012-13 had after referring to the peculiar nature of his business admitted that the expense in the absence of availability of proper supporting bills were debited in the books in the form of some bogus bills. Accordingly, it was observed by the CIT(Appeals) that for the aforesaid reasons the AO had after rejecting the books of accounts of the assessee estimated his income @10% of the amount of gross contract receipts. However, the CIT(Appeals) was not persuaded to subscribe to the view taken by the AO. It was observed by the CIT(Appeals) that the contention of the AO that once the rate of profit was voluntarily declared by an assessee in any previous year owing to the facts and circumstances of that year, the same rate of profit could safely be made a basis for assessing his income for the subsequent years without considering the facts and circumstances of the earlier years or the year in question was bereft of any merit and could not be accepted. It was observed by the CIT(Appeals) that as e....
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....) concluded that a mere rejection of the books of accounts of the assessee for the preceding years i.e AYs 2006-07 to 2012-13 did not justify their rejection u/s 145(3) during the year under consideration i.e AY 2013-14, specifically when the attributes for rejection of the books of accounts for the aforesaid preceding years was not prevailing during the year under consideration. In so far the estimation of the net profit rate @10% of the gross contract receipts, it was observed by the CIT(Appeals) that the same was not based on any cogent material, but was a mere extrapolation by the AO of the net profit rate that was adopted by the assessee in the preceding years i.e AYs 2006-07 to 2011-12. Also, it was observed by the CIT(Appeals) that in the case of two similarly placed group entities of the assessee, viz. Shri. Radhey Sham Agrawal; and Shri. Sanjay Kumar Agrawal, a similar rejection of books of accounts and estimation of their income @10% of gross receipts by the AO was vacated by his predecessor vide his order dated 03.01.2018. It was, thus, noticed by the CIT(Appeals) that the AO had failed to place on record any supporting or corroborating material which would justify adopt....
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....hus pleaded that the net profit adopted by the Assessing Officer at 10% is excessive and that the disclosed profit be accepted as such. 6.1.5. Application under Rule 46A of the IT Rules: Along with the written submission as reproduced above, the appellant has filed application for admission of additional evidence in the form of comparable cases, where net profit rate of 3.87% and below was accepted in assessment. It is claimed that the Assessing Officer refused to admit the explanation and evidence with regard to net profit disclosed by him, and therefore, it is requested that the additional evidence be admitted under Rule 46A of the IT Rules. 6.1.6. The additional evidence sought to be admitted, as aforesaid, is in the form of comparable cases where net profit rate of 3.87% and below was accepted in assessment, Rule 46A of the IT Rules reads as under: [Production of additional evidence before the [Deputy Commissioner (Appeals)] [and Commissioner (Appeals)]. "(1) The appellant shall not be entitled to produce before the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)], any evidence, whether oral or documentary, other than the evidence pro....
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....books and estimating the profit at 10%, relying upon the offer of 10% profit given before Hon'ble Settlement Commission. These parties had also filed application before Settlement Commission, as the appellant had done. In those cases also, the AO was the same and similar findings have been given in the assessment orders. As submitted on behalf of the appellant, the appeals of the two assessees of the group, M/s Radheshyam Agrawal and Sanjay Kumar Agrawal have been recently decided by Ld. CIT(A) - II, Raipur vide appeal no. 68/17-18 and 70/17-18 respectively, vide order dt. 03.01.2018. The CIT(A) - II, Raipur in those two cases held that rejection of books of accounts and estimation of income @ 10% of gross contract receipts does not have justification and he accordingly deleted entire edition made on this account vide his order dt. 03.01.2018. 6.1.8. The facts and circumstances of the appellant's case are similar and identical. Apparently, the AO has based his assessment on the outcome of Settlement Commission proceedings for the block period covered during the search Action u/s 132 and has extended the same to the assessment year 2014-15. The AO has not brought on record....
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....ified by him, had however, not brought on record any such material defect in the books of accounts on the basis of which the deducing of the correct profits of the assessee's business for the aforesaid reason was jeopardized. 10. Before adverting any further, we deem it fit to cull out the provisions of Sec. 145(3) of the Act which contemplates the circumstances under which the books of accounts of an assessee can be rejected, and reads as under: "(3). Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144." On a perusal of the aforesaid statutory provision, it can safely be gathered that the books of accounts of an assessee can be rejected on satisfaction of either of the three situations, viz. (i). where the AO is not satisfied about the correctness or completeness of the accounts of the assessee; or (ii). where the method of accounting i.e, cash or mercantile system....
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....nts are either incomplete or incorrect is supported by the judgment of the Hon'ble High Court of Himachal Pradesh in the case of CIT Vs. Swastik Food Products (2015) 275 CTR 109 (HP). 11. As observed by the CIT(Appeals) the fact as it so remains is that the AO had rejected the books of accounts of the assessee for the year under consideration i.e AY 2013-14, for the reason that as the assessee in his application filed before the ITSC, Kolkata for the earlier years i.e AYs 2006-07 to 2012-13 after referring to the peculiar nature of his business had admitted certain irregularities in his books of accounts for the said preceding years and, on the said count had on a suo-motto basis declared his income from the contract business @10% of the gross contract receipts of all the said years, therefore, he was of the view that as the nature of the assessee's business during the year under consideration remained the same, thus, his income from the said stream of business i.e contract business after rejection of his books of accounts justifiably be estimated @10% of the amount of gross contract receipts. In sum and substance, the AO going by the suo-motto rejection of books of accounts and d....
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....; or in some cases such unaccounted expenses were set-off by introducing inflated expenses. As such, the aforesaid admission of the assessee in his application filed with the ITSC. Kolkata for the preceding years i.e AYs 2006-07 to 2012-13 in itself formed a substantial piece of evidence about the existence of the aforesaid infirmities and irregularities in his books of accounts for the said years. However, neither of any such infirmity, viz. (i). booking of any bogus purchases; or (ii). inflating of expenses by the assessee had either been pointed out by the AO while framing the assessment in the case of the assessee for the year under consideration i.e AY 2013-14 or ever admitted by the assessee. Apart from that, it is also a matter of fact borne from record that though certain incriminating documents evidencing the aforesaid infirmities had surfaced in the course of the search proceedings conducted u/s 132(1) in aforementioned preceding years, however, no such material evidencing such infirmities or irregularities in the books of the assessee for the year under consideration is discernible from the records. We, thus, are of the considered view that as the aforesaid peculiar fact....
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....epted, then, it would mean that once an assessee is visited with search proceedings and he after considering the incriminating documents unearthed during the course of such proceedings comes forth with a disclosure of his unaccounted income, then, in all the subsequent years despite there being no iota of evidence that the assessee had indulged in any such nefarious activities for garnering unaccounted income it is to be so presumed because of his chequered past. By no means such an incomprehensible observation of the AO can be accepted. As regards the reference to the "Standard Operating Rate" (SoR) by the AO to support his conviction that the income of the assessee from his contract business was justifiably determined by applying a net profit rate @10% to the gross contract receipts for the year under consideration, we are unable to concur with the same. As claimed by the ld. AR, and rightly so, as the SoR for works contracts fixed by the Government departments merely indicates the estimated price of the inputs and expenses and also an estimate of the physical quantity that would be required for execution of the contract, the same, thus, considering manifold factors is too far fr....