TaxTMI 
TaxTMI 
2023 (8) TMI 911
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....onsideration for deciding the above appeals en masse. 3. Grounds of appeal raised by the assessee as per lead case, in ITA No. 751/SRT/2018 for AY.2014-15 are as follows: "1. The Ld. CIT(A)-3, Vadodara has erred in law and in facts in rejecting the method of accounting regularly employed by the appellant. 2. The Ld. CIT(A)-3, Vadodara has erred in law and in facts in estimating the net profit of the appellant @ 15% of the turnover which is excessive and unreasonable in the facts and circumstances of the appellant's case. The Ld. CIT(A)-3, Vadodara ought to have assessed the net profit at a reasonable rate of profit. 3. Your appellant craves liberty to add, alter, delete or substitute any of the grounds of appeal herein above contained." 4. Grounds of appeal raised by the Revenue in ITA No.723/SRT/2018 for AY.2014-15 are as follows: "1. On the facts and circumstances of the case and in law, the CIT(A) erred in admitting additional evidence without calling for remand report from Assessing Officer thereby violating Rule 46A of the Income Tax Rules, 1962, and granted relief to the assessee without considering the adverse order of his predecesso....
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....tion 133(6) of the Act, was issued to 32 creditors but confirmations were not received. The assessing officer noted that assessee did not file copy of bills raised by the creditors, therefore, assessing officer held that assessee miserably failed to prove the genuineness of the creditors and therefore, made addition of Rs. 6,53,30,728/-, as unexplained cash credit. 8. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has partly allowed the appeal of the assessee. The ld CIT(appeals) has rejected books of accounts and estimated net profit at the rate of 15% on turnover by relying on the judgment of Apex Court in the case of Commissioner of Income-tax Vs. McMillan & Co. [1958] 33 ITR 182 (SC). The important findings of ld CIT(A) are reproduced below: "5.8 Relying on the decisions above, the rate of profit of 15% is estimated in the case of the assessee. However, perusal of the audited account for the A.Y. 2011-12, it is found that there is no interest paid to the outsiders, whereas, in the A.Y. 2013-14 & A.Y. 2014-15, the assessee has incurred Interest expenses which pertain to the loans which have been verif....
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....013-14, the net profit ratio @ 10.31% and for assessment year 2014-15, the net profit ratio @ 13.46% before remuneration and interest to partners should be considered for fair estimation of net profit. 11. Shri Jagasheth also pointed out that assessee has not submitted any additional evidence during the appellate proceedings before ld CIT(A). The Ld. CIT(A) has rejected the books of accounts of assessee by exercising his co- terminus power and made the estimated addition based on the turnover. In fact, whatever documents submitted by the assessee during the appellate proceedings were not used by the Ld. CIT(A), therefore the question of violation of Rule 46A does not arise. The Ld. Counsel also pointed out that Ld. CIT(A) has made estimated addition based on the audit report of assessee, which was already available on record before the Assessing Officer, therefore the addition made by the Ld. CIT(A) is purely on estimation basis on turnover, hence there is no additional evidence is used by the ld CIT(A), except the figure of turnover which was available before the Assessing Officer also during the assessment stage. Hence, there is no violation of Rule 46A of the Act as alleged b....
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....t be relied for estimation purposes. We agree with the plea taken by Ld. Counsel that receipts from customers/advance booking amount should not be taken into account for the purpose of computation of estimated profit. The agreed sale consideration has already been considered as part of turnover by assessee, thus advance received from customers or booking advance should not be added again in the turnover, as it would amount to double addition in turnover, which is not acceptable. 15. We note that in the assessee's case under consideration, the Ld. CIT(A) has rejected the books of accounts by exercising his co-terminus power and estimated the net profit @ 15% on Turnover. We note that ld CIT(A) used the turnover figure of the assessee from audit report of the assessee, for estimation of net profit. Such audit report was available before the assessing officer during the assessment stage, hence no any additional evidence have been used by the Ld. CIT(A) in estimating the profit of the assessee. Therefore, we note that there is no violation of Rule 46A of the Rules, as alleged by ld DR for the Revenue. 16. Learned DR also argued that Ld. CIT(A) ought to have considered separately ....
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.... account for fair and proper estimate which of course, would fall in the category of guesswork, but a honest guesswork. 18. Now, we shall take the arguments advanced by the Ld. Counsel for the assessee. The Ld. Counsel submitted that net profit estimation by the Ld. CIT(A) is arbitrary and it is neither based on accounting principles nor based on taxation principles. While estimating the net profit, the Ld. CIT(A) has considered the receipts/booking advance received from the customers. The advance/booking advance received from customers should not be the Turnover of the assessee and it should not be considered in the estimation. We note that the Co-ordinate Bench of ITAT, Surat in the case of Shah Virchand Govanji Jewellers Pvt. Ltd., in ITA Nos. 175 & 176/SRT/2020, order dated 12.09.2022, observed in para 12 of its order that once the Assessing Officer has accepted the sale against the advance of previous year, the assessee has offered due tax thereon, no addition against the advance was liable to be added. The finding of the Coordinate Bench, is reproduced below: "12. We have considered the rival contentions of both the parties and have gone through the orders of the ....
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....he Hon'ble Supreme Court in PCIT Vs Montage Enterprises P Limited (supra) held that where the High Court upheld the order of Tribunal in deleting the addition made under Section 68 in respect of trade advances on the ground of that the said advances were adjusted against sales made in the subsequent assessment years, the special leave filed against the said decision was to be dismissed. The Hon'ble Kolkata High Court in PCIT Vs Dutta Automobiles P Limited (supra) also held that where a Tribunal recorded finding of find that money in question was advance deposit received from customers on account of sale of motor cycle, the assessee being a dealer in automobiles, and whenever sale took place, within one or two months, the said deposits were adjusted against sale price of motorcycle, Section 68 would not apply. We find that Hon'ble Jurisdictional High Court in CIT Vs. Ayachi Chandrashekhar Narsangji (supra), though, on the context of repayment of loan in subsequent year, also held that when the department had accepted repayment of loan in subsequent years, no addition was to be made in the current year on account of cash credit. At the cost of repetition, we may mention that once the....
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....strued as fair and reasonable by taking guidance from section 44AD of the Act, wherein it was provided by the Legislature that in case an assessee is engaged in civil construction, and if gross receipts remains under a particular slab, then such assessee needs not to maintain books of accounts, and its profit can be assumed at 8%. Though this special provision is not applicable in the present case, because gross receipts exceeded the turnover provided under section 44AD, but again we are required to find out a reasonable percentage of income which could have been alleged as earned by the assessee out of such gross receipts. This formation of opinion at the end of the Tribunal met the approval of Hon'ble Gujarat High Court in the case of Koshor Mohanlal Telwala (supra). As against this, the AO has not collected any data either from other assessees who are engaged in this line of business, and who have developed identical projects. We have perused the finding of the ld.CIT(A) also, but the ld.CIT(A) has also not mentioned any attending circumstances for harbouring a belief that 20% could have been earned from this activity. Thus after taking guidance from the judgment of Hon'ble Guja....
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....inst the above decision the assessee has himself offered 8 per cent profit on the total receipts which should be considered fair and reasonable." 5.7 Hon'ble High Court of Madhya Pradesh in the case of CIT Vs Chandrika Towers [2005] 275 ITR 173 (MP) have also upheld Net Profit rate of 8% in case of builders. I am also in agreement with the Authorized Representative that ITAT, Jaipur in the case of H.S. Builders Vs ITO (1996) 86 Taxmann 214 (Jaipur-Mag) accepted the Net Profit rate of 6% considering the past history of the case. The head note of the case reads as under:- Section 145(1) of the Income-tax Act, 1961 - Method of accounting - Estimation of profits - Assessment year 1991-92 - Assessee, carrying on construction business, declared net profit of 5 per cent on gross receipts -Assessing Officer applied rate of 7 percent - Commissioner (Appeals) applied 10 per cent rate relying on a case purported to be comparable and by generalizing that normal rate of profit in construction business was 10 percent - In the preceding years rate of 6 per cent was applied in assessee's own case - Whether history of assessee's case itself was a guide in applying rate....