TaxTMI 
TaxTMI 
2021 (9) TMI 1515
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.... CIT(A) has erred on facts and in law in confirming the said arbitrary estimation of income. 2. On the facts and in the circumstances of the case, the Learned A.O has erred on facts and in law in enhancing the Gross Receipts of the assessee from construction contracts by Rs. 7,67,46,776/- i.e. from Rs. 95,04,23,092/- to Rs. 102,71,69,868/- merely on the basis of figures appearing in Form 26AS which is wholly arbitrary and unjustified and the Learned CIT(A) has erred on facts and in law in confirming the said enhancement of gross receipts. 3. Without prejudice to the above, on the facts and in the circumstances of the case, the Learned A.O has erred on facts and in law in making separate addition of Rs. 99,90,703/- on account of interest and Rs. 1,46,250/- on account of Miscellaneous Income already appearing in Profit & Loss A/c which is wholly arbitrary and unjustified and the Learned CIT(A) has erred on facts and in law in confirming the said enhancement to the total income. 4. Without prejudice to the above, on the facts and in the circumstances of the case, the Learned A.O has erred on facts and in law in not allowing deduction on account of depreciation allowance of Rs. 9....
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....ver, was not persuaded by the submissions made by the assessee and sustained the addition without granting any relief by way of a brief and laconic order. 6. Further aggrieved, the assessee preferred appeal before the Tribunal on both the counts i.e. (i) substitution of gross receipts as per annual statement in Form 26AS generated by the department; & (ii) estimation of business income by applying @8% at net profit rate. 7. When the matter was called for hearing, the learned counsel for the assessee reiterated the facts submitted before the lower authorities and pointed out that the assessee firm is engaged in civil contract business as a Government Contractor carrying out construction work on behalf of the Government department and PSUs. In this background, the learned counsel firstly submitted that the difference in the gross receipts between the books of accounts and the annual statement of the department (26AS) is on account of timing difference in recognition of income. 7.1 The learned counsel pointed out that the assessee has recognized the income when the 'right to receive' the income has accrued to the assessee and the amount has become legally due to the assessee. The d....
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....when the income accrues and becomes due as per accounting policy consistently followed and which is a perennial exercise. The accounts are audited and the amounts have been received from Government organizations which overriding fact should also be borne in mind. 7.3 It was next contended that the action of the AO in substituting the turnover would result in double taxation of the same income once in the year of advance received and later when the receipt is recognized as income on performance of work. 8. The learned DR for the Revenue, on the other hand, relied upon the action of the lower authorities. 9. It may be in a fitness of things to address the issue at this stage itself. The assessee has demonstrated on facts that as per the method of accounting adopted by him accrual of income is the key for it be a taxable event. Accrual of income depends on realization and conversion of advance to income as may be legally due to it on completion of corresponding work. The mismatch is thus continuing right from A.Y. 2004-05 onwards as demonstrated in the tabular statement. In the light of factual demonstration of the accounting practices adopted by the assessee where advance receipts....
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....s of one year cannot be applied to the other year without showing specific defects. It was contended that it is elementary that dynamics of business gets influenced by variety of factors peculiar to a business as also demand and supply environment. The broad argument raised on behalf of the assessee are listed hereunder: (i) The principles of res judicata do not apply to the income tax proceedings and each assessment is a separate assessment as held in several decisions including Bharat Sanchar Nigam Ltd. and another V. Union of India (2006) 282 ITR 273 (SC); ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335 (SC). (ii) Even where the best judgment assessment is framed, the same is to be done on some reasonable basis and cannot be done in a vindictive manner. For this proposition, following decisions were referred and relied upon: (a) State of Kerala vs. C. Velukuty (1966) 60 ITR 239 (SC); (b) Brij Bhushan Lal Parduman Kumar Vs. CIT 1978 CTR (SC) 134; (c) Dhakeswari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 0775 (SC); (d) State of Orissa vs. Maharaja Shri B. P. Singh Deo (1970) 76 ITR 690(SC); (iii) The net profit rate does not remain static with mathematical precession and....
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....nt in some earlier years is wholly unjustifiable and arbitrary. Such action is neither inconsonance with law nor in accord with the view taken by the AO in the subsequent assessment years. The learned counsel accordingly urged for restoration of book results as declared by the assessee. 12. We have perused the assessment order and the first appellate order. Both the orders are totally non-descript and has nothing worth to say for substitution of book results with estimated profits. Noticeably, in the assessment order, the AO has categorically made an averment to the effect that books of accounts have been produced by the assessee and test checked. The AO has not made mention of any material which could questions the correctness and bonafide of the book results declared. The AO is stoically silent on any kind of deficiency in books or excessive claim of any expenses etc. which could substantiate his action. It is incumbent upon the AO to record the inconsistency or incorrectness in the books which prevents the AO to ascertain true income chargeable to tax. The AO has neither rejected the books nor a single voucher was alleged to be unverifiable. In identically placed fact situation....
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.... should followed as noted hereunder: "There is no rule that the gross profit ratio should follow a constant ratio with mathematical precision. We further note that there has been a huge and over 100% increase in the turnover as compared to preceding year. Hence, the explanation that increase in turnover has affected margin cannot be brushed aside. In these circumstances, we uphold the order of the learned CIT(A) and delete the addition of 4.77 lakhs on account of low gross profit." 15. In ACIT vs. Ramesh Industries Ltd., the co-ordinate bench has observed as under: "The graph of the business profit is always not straight line but it fluctuates year to year. The reasons for fluctuations as given by the assessee that there was higher expenditure of electricity, stated to be main ingredient for the manufacturing of steel products & MS ingots. It is worth to mention that the AO has not given any specific reason for rejection of books of accounts. When the day to day consumption register was maintained and the sale/purchase were stated to be verifiable by supporting bills/vouchers, hence, invoking of the provisions of sec 145 that too in a cursive manner was not appreciable in the ....