TaxTMI 
TaxTMI 
2022 (6) TMI 1495
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....e case, the Ld. CIT(A) was justified in allowed extra relief beyond the AO on account of bank interest & finance cost to Rs. 2,36,58,670/- as a deduction out of the NP estimated. 3. Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in stating that the NP of 3.75% has been accepted for AY 201415 (page 9, last para, 10th line) when in reality the AO has estimated the NP @ 8% u/s 143(3), thus rendering the order of ld. CIT (A), perverse." 4. The order of Ld. CIT(A) is erroneous both in law and on facts". 5. Whether on points of law and facts & circumstances of the case, the Ld.CIT(A) was justified in giving a decision in favour of the assessee and against the revenue though there is no nexus between the conclusion of fact and primary fact upon which conclusion is based? 6. Any other ground that may be adduced at the time of hearing." On the other hand the assessee has objected to the order passed by the CIT (Appeals) on the following revised ground: "1. On the facts and in the circumstances of the case, the learned AO has erred on facts and in law in rejecting the books of accounts of the assessee without pointing out specific d....
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.... and rejected its books of account. Although, it was observed by the A.O that the turnover of the assessee from construction business was more than the limit provided u/s. 44AD of the Act, however, considering the facts and circumstances of the case he estimated its income @ 8% of its gross receipts and vide his order passed u/s.143(3), dated 10.03.2016 assessed the same at Rs. 10,71,67,261/-. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). It was observed by the CIT(Appeals) that the AO had rejected the audited books of accounts of the assessee on the basis of vague observations and without pointing out any substantial lapse which would have justified triggering of the provisions of Sec. 145(3) of the Act. It was noticed by the CIT(Appeals) that the assessment order suffered from certain contradictory observations of the AO, wherein, on the one hand she while framing the assessment had though observed that the books of account of the assessee were produced before her and were test checked, but then in contradiction of her own observation she had thereafter stated that the assessee was asked to produce its books of accounts alongwith vouchers to su....
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....nd, AO has not even mentioned that why are the books not reliable. Just because "many supporting bills may not match with the decorum and level of presentation" the books, of accounts cannot be rejected. After rejection of books when GP/NP is estimated by adopting a certain percentage it is the profit of business before taking into account the factors such as finance charges, depreciations, partners interest and remuneration etc. because these items do not depend on the business results. For the same level of business activities NP will be depended on the interest payment on loans and depreciation on assets. Thus the reasons that counts for relied that after adopting NP by estimate the AO should debit interest and depreciation as per records. Books are rejected because due to keeping the books of 'account not properly the profits shown is not likely to be true profit. However, interest expenses, depreciation, interest and remuneration of partner cannot be changed or manipulated and even if books are not relatable the figures of interest is relatable to the amount of loan raised and is verifiable from records. Similarly depreciation can be relatable to the opening WDV, and any a....
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.... percent has been accepted. In this result depreciation of Rs. 1,40,31,509 and partners interest & remuneration Rs. 2,53,59,397/- have been allowed. Thus, to maintain consistency and also looking to the fact that complete compliance was not made by the assessee I find the rate of 7 percent will meet the justice on which depreciation, finance charges and partners' remuneration an should be allowed. Taking these figures as per audited account the income of the assessee is computed as under: - Gross business receipt as per P & L account Rs. 1507169084/- , Net Income Rs. 105501836/- Less Depreciation allowed as per Act Rs. 10502339/- Less Partners Interest & remuneration Rs. 13406265/- Bank Interest and Finance cost Rs. 23658670/- Total Business Income Rs. 57934562/- Returned Income Rs. 51981710/- Amount of addition Rs. 5952852/- Present assessed income Rs. 107167261/- Amount of relief in appeal Rs. 492321599/-" 5. The Revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 6. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material availa....
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....ployed by the assessee. (2). The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assesses or in respect of any class of income. (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." (emphasis supplied by us) As can be gathered from a perusal of sub-section (3) of Sec. 145, the same as per the law as was available on the statute during the year under consideration contemplated three conditions on satisfaction of either of which rejection of books of accounts of the assessee with a consequential framing of assessment in the manner provided in Sec. 144 would get triggered, viz. (i). where the assessing officer 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 of accounting ha....
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....go to the very roots of the rejection of the books of accounts of the assessee by him. Our aforesaid conviction that in the absence of pointing out of any specific defect in the books of accounts of the assessee there would be no justification for the AO to reject the same is supported by the judgment of the Hon'ble High Court of Punjab & Haryana in the case of CIT Vs. Om Overseas (2009) 315 ITR 185 (P&H). In its aforesaid order the Hon'ble High Court while upholding the order of the Tribunal, had observed, that the rejection of the books of accounts of the assessee without pointing out any specific defect could not be sustained and had rightly been vacated by both the lower appellate authorities. Also a similar view had been taken by the Hon'ble High Court of Gujarat in the case of CIT Vs. Vikram Plastics & Ors. (1999) 239 ITR 161 (Guj). In its said order the Hon'ble High Court had upheld the order of the Tribunal which had set-aside the rejection of the books of accounts of the assessee for two fold reasons, viz. (i) that the AO had not pointed out any specific discrepancies or defects in the books of accounts of the assessee which were regularly being maintained; and (ii). that ....