Brief Facts of the Case
During assessment the the books of accounts were not presented to the AO and therefore the AO rejected books of accounts u/s 145(3) of I.T. Act. And proceeded to apply the net profit rate at 8% which was excessive and arbitrary and does not have linkage with the net profit being shown in earlier years when the books of accounts were not rejected.
Moreover in the appellant’s own case the A.O. has applied N.P. rate 5% which has been reduced by the CIT (Appeals) 4% in prior year’s assessment, on contract receipts. The A.O. did not advance any reason for adopting the rate of 8% for estimation of profit on contract receipts. No comparison has been made which similar cases of other assessee, in application of N.P. rate @ 8%. Even the A.O. has overlooked the immediately preceding assessment year’s history of estimation of income.
Question of Law
Whether profit % can be applied on estimate basis if books of accounts are rejected, without reference to earlier year’s profit % where books were accounts were not rejected or whether the Assessing Officer is justified in Assessing the profit at a rate higher than earlier year in which profit was assessed by Assessing officer without specifying the reason for the same?
Contention of the Assesse
The assessee submitted that in earlier year, the profit of the assessee was in the range of 2.06% to 3.02% and in assessment year 2009-10, the Assessing Officer adopted net profit rate of 5%, which was reduced by learned CIT(A) to 4% and therefore, in the present year also the order of CIT(A) should be confirmed.
The comparative chart of contract receipts, expenditure, net profit and percentage of net profit of three years is as under:-
