Shri Om Prakash Singh Vs ACIT (ITAT Agra)
Conclusion: When the books of accounts was rejected, the income of assessee was to be estimated on some reasonable basis for which comparable case and history of assessee could be taken as a guide. Thus, the N.P rate @ 8% applied by the authorities below was without any basis and material on records, the same was rejected and was considered fair to apply an average rate of earlier two years which was 3.50%.
Held: Assessee was a civil contractor doing civil construction work. Case was selected for scrutiny which got culminated into Assessment order passed under section 144 making trading addition of Rs. 1,42,88,131/-which was reduced to Rs. 1,14,80,575/- by CIT(A). CIT (A), confirmed the action of AO on principals, reduced the N.P rate from 12% to 8% placing reliance in the case of Mahesh Chand, Contractor Vs ITO in ITA No. 359/Agra/2011 that “Once books of accounts were rejected then AO had to estimate the income, but the estimation had to be done in a proper manner and on some basis. It was held that after rejection of accounts, the income of the assessee is to be estimated on some reasonable basis for which comparable case and history of the assessee can be taken as a guide. It was seen that rate applied by the authorities below was without any basis, no case comparable to the case of assessee had been cited, application of N.P rate @ 8% was applied without any material on records, ignoring the past trends of NP rate. However, the past history of assessee on the basis of Returns filed range from 1.88% to 2.04% except in A.Y 2010-11 where assessee agreed for being assessed at 5.25%. Keeping in finding that there was no evidence or reason for application of N.P rate of 8%, it was considered it fair, reasonable and logical to apply an average rate of two years i.e (A.Y 2009-10 N.P rate of 1.88% and A.Y 2010-11 N.P rate of 5.25%) which gave N.P rate of 3.50% as against 2.04% shown by the assessee on turnover. In this case after due consideration of past history average N.P rate was arrived and applied by the Division Bench. However, assessee should not be entitled for any other deduction such as depreciation and interest paid.
FULL TEXT OF THE ITAT JUDGMENT
This appeal, by the assesse, is directed against the order dated 30.06.2016 passed by the learned CIT(A)-I, Agra in the matter of assessment passed under section 144 of the Income Tax Act, 1961 for Assessment Year 2011-12 by the Dy. CIT, Circle-3, Mathura.The assessee has taken following grounds:
1. BECAUSE, the authorities below while framing the assessment under section 144 of the Act and sustaining the addition made therein was highly unjustified in discarding the past history of the ‘appellant’.
2. BECAUSE, while doing so the Ld ‘CIT(A)’ erred in law in overlooking and thereby not considering the binding decisions of the Hon ’ble Allahabad High Court and Hon’ble ITAT, Agra Bench.
3. BECAUSE, while confirming the addition the Ld. CIT(A) was highly unjustified in holding that if books are not maintained presumptive rate of 8% should have been applied by the AO ignoring the fact on records that appellant has maintained Books of Accounts which are audited and as such case do not fall under the provisions of section 44AD of the Act.
4. BECAUSE, application of profit @ 8% is without any basis, evidence and is highly excessive and unreal in the light of facts of the case.
5. BECAUSE, upon overall consideration of the facts and in the circumstances of the case authorities below were highly unjustified in treating the ‘Advance against Property’ amounting to Rs.3,00,00,000/- as ‘Unexplained Cash Credits’ without examining the Creditor, looking to its Books of Accounts and without any justifiable reason . The addition had been made and sustained purely on the consideration of suspicion and unfounded presumptions.
6. BECAUSE, alternatively, in any view of the matter no addition under section 68 can be validly made after rejecting the books of account as the credits pertains to same set of books which had been held unreliable by the learned ‘AO’ while framing assessment.
7. BECAUSE, alternatively, in any view of the matter, entire addition of Rs.3,00,00,000/- cannot have been validly made as the same is liable to be telescoped to the extent of addition made against extra profit as sustained.
8. BECAUSE, the ‘appellant’ denies levy of interest under section 234B of the Act as the Income of the assessee is subjected to TDS.
9. BECAUSE, while making the assessment the authorities below made various observations/ conclusions which are contrary to facts available on records. While making the addition submission made and evidences filed have been rejected arbitrarily.
10. BECAUSE, the order appealed against is arbitrary, illegal, contrary to the facts, material on record, law and principles of natural justice.
The ‘appellant’ reserves his right to add, delete, modify, alter or substitute any or all the grounds of appeal.
2. Vide Grounds No. 1 to 4 assessee has challenged the action of the authorities below in making trading addition by application of N.P rate @8% on contract receipts ignoring the past history of the assessee which as per judicial opinion is a material consideration for estimation of income while proceeding under section 144 of the Act.
3. The assessee is a civil contractor doing civil construction work. Return of Income was filed electronically on 28.09.2011 showing income of Rs. 29,32,732/-. Case was selected for scrutiny under ‘CASS’, which got culminated into Assessment order dated 28.03.2014 passed under section 144 of the I.T. Act making trading addition of Rs. 1,42,88,131/-which was reduced to Rs. 1,14,80,575/- by Ld. CIT(A) and Rs. 3,00,00,000/-in respect of advance received from M/s Easyway Solutions (P) Ltd.
4. On appeal, the Ld. CIT (A), confirmed the action of the learned Assessing officer on principals, reduced the N.P rate from 12% to 8% placing reliance upon ITAT, Agra Bench order in the case of Mahesh Chand, Contractor Vs ITO in ITA No. 359/Agra/2011, after observing on page-5 of the appellate order that “Once books of accounts are rejected then the learned Assessing officer has to estimate the income, but the estimation has to be done in a proper manner and on some basis.”
5. Shri. AnuragSinha, Advocate, Ld. Counsel of the assessee filed a Synopsis together with Paper Books in two sets. The Ld. A.R submitted that where books of accounts are rejected and profit is to be estimated, it is the past history which is the most relevant criteria and such a view has been approved in following cases by the Jurisdictional High Court: –
a) ACIT vs. D. M. Brothers(2010) 44 DTR 0013 (All) (APB-57 -62)
b) CIT vs. Target Construction Co. Ltd.(2015) 55 com294 (All)(APB-63-65)
c) Pragati Engineering Corporation vs. ITO (Order dated 5.04.2013 passed by Hon’ble Allahabad High Court in ITA No. 11/2012)(APB 66-70).
6. He submitted that similar view has been followed by this Bench of the Tribunal in the case of:-
a) ACIT vs. Jagdish Prasad Bansal (2012) 34 CCH 0446 (Agra) (APB 99 -102)
b) Sri Devendra Kumar vs. ACIT (Order dated 31.08.2017 in ITA No. 495/Agra/2015)(APB 108 -119)
c) Infra Developers Vs ITO, Order dated 30.03.2017 in ITA No. 52/Agra/2013(APB 120 -133)
7. The Ld. A.R thus submitted that in light of settled judicial position, learned CIT (Appeals) has erred in estimation of net profit disregarding past history and further placed reliance to the orders passed by the Agra Bench in the cases ofM/s Sri Siddheshwar Engineers India (P) Ltd 886 Takia Azad Gaan, Etawah Vs. ACIT- 5, Firozabad and Smt. ArchanaDutta, Mathura Vs ACIT, Circle-3, Mathura in ITA No. 330/Agra/2016. Copies of which were filed during the course of hearing.
8. The Ld. CIT, D.R Shri. Sunil Bajpayeestrongly disputed the arguments raised by the Ld. A.R, supported the order of the Ld. CIT(A), placed reliance upon the order passed by the ITAT Agra Bench in the case of Mahesh Chand Contractor (supra) and also submitted that estimate is a question of fact and not question of law. Therefore, reliance placed by the assessee to the case laws is fully misplaced.
9. We have heard both the sides, perused the material on records and the judgments relied upon. We agree with the argument of the learned Sr. D.R that estimation is a pure question of fact. It is also a fact on record that books of account are rejected by invoking provisions of Section 145(3) of the Act, pointing out discrepancies regarding details of sundry creditors, incomplete balance sheet, and no detail of sundry debtors. The assessee has not objected to the rejection of the books of account. Therefore, in absence of any challenge by the assessee the rejection of accounts is final. Thus, after rejection of accounts keeping in mind the judicial guideline available on issue, that after rejection of accounts, the income of the assessee is to be estimated on some reasonable basis for which comparable case and history of the assessee can be taken as a guide. The comparative position of trading results as appearing in the impugned order is reproduced as under:
