Section 44AD deems the net profit rate at 8% in cases where accounts are not maintained and turnover is up to Rs. 40.00 lacs. This however, does not mean that profit will lower when the turnover is more than Rs. 40.00 lacs.
The assessee had given comparative cases of net profit varying from 2.93% to 9.96% as per details in para 5.8 earlier. The ld. AR for the assessee has argued that 6.65% net profit rate declared by the assessee is reasonable and net profit rate of 8% adopted by the AO is not correct as rate of 8% is to be taken under section 44AD which is applicable only in case of assessees having turnover of less than 40.00 lacs. We are unable to accept the arguments advanced on behalf of the assessee. Section 44AD deems the net profit rate at 8% in cases where accounts are not maintained and turnover is up to Rs. 40.00 lacs. This however, does not mean that profit will lower when the turnover is more than Rs. 40.00 lacs. In fact with rise in volume, working becomes more economical and profitability may normally be higher. Each case has to be decided on its own facts and circumstances. Even in the comparable cases cited, the net profit rate had varied from 2.93% to 9.96%. These are big concerns who maintain proper accounts and also maintain quality standards. In case of the assessee as held earlier, accounts are not reliable and therefore, in our view on the facts of the case, estimation of net profit rate of 8% by CIT(A) is justified. The order of CIT(A) is accordingly upheld.
ITAT MUMBAI
Shri Rattan Singh Rathod
Vs
Jt. CIT-25(2), Mumbai & Others
ITA No.3719/Mum/2010,
ITA No.5110/Mum/2010
Dated – July 13, 2012
ORDER
PER RAJENDRA SINGH, AM: These cross appeals and cross objection of the assessee are directed against the order dated 24.3.2010 of CIT(A) for assessment year 2007-08. The disputes raised in these appeals relate to addition on account of cash credit, disallowance of purchases and sub-contract charges, estimation of net profit and disallowance of penalty. These appeals are being disposed of by single consolidated order for the sake of convenience.
2. The facts in brief are that the assessee who was the sole proprietor of M/s. Ratansingh & Brothers and was engaged in the business as contractor undertaking civil work contract for Municipal Corporation and semi-government organizations, had declared net profit of Rs. 1,38,49,505/- @ 6.55% on the gross contract receipts of Rs. 21,14,72,874/- for assessment year 2006-07. The assessee had also shown total cash credits of Rs. 54,50,000/-. The AO in the assessment, treated cash credits as income of the assessee as the same were not explained satisfactorily. The AO also disallowed the purchases to the tune of Rs. 2,87,57,709/- as not supported by proper evidence. The AO further disallowed claim of sub-contract charges payable by the assessee to the tune of Rs. 2,13,78,870/- in respect of related concerns and Rs. 2,23,83,278/- in respect of other concerns.
The AO had also disallowed claim of penalty of Rs. 2,88,353/-. In appeal, CIT(A) confirmed the addition on account of cash credit to the tune of Rs. 44,50,000/- and deleted the additions on account of bogus purchases and sub-contract charges and instead estimated GP profit @ 8% on the gross contract receipts. CIT(A) also deleted the addition made on account of penalty charges. Aggrieved by the decision of CIT(A), both the parties are in appeal before the Tribunal. Whereas the revenue has challenged the order of CIT(A) in allowing relief in respect of cash credit as well as in relation to dis allowance of purchase, contract charges and penalty, the assessee has disputed the order of CIT(A) in confirming the cash credit addition partly and estimated net profit rate at 8%. In the cross objections, the assessee has also disputed the finding of CIT(A) that there were discrepancies in the books of account and that these were not correct and complete and for not appreciating the comparable cases while estimating net profit.
3. We first take up the dispute relating to addition on account of cash credits. The AO noted that the assessee had taken fresh loans during the year from seven agriculturists aggregating to Rs. 24,50,000/- as per details given below :-
