Books of account cannot be rejected on the basis of general findings

ACIT Vs. Shri Laxmi Narain Agarwal (ITAT Jaipur)- It is contended that the order of the ld. CIT(A) will reveal that no specific defects in the books of account were found by the AO. The assessee’s working site being at remote place, cash payment to labourer through self made vouchers becomes a necessary part of assessee’s business from year to year. The ld. CIT(A) has himself held that defects pointed out by the AO are general in nature. It is a settled law that books of account cannot be rejected on the basis of general findings. It is incumbent upon the AO to establish the specific defects as to non-ascertainment of correct taxable income.

Estimate arrived at by lower authorities cannot be interfered with unless estimate is demonstrated to be arbitrary or unjustified

We have heard the rival contentions and perused the materials available on record. The findings of the ld. CIT(A) are that defects in the books of account are general in nature which could not be controverted by the ld. DR . There is no specific defect as pointed out by the AO. In case of estimation of profit, Hon’ble Rajasthan High Court in the case of CIT vs. Gotan Lime Khanij Udyog (supra) has held that past history of the assessee is a best source for estimation. It is a settled law that an estimate arrived at by the lower authorities cannot be interfered with unless the estimate is demonstrated to be arbitrary or unjustified. The ld. DR could not demonstrate this aspect. In view thereof and respectfully the decision of Hon’ble Rajasthan High Court in the case of CIT vs. Gotan Lime Khanij Udyog (supra) and also ITAT Jodhpur decision in the case of Ajay Goyal vs. ITO, 99 TTJ 164, the order of the ld. CIT(A) on the issue of estimation is upheld. Thus the appeal of the Revenue is dismissed.

INCOME TAX APPELLATE TRIBUNAL,JAIPUR BENCHES, JAIPUR

BEFORE: SHRI R.P. TOLANI, JM & SHRI VIKRAM SINGH YADAV, AM

ITA No. 44/JP/2014- Assessment Year : 2008-09

C.O. No.9/JP/2014- (Arising out of ITA No. 44/JP/2014)

The ACIT Vs. Shri Laxmi Narain Agarwal 

Revenue by : Shri Raj Mehra, JCIT

Assessee by : Shri Manish Agarwal , CA

Date of Hearing : 21/10/2015

Date of Pronouncement : 26/10/2015

ORDER PER R.P. TOLANI, JM:-

The Revenue has filed an appeal against the order of the ld. CIT(A)-II, Jaipur dated 30-10-2013 for the assessment year 2008-09. The assessee has filed the cross objection.

ACIT , Central ,Circle-3,Jaipur vs. Shri Laxmi Narain Agarwal

2. The solitary ground of the Revenue is as under:-

”On the facts and in the circumstances of the case, the ld. CIT(A), Bikaner has erred in deleting the trading addition of Rs. 25,13,320/- made by the AO despite upholding rejection of books of account.”

3. During the course of hearing, the ld. AR of the assessee has not pressed Ground No. 1 of the assessee regarding upholding the rejection of books of account u/s 145(3) of the Act by the ld. CIT(A). The same is dismissed being not pressed.

4. The Ground No. 2 of the assessee is as under:-

”2. On the facts and in the circumstances of the case the ld. CIT(A) has grossly erred in upholding the action of the AO in treating the following income of Rs. 37,41,021/- as ”Income from other sources” without appreciating the fact that interest has been earned on the funds invested under business compulsions as per the terms of the contract and has direct nexus with business and sales tax refund is derived from business activities thus the same being business income deserves to be included in the net profits declared from the business activity of the assessee S.N. Particulars Amount

1. Interest income 34,00,483/-

                2.      Sales Tax Refund                   1,67,190/-
                3.      Interest on NSC                    1,73,348/-

5. Apropos Ground No. 2, it is conceded by the assessee that it is covered against the order of the ITAT in assessee’s own case in ITA No. ACIT , Central ,Circle-3,Jaipur vs. Shri Laxmi Narain Agarwal 845/JP/2008 dated 16-09-2010 for the assessment year 2005-06.

Consequently, the Ground No. 2 of the assessee is dismissed. 6.1 Apropos Revenue’s appeal, the ld. DR relied on the order of the AO.

6.2 On the other hand, the ld. AR of the assessee referred to the observation of the ld. CIT(A) which is reproduced as under:-

”During the course of appeal hearing the A.R. for the appellant submitted that the appellant was maintaining day today books of account which were produced before the AO. The AO was satisfied about the sales and purchases and no significant defect could be pointed out by him. In view of this, it was submitted that the rejection of books of account and consequent addition was not justified. In this regard, the A.R. placed reliance on several judicial decisions. It was submitted that the trading result declared by the assessee are as under:-

       A.Y.         Turnover           Net profit                  %
       2005-06      13,47,58,070       85,21,138                   6.32%
       2006-07      25,43,17,713       1,58,25,331                 6.22%
       2007-08      45,58,00,906       2,75,99,856                 6.06%
       2008-09      70,72,99,853       4,15,35,325                 5.87%

From the perusal of the aforesaid table it would be evident that the turnover had been increased by more than 80% as compared to the immediately preceding year, however, the assessee has been able to achieve the profit rate at almost similar level which was declared in preceding year. It is an established fact that the better turnover could only be achieved by reducing the profit margin and due to the stiff competition the contracts were secured at the rates lower than the prescribed state PWD in basis crate schedule commonly known as BSR. The ld. AR prayed that the addition made by the AO be deleted.

ACIT , Central ,Circle-3,Jaipur vs. Shri Laxmi Narain Agarwal I have considered the facts of the case and the submissions made. The grounds on which the AO rejected the books of account could not be fully controverted by the A.R.. The discrepancies pointed out by the AO, although general in nature, could only be fully rebutted by the A.R.. In view of this, the rejection of books of account by the AO is held to be justified. As regards trading addition is concerned, the ITAT Jodhpur in the case of Ajay Goyal vs. ITO (99 TTJ 164) had held that the position of law is well settled that the best guide for estimation of the trading results after rejecting the books is either the past history of the assessee or any other comparable case. The past history of the assessee takes preference over a comparable case. The past history of the appellant is available in the instant case. The appellant had sown net profit of 6.06% in A.Y. 2007-08 and 5.87% in current year. As compared to this, the net profit in current years was 5.87%, it is also seen that although the turnover of the appellant had highly increased (more than 80%), the estimation of net profit by the AO is found to be without considering the past history of the appellant. Keeping in view the ration of the above said decision, it is held that the trading addition made by the AO, when the turnover of the appellant is increased more than 80% whereas the profit is decline only 0.25% in comparison to immediately preceding year.

Considering the entire facts and circumstances of the case, the addition made by the AO is deleted. The appellant succeeds on this ground.” It is contended that the order of the ld. CIT(A) will reveal that no specific defects in the books of account were found by the AO. The assessee’s working site being at remote place, cash payment to labourer through self made vouchers becomes a necessary part of assessee’s business from year to year. The ld. CIT(A) has himself held that defects pointed out by the AO are general in nature. It is a settled law that books of account cannot be rejected on the basis of general findings. It is incumbent upon the AO to establish the specific defects as to non-ascertainment of correct taxable income. Though the assessee has not pressed this ground but relief given by the ld. CIT(A) is based on proper consideration and find support from the decision of Hon’ble Rajasthan High Court in the case of CIT Vs. Gotan Lime Khanij Udyog, 256 ITR 243 (Raj.). Therefore, the order of the ld. CIT(A) may be upheld.

6.3 We have heard the rival contentions and perused the materials available on record. The findings of the ld. CIT(A) are that defects in the books of account are general in nature which could not be controverted by the ld. DR . There is no specific defect as pointed out by the AO. In case of estimation of profit, Hon’ble Rajasthan High Court in the case of CIT vs. Gotan Lime Khanij Udyog (supra) has held that past history of the assessee is a best source for estimation. It is a settled law that an estimate arrived at by the lower authorities cannot be interfered with unless the estimate is demonstrated to be arbitrary or unjustified. The ld. DR could not demonstrate this aspect. In view thereof and respectfully the decision of Hon’ble Rajasthan High Court in the case of CIT vs. Gotan Lime Khanij Udyog (supra) and also ITAT Jodhpur decision in the case of Ajay Goyal vs. ITO, 99 TTJ 164, the order of the ld. CIT(A) on the issue of estimation is upheld. Thus the appeal of the Revenue is dismissed.

 7.0 In the result, the appeal of the Revenue as well C.O. of the assessee are dismissed.

Order pronounced in the open court on 26/10/2015.