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2016 (6) TMI 937 - ITAT DELHILow net profit ratio - assessee had not provided any justification regarding reduction in N.P. during the period under consideration. - Held that:- We have found that the A.O. has nowhere rejected the books of account of the assessee either impliedly or expressly. Therefore, without pointing out any defects in the book results of the assessee and without rejecting the books of account by invoking the provisions of section 145 of the Act, it is not permissible for the AO to proceed to estimate the N.P. rate @ 10.78 of the turnover without any basis. The AO has not pointed out any defect or deficiency in the claim of expenditure nor any expenditure has been held as bogus by the AO. AO asked financial results of the last three years and proceeded to make addition in this regard without confronting the issue to the assessee which is not a justified approach. In view of the above explanation of the assessee for reduction of N.P. rate is that the assessee follows cash system of accounting, wherein it is possible that expenses have been incurred on a particular work but the payment has not been received till 31.3.2008 and actually received and accounted as revenue after 31.3.2008 during the next financial period which resulted in to increase in N.P. rate for A.Y 2009-10 to 10.19% of turnover. The assessee also explained that he operates from his residence and due to cut throat competition, the N.P. reduced during the relevant period, above explanation has not been controverted by the AO or by the co and thus their findings are not sustainable. On the basis of the foregoing discussion, we are satisfied that the explanation given by the assessee to justify the fall in N.P. rate, as noted above, is acceptable and we are inclined to accept the same. Consequently, addition made by the AO and upheld by the ld. CIT(A) on account of N.P. rate is not sustainable and we direct the AO to delete the same. - Decided in favour of assessee Addition u/s 69 - Held that:- On careful consideration of all we have no hesitation to hold that the assessee could not establish that the cash deposits to ICICI Bank was from the cash in hand of new business of the assessee and no details of cash book and cash flow has been furnished. However, we are in agreement with the contention of the ld. AR and agreed by the ld. DR that in these set of facts and circumstances of the case, only peak balance can be taken for making addition and we order accordingly. Consequently, Ground No. 2 of the assessee is allowed on alternative prayer of the assessee and thus the AO is directed to take peak balance of deposits for making addition u/s 69 of the Act. Disallowance of short and excess expenses - Held that:- The assessee operates electrical repairing and maintenance business from his residence and he follows cash system of accounts. In these circumstances, we are in agreement with the contention of the ld. AR, also noted by the ld. CIT(A) that any stage of assessment proceedings the assessee was note asked to substantiate the debit of ₹ 2,67,234/- in the profit and loss account under the head short and excess The ld. CIT(A) also observed that the term short and excess suggest, any amount small or big, less received or paid in the day to day course of business may be debited/credited under this account. However, the ld. CIT(A) did not agree with factual position placed by the ld. AR during the appellate proceedings and confirmed the addition.From careful reading of the first appellate order, we clearly observe that the ld. CIT(A) also not raised any query in this regard nor made any investigation or verification about this claim of the assessee. Hence, in our considered opinion, this issue requires proper examination and verification at the end of the AO and thus the issue is restored to the file of the AO for fresh adjudication after affording the assessee due opportunity of being heard.- Decided in favour of assessee for statistical purposes.
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