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2019 (11) TMI 401 - ITAT JAIPURRejection of books of accounts - trading addition - Estimation of income by the AO by applying 8% NP rate and enhancement made by the ld. CIT (A) by applying 11% NP rate on gross receipts - HELD THAT:- AO has adopted the net profit rate as estimation of the income. Similarly the ld. CIT (A) has also applied the net profit though at a higher percentage for estimation of income, therefore, even if considering net profit for the purpose of estimation of the income, the average of past history of the assessee has to be the proper and reasonable basis. The average of the preceding three years 2006-07 to 2008-09 of net profit before tax, interest and depreciation comes to 5.11% in comparison to the current year’s net profit declared by the assessee at 5.38%. Therefore, the net profit declared by the assessee for the year under consideration is in line with the past history of the assessee and consequently even after the rejection of books of account no trading addition is warranted in the case of the assessee. There is another point involved in this matter regarding the closing stock shown by the assessee at ₹ 5,00,000/- regarding the contract amount which was not certified by one of the companies, namely, M.C. Nally Bharat Engineering Co. Ltd. and consequently the assessee has shown the same in the closing stock instead of recognizing the same as sales for the year under consideration. This is only a method of accounting and if the assessee has been following a consistent method of accounting for recognizing the revenue/sales subject to the certification of the work by the awarder company, then it shall have no revenue effect as the same will be shown as sales in the subsequent year. The assessee has also claimed that this amount of ₹ 5,00,000/- shown in the closing stock has been offered as part of the income of the subsequent year and, therefore, if an addition is made in respect of the said amount for the year under consideration, it would be double taxation. Since this is a method of accounting consistently followed by the assessee and having no revenue impact, then considering the said amount as part of sale is not justified. Accordingly, the addition made by the AO and enhancement made by the ld. CIT (A) are deleted. Interest on the fixed deposits was treated as income from other sources as against the claim of business income - HELD THAT:- Interest on FDRs taken for the purposes of guarantee furnished in relation to the contract will be part and parcel of the business income. Ground No. 2 is decided in favour of the assessee Penalty under section 271(1)(c) - addition being enhancement of income - HELD THAT:- In view of the finding of the Tribunal on quantum appeal when the said enhancement is deleted, the penalty levied under section 271(1)(c) will not survive. Even otherwise, the penalty levied against the addition made on the basis of estimation of income is not justified in view of decision of coordinate bench of the Tribunal dated 16.12.2016 in case of Shri Collector Ram Sharma vs. ACIT [2016 (12) TMI 1794 - ITAT JAIPUR] as relied upon by the ld. Counsel for the assessee. Accordingly, the penalty levied under section 271(1)(c) is deleted.
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