TMI Blog2023 (8) TMI 1020X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has duly got audited books of accounts under Company Act and also under Income Tax Act by a qualified Chartered Accountant. There is no adverse remarks made by statutory auditor as well as by Income Tax auditor which could provoke the assessing officer to reject the books of accounts. If there is a decline in the gross profit rate or net profit rate as compared to earlier assessment years and there may be hundred one reasons for the same and the assessing officer shall bring on record specific defects in the books of accounts of the assessee before invoking the provisions of section 145(3) of the Act. The rejection of accounts cannot be made simply on the reason that lower net profit rate in comparison to earlier years or with the other assessee placed in similar circumstances . The power vested with the AO u/s 145(3) of the Act has to be exercised judicially and not arbitrarily. When the assessing officer does not accept the assessee s method of accounting, then he has to resort to the provisions of the section 145(3) of the Act for computation of income by adopting such other basis as determined by him. As gone through the reasons advanced by AO for rejecting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 28/10/2010 on the day the search and seizure operation conducted is actually more than the cash found therefore, the observation of the A.O. that Assessee could not provide satisfactory explanation for the cash found that too after submission of the cash book itself which is not doubted is erroneous. Thus, we find no error in the findings and conclusions of the CIT(A) and we do not find any merit in this ground of appeal of the revenue. Accordingly, this ground is also rejected. - Shri B.R.R. Kumar, Accountant Member And Shri Yogesh Kumar US, Judicial Member For the Assessee : Shri S. B. Gupta, C. A.; For the Department : Shri H. K. Choudhary, [CIT] - D. R.; ORDER PER YOGESH KUMAR US, JM 1. This appeal is filed by the Revenue against the order dated 23.08.2016 of the ld. Commissioner of Income Tax (Appeals)-24 (hereinafter referred to CIT (Appeals) New Delhi, for assessment year 2011-12. 2. The Revenue has raised the following substantive grounds of appeal :- 1. The order of Ld. CIT (A) is not correct in law and facts. 2. On the facts and circumstances of the case, the CIT (A) has erred in law in deleting the estimation of income @ 50% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The addition on account of unexplained cash to the tune of Rs. 6.25 lakhs was made on account of non-explaining the cash found during the course of search action. The total cash found during the course of search action was Rs. 12,73,500/-, out of which searched team seized the cash of Rs. 11,48,000/-. Out of the same, of Rs. 6.25 lakhs was found at premises E-23 Karnapura, New Delhi, out of this Rs. 5.50 lakhs was seized and assessee was asked to explain the same and the assessee was not able to explain the cash of Rs. 6.25 lakhs. Hence, addition was made on the said count at Rs. 6.25 lakhs. Against the said addition, assessee went in appeal before ld. CIT(A). The ld. CIT(A) observed that the AO is not justified in rejecting the books of accounts and also he deleted all the above additions made by AO. Aggrieved by the order of the CIT(A) dated 23/08/2016, the revenue is in appeal before us by way of above grounds. 5. Ground No. 1 is a general ground and, therefore, does not require any comment or adjudication. 6. Ground No. 3 4: Rejection of accounts - CIT(A) has erred in holding that books of account cannot be rejected if the assessee has produced books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a reply to AO in letter dated 21.03.2013. He submitted that out of total 26 suppliers have borne transportation expenses at their end. The assessee has borne transportation expenses of the cement procured from the remaining 23 suppliers. The assessee had purchased cement from 26 suppliers. During the course of search upon the assessee, out of total 26 suppliers, the revenue carried out survey u/s 133A upon 6 parties. Further, during the course of assessment proceedings, AO issued summons u/s 131(1) of the Act to 14 suppliers, of which 8 appeared in person before the AO and confirmed the same. In case of other suppliers, they have filed reply before in AO s Daak Counter. Later, notice u/s 133(6) of the Act was issued to all 26 cement suppliers, of which notice remained unserved upon 5 parties and reply was not filed in case of 4 parties. The assessee furnished explanation and provided new addresses to ld. AO. Thereafter, AO did not made any further investigation though the A.O. was duty bound to carry out further investigation. 9. The Ld. AO made allegation that -Normally cement is procured by a contractor from two or three suppliers. The cement dealers did not provide documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examination were found to be correct by CIT(A). VAT Deptt. has not drawn any adverse inference with respect to assessee s purchase of cement. Copy of order passed by VAT Officer, Ward-52, Delhi in the case of assessee was submitted by assessee . No enquiry has been made by the AO with cement manufacturers like Ultratech Cement, Shree Cement, Birla White, J.P. Cement etc. to examine the role of cement suppliers as intermediaries passing on the purchase order procured from the assessee to these cement manufacturers. With respect to transportation arrangements, statement dt. 21.3.2013 of assessee s director Sh. S.P. Singh clarifies the position, wherein he deposed on oath that in some cases the delivery of the cement is arranged by the suppliers and most of the cases we have arranged our own transportation . The statement dt. 21.3.2023 has been verified from the books of the accounts comprising of Freight paid ledger account and GRs issued by transporters which show that the transportation, cartage and loading and unloading expenses of cement, to the tune of Rs. 23,51,536, are borne by the assessee direct for cement procured from 26 suppliers except for 3 suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Brothers. 13. The ld. AO made allegation that the assessee has not entered into any written contract with any of the three parties. The parties have been making the payment to the laborer in cash without any receipt for labour payments. The parties have neither paid any ESI/PF nor maintained any bill book. The parties did not have any cash balance at the time of execution of project and the entire sum received from the assessee has been withdrawn in cash. 14. However, ld. CIT(A) observed that:- During survey and before the AO, the parties have described the work done by them by way of labour supply work for civil construction work carried out by the assessee at various sites. The parties have been doing similar work for other government departments in the past. The bank statements of these parties depict various transactions other than those relating to the assessee. There is balance in their bank accounts even prior to the receipt from the assessee. There are deposits received by cheque from various agencies and these too have been withdrawn in cash. Some of these cash withdrawals have been used to pay the labourers at the assessee's site. It is neither necessary no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igation Department as well as to the AO during the course of statements recorded during assessment proceedings. IJMCPL has also worked for other government agencies too; that is not disputed by the AO. Non-submission of books and bills apparently cannot be held against assessee. Therefore, the ld. A.R. submitted that the conclusion of the AO that this party is bogus is not tenable and stands on flimsy premise. Per contra, the Ld. Departmental Representative relied on the orders of the A.O. Issue No. 4: Travelling Expense/Vehicle Hire Expense 19. The ld. A.R. submitted that Assessee had paid Rs. 21,84,012/- as vehicle hiring charges to two brothers namely Sh. Alok Gandhi (Rs. 17,12,622) and Sh. Rajan Gandhi (Rs. 4,71,390) for vehicles used by engineers, since as per the tender conditions, the assessee was to hire some vehicles for the engineers of the CPWD/DDA for overseeing the work at various sites. 20. The ld. AO made allegation that in the absence of books of accounts produced by Gandhis or written agreement between assessee and Gandhis, the expense is bogus and not allowable. However, the ld. CIT(A) observed that: The assessee was under contractual a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices, packing list and the Bill of Entry for Home Consumption with respect to material supplied by M/s Belhasa Project. The purchase bills have not been controverted by AO. The ledger account of the said party in assessee s books is a running account and has entries pertaining to the earlier assessment year i.e., AY 2010-11. The AO has not made any adverse observation in his order for AY 2010-11 in respect to the transaction with the said party. The Profit Loss account does not show any debit of any amount towards consultancy fees. Thus, no disallowance is called for under this head too. The Ld. AR relied on the above findings of the Ld. CIT(A) and the Ld. Departmental Representative relied on the findings of the A.O. Issue No. 6: Deduction by CWG Authorities 25. The ld. AO made allegation that the assessee has reduced Rs. 7.62 Crores from the gross receivables of projects receipts. But, in order to claim any deduction, it is necessary to first book the entire contract receipts and then claim a deduction. The assessee has not taken any legal recourse to recover difference of the projects for which it is otherwise entitled to including seeking arbitration proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts including cash books, bank books, journal book, journal ledger, debtor ledger, creditor ledger and stock register along with the vouchers and bills were produced before the AO in soft copy. Further, Assessee produced complete books of accounts in hard copy on 26.3.2013. Thus, AO s finding about books of accounts is incorrect. Regarding stock register, assessee submitted stock register to AO. Even the Form 3CD report submitted by the assessee along with its return of income clearly shows the auditor's certification regarding the stock of raw material, raw material consumed, closing stock etc., but the A.O. has not led any evidence to reject the auditor's report. Further, various judicial pronouncements state that the rejection of the books of accounts solely on the basis of stock register not being produced is not maintainable unless there is any incriminating evidence or circumstances. It has not been established that the books of accounts maintained by the assessee were incorrect or incomplete or the method of accounting adopted by the assessee was such that the true profits of the business could not be deduced there from. Therefore, the basic precond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court of Delhi in the case of CIT v. Jas Jack Elegance Exports (2010) 324 ITR 95. With respect to non-service of notice u/s 133(6) upon 5 parties, assessee submitted that 1 party had submitted its response and notice was thus in fact served upon it. The notice to 2nd party was incorrectly addressed by AO. The assessee provided new address of the remaining 3 parties. Further, with regard to 4 parties upon whom notice u/s 133(6) had been served but had not furnished their reply to AO, assessee stated to AO that it had no power to compel the parties to submit reply to AO. The AO has not made any further investigation upon these 9 parties nor has confronted outcome of any investigation to the assessee nor has drawn any adverse inference in the assessment order. The assessee had submitted complete detail of all purchase and expenses along with relevant bill/supporting of the same. No purchase/expense claimed by the assessee remained unverified. The Assessing Officer has not even made any allegation with respect to the amount of purchase/expense remained unverified. Even if otherwise, any expense remains unverified, it could at the most become a ground for disallowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counting standards as notified by Central Government have not been regularly followed by the assessee. 33. In the present case, there is no allegation by the assessing officer that the assessee has not fulfilled the above three conditions. More so, the present assessee is a Private Limited Company, which is required to maintain the books of accounts as per Company Act and required to be audited under Company Act as well as Section 44AB of the Act by a qualified Chartered Accountant. The assessee has duly got audited books of accounts under Company Act and also under Income Tax Act by a qualified Chartered Accountant. There is no adverse remarks made by statutory auditor as well as by Income Tax auditor which could provoke the assessing officer to reject the books of accounts. If there is a decline in the gross profit rate or net profit rate as compared to earlier assessment years and there may be hundred one reasons for the same and the assessing officer shall bring on record specific defects in the books of accounts of the assessee before invoking the provisions of section 145(3) of the Act. The rejection of accounts cannot be made simply on the reason that lower net profit rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gross CWG receipts and @ 3% of Gross non-CWG receipts, on the basis of various reports on CWG matters and material available on record and huge profitability reported in CWG projects. 36. The AO has alleged that - Reports of various agencies states that the cement consumption at various stadium sites and total consumption could not have been more than Rs. 14.37 lacs and Rs. 25 to 30 lakhs respectively. 37. Ld. CIT(A) reversed the findings of the estimation of income by holding that: o Through various letters dated 20.02.2015, 13.03.2015, 10.04.2015, 22.04.2015, 12.05.2015, 13.05.2015, 22.09.2015, 20.10.2015, 08.12.2015, 31.12.2015, 06.04.2016 and 23.05.2016, CIT(A) directed AO to examine his records and produce the copies of the response received from various agencies and other materials in his hands showing huge profitability reported in CWG projects. o Finally, on 31.05.2016 AO submitted that the reports were not traceable in spite of best efforts. He further stated that even the reports could not be found from Investigation Wing and, thus, expressed his inability to produce the desired report. o The CIT(A) thus held that there is no evidence whatsoever on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings and views should not be changed on the same set of facts and the position of law remaining the same, the rule of res judicata notwithstanding. In the case CIT v. Inani Marbles P. Ltd., (2009) 316 ITR 125 (Raj), it was held that since in the earlier year the gross profit rate declared and accepted was 2.51 per cent, the same rate would be applicable for the year in question also. o The net profit rate of 15.26% declared by the assessee in its audited accounts in itself is twice the rate of 8% stipulated in section 44AD of the IT Act, 1961 for construction business and, therefore, the net profit declared by the assessee is much more than sufficient. 40. The ld. D.R. relied on the order of the assessing officer. 41. We have heard both the parties and perused the materials available on record. It is to be noted that the assessing officer when reject the books of accounts, he thereafter usually conducts the assessment in the manner as prescribed u/s 144 of the Act (best judgement assessment). In other words, in a case where the books of accounts are rejected u/s 145(3) of the Act, the assessments to be made u/s 143(3) of the Act but in the manner prescribed u/s 144 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and thus duly appearing in its cash book. Assessee submitted cash book extracted from the hard drive seized during search with its letter dated 12.3.2013 to AO. It was further submitted that all the cash vouchers and bills may not indisputably be entered and incorporated in the cash book on the same date, which is usually the reason for non-matching of cash balance in hand with cash book as on the date of search. It is a well-settled law that if an assessee does not furnish explanation during the course of search but furnishes explanation during the course of assessment proceedings, such explanation has to be duly considered. 44. The Assessing Officer did not concur with the explanation and evidences submitted by the assessee stating following reasons: i. During the course of search operation the assessee could not provide satisfactory explanation. ii. During the course of assessment proceedings the assessee could not provide any specific explanation with evidence. iii. The explanation of the assessee was found to be vague and is an afterthought and that assessee was having excess cash as compared to the balance appearing in the cash book for which explanation was pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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