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Issues Involved:
1. Validity of reassessment proceedings initiated u/s 148 r.w.s 147. 2. Rejection of books of account u/s 145(3). 3. Application of net profit rate. 4. Separate disallowance u/s 40a(ia) after rejection of books. 5. Treatment of bank interest income. Summary: 1. Validity of reassessment proceedings initiated u/s 148 r.w.s 147: The assessee contended that the reassessment proceedings initiated u/s 148 were invalid as they were based solely on an audit objection without independent application of mind by the Assessing Officer (A.O.). The CIT(A) agreed, noting the reassessment was initiated due to an audit para and lacked new facts or information. The Tribunal upheld this view, citing the Supreme Court's decision in Indian and Eastern Newspaper Society Vs. CIT, which held that an audit party's opinion on a point of law could not justify reassessment proceedings. Consequently, the reassessment was declared null and void, and the department's appeal was dismissed. 2. Rejection of books of account u/s 145(3): The A.O. rejected the assessee's books of account citing various discrepancies such as non-maintenance of stock registers, improper vouchers, and self-prepared vouchers. The CIT(A) upheld the rejection, agreeing with the A.O.'s observations. The Tribunal concurred, noting the significant defects in the books of account justified their rejection. 3. Application of net profit rate: The A.O. applied a net profit rate of 12.5% based on a comparable case (Jain Construction Co.). However, the CIT(A) directed the A.O. to apply a net profit rate of 8.35%, considering the past history of the assessee's case, where the declared profit rate was better than the preceding year. The Tribunal modified the CIT(A)'s order to accept the profit rate declared by the assessee subject to depreciation, interest, and salary to partners, including interest to third parties. 4. Separate disallowance u/s 40a(ia) after rejection of books: The A.O. disallowed Rs. 13,85,860/- u/s 40a(ia) for non-deduction of TDS on job work payments. The CIT(A) deleted this disallowance, citing the ITAT Jodhpur Bench's decision in Goyal Bricks Industries, which held that once books are rejected and profit is estimated, no separate disallowance u/s 40a(ia) is justified. The Tribunal upheld the CIT(A)'s decision, finding no merit in the department's appeal. 5. Treatment of bank interest income: The A.O. treated bank interest income of Rs. 11,25,370/- as income from other sources. The CIT(A) reversed this, considering the interest and commission income directly linked to the business operations. The Tribunal found the facts unclear and remanded the issue back to the A.O. for fresh adjudication. Conclusion: The Tribunal allowed the assessee's cross objection and partly allowed the appeal, while the department's appeal was partly allowed for statistical purposes.
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