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2012 (6) TMI 447 - AT - Income TaxSearch action u/s. 132 Assessment completed u/s. 143(3) r.w.s. 158BC AO rejected books of account of the assessee AO estimated the income at 10% citing two comparable cases AO estimated the undisclosed income from construction activity for the block period and addition to this being interest accrued on amount advanced on the basis of calculations shown in the loose sheets Held that:- No specific reason has been given for applying the flat rate of 10% except stating that considering the nature of contract works executed by the assessee-company and the percentage of income admitted for other A.Ys. and also for the percentage of income admitted by other two comparable cases - considering two comparable cases relied to estimate the income, carry on business in one line viz. construction of irrigation works such as dams, canals, etc. which is not strictly comparable with the business of the appellant. As to the percentage of net profit amongst the two concerns there is a variation of 4.15% approximately - therefore the estimation of the rate of net profit @ 10% by the AO is arbitrary, not proper, not correct and illusory as the comparison relied upon by the assessing officer is without any basis and not in any way nearer to the facts of the appellant's case. No material was found during the search which could show suppression of income, no estimation of undisclosed income of block period by resorting to Section 145 could be made - a lower rate of gross profit declared by the assessee as compared to the previous year, would not by itself be sufficient to justify any addition - there is a reasonable cause for declining in net profit rate explained by assessee and it is found to be genuine. The low profit rate itself cannot be the reason for rejecting the books of accounts more so in the block assessment. The addition is not based on seized material to estimate the turnover and thereby estimate the income. Similarly, expenditure claimed in the regular returns, cannot be disallowed in the block assessment consequent to the search action as the disallowance, and at the best, it could be the subject matter in regular assessment not in the block assessment. Estimation of income on contracts which are disclosed in the regular books of accounts cannot be disturbed in the block period, and at best it could be the subject matter of regular assessment only - inclined to hold that the CIT(A) is not justified in giving the direction to assessing officer for the Assessment Year 2001-02 and for part period from 01.04.2001 to 20.12.2001 to determine the undisclosed income at 6.5% before depreciation as against 4.49% for the assessment year 2001-02 and 5.59% for part period from 01.04.2001 to 20.12.2001 declared by the assessee. Accordingly, the ground raised by the assessee is allowed. Department allegation that seized material reflected money advanced by the assessee and interest accrued thereon Held that:- Revenue not able to unearth any background with regard to accrual of real income - There is no evidence as to whether he paid the interest. The department cannot draw inference on the basis of suspicion, conjuncture and surmise. The assessing officer without examining concerned party, who has received advance from the assessee, cannot come to the conclusion that the assessee has received interest on the basis for addition is only note book/loose slips. which are unsigned documents thus revenue unable to established nexus between the note book/loose slips with actual accrual/ receipt of interest in favour of assessee.
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