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2013 (1) TMI 133 - AT - Income TaxAddition on account of cash credits u/s 68 - Credit worthiness and genuineness of transactions - Assessee had taken fresh loans during the year from seven agriculturists – Held that:- The AO had also failed to examine the issue in detail by either summoning the creditors or for calling for further details. CIT(A) who has power co-terminus with AO in such matters has also failed to examine the issue in detail as he proceeded to make addition on agreed basis. Credit worthiness of the parties was not proved, without giving any further opportunity to the assessee to explain the credit. Remand back to AO Disallowance of bogus purchases and sub-contract charges - Purchases were not properly substantiated – Assessee submit wrong P.A number – Assessee declared net profit @ 6.5% - Disallowance on account of purchases and sub-contract charges aggregating to Rs. 725 lakhs - Held that:- Disallowance mad by AO result into abnormally high net profit rate of 34.43%. Assessee had done the contract work and had shown total contract receipts of Rs. 2114 lakhs. The business cannot be done without purchases and other expenses, and therefore, the entire claim cannot be disallowed. Profit calculated by AO is highly abnormal cannot be considered as reasonable. Section 44AD deems the net profit rate at 8% in cases where accounts are not maintained and turnover is up to Rs.40.00 lacs. This however, does not mean that profit will lower when the turnover is more than Rs.40.00 lacs. In fact with rise in volume, working becomes more economical and profitability may normally be higher. Each case has to be decided on its own facts and circumstances. Even in the comparable cases cited, the net profit rate had varied from 2.93% to 9.96%. These are big concerns who maintain proper accounts and also maintain quality standards. Estimation of net profit rate of 8% by CIT(A) is justified. In favour of revenue Addition on account of penal charges u/s 37(1) - Delayed execution of contract work - AO had treated the payment as penalty for infraction of law – Held that:- The payment was not for infraction of law cannot be faulted with. Any payment for violation for contractual obligation has to be allowed as normal business expenditure. In favour of assessee
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