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2013 (11) TMI 275 - AT - Income TaxValidity of the invocation of sec. 145(3) Rejection of books of accounts for non maintenance of stock records - Held that:- The assessee is admittedly not maintaining any stock register, so that there is no basis to verify the material consumption, which constitutes a very significant part of its operating cost. Not only that, it is admittedly following the 'method' of writing off its purchases for the year to the operating statement, treating the same as 'consumed'. Now there is no basis to state that the material is actually consumed as soon as it is purchased, or that the assessee maintains no inventory thereof. The accounts as maintained are thus admittedly inconsistent with the actual, obtaining state of affairs, which the books of account of any entity or enterprise are supposed to reflect - The method has been followed from year to year, does not in any manner mitigate the defect, or justify its adoption Rejection of books u/s 145(3) of the Income Tax Act Decided in favor of Revenue. Assessment u/s 144 of the Income Tax Act Estimation of income by Revenue authorities Held that:- The Tribunal has in such cases upheld profit rates varying from 8% upwards to as much as 20%, or even higher. In our view, a net profit rate of 10% on the assessee's contract receipt of Rs.360.86 lakh, i.e., involving material consumption, would be a reasonable estimate. Qua its labour receipt of Rs. 82.95 lakh, we consider a net profit rate of 20%, in view of a much lower base, as appropriate under the given facts and circumstances of the case. The A.O. is directed to work out the assessee's income for the year by applying the said percentages. No other addition is sustainable.
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