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2022 (9) TMI 294 - AT - Income TaxRejection of books of accounts - Estimation of income - addition @10% of the amount of gross contract receipts - HELD THAT:- We are unable to comprehend the observation of the AO, who had proceeded with the rejection of the assessee’s books of accounts for the year under consideration and estimated his income from the contract business @10% of gross contract receipts, for the reason that as the assessee in his application filed before the ITSC, Kolkata for the preceding years i.e AYs. 2006-07 to 2012-13 had admitted certain defects and irregularities in his books of accounts, therefore, it was to be presumed that he would have continued with such malpractices and irregularities in the subsequent years too. A mere presumption of the AO that as the assessee was admittedly carrying out certain malpractices in the preceding years would mean that despite absence of any evidence, it is still to be taken that he would be continuing with the same malpractices in the succeeding years, in our considered view is such a broad and incomprehensible proposition which cannot be subscribed on our part. If the observations of the AO are to be accepted, then, it would mean that once an assessee is visited with search proceedings, and he after considering the incriminating documents unearthed during the course of such proceedings comes forth with a disclosure either regards his modus operandi or unaccounted income, then, in all the subsequent years despite there being no iota of evidence that the assessee had continued with his malpractices and modus operandi to generate unaccounted income, it is to be presumed otherwise and has to be made to suffer because of his chequered past. By no means such an incomprehensible and baseless observation of the AO can be accepted. Also, we concur with the view taken by the CIT(Appeals) that even otherwise as the net profit rate disclosed by the assessee during the year under consideration, as demonstrated by him, was better than those of other similarly placed assessee’s of his trade line and was commensurate with that prevailing in the industry, therefore, no adverse inferences on the said count itself i.e as regards the profit disclosed by him was liable to be drawn. As regards the reference to the “Standard Operating Rate” (SoR) by the AO to support his conviction that the income of the assessee from his contract business was justifiably determined by applying a net profit rate @10% to the gross contract receipts for the year under consideration, we are unable to concur to the same. As claimed by the ld. AR, and rightly so, as the SoR for works contracts fixed by the Government departments merely indicates the estimated price of the inputs and expenses and also an estimate of the physical quantity that would be required for execution of the contract, the same, thus, considering manifold factors is too far from the ground realties to have justified earning of a profit margin @10% of the gross contract receipts by the assessee. We, thus, in terms of our aforesaid observations and concurring with the well-reasoned view taken by the CIT(Appeals) that there was no justification on the part of the AO in rejecting the books of accounts of the assessee and estimating his income from the contract business @10% of the gross contract receipts, uphold his order. There was no justification on the part of the AO in rejecting the books of accounts of the assessee and estimating his income from the contract business @10% of the gross contract receipts, uphold his order. Appeal of revenue dismissed.
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