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2022 (9) TMI 343 - AT - Income TaxRejection of books of accounts u/s 145 - adopting the net profit at the rate of 10% of the gross contract receipt - HELD THAT:- We are unable to comprehend the observation of the AO, who had rejected the books of account of the assessee 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 accounting malpractices and irregularities in the subsequent years too. Our aforesaid conviction is all the more fortified by the fact that the AO had after calling for and examining the books of accounts of the assessee for the year under consideration a/w bills, vouchers, confirmations etc. had not referred to even a single instance of any such defect or irregularity which would have evidenced that the assessee even during the year under consideration had continued with the accounting malpractices that were adopted by him in the preceding years. Presumption drawn by the AO that that as the assessee had indulged into accounting malpractices in the preceding years, therefore, he would have continued with the same in the succeeding years in the absence of any supporting evidence cannot be subscribed on our part. Interestingly, if the observation of the AO is 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 of his unaccounted income, then, in all the subsequent years despite there being no iota of evidence that the assessee had indulged in any such nefarious activities for garnering unaccounted income it is to be so presumed because of his chequered past. By no means such an incomprehensible observation of the AO can be accepted. 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 with 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. 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. - Decided in favour of assessee.
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