TMI Blog2009 (8) TMI 757X X X X Extracts X X X X X X X X Extracts X X X X ..... of wealth. So far as withdrawal towards the personal expenses are concerned, we find from the statement of the assessee that he has been regularly showing the withdrawal in every year the dispute was raised with regard to the quantum of withdrawal. In the absence of any evidence, it is also a question of estimate. Decided in favor of assessee - matter remanded back to AO with a direction to accept the profit of the year shown by the assessees on the basis of the net wealth method. - IT APPEAL NOS. 390 TO 415, 421 TO 440 AND 454 TO 460 (VISAKHAPATNAM) OF 2008 - - - Dated:- 31-8-2009 - Member(s) : S. K. YADAV., B. R. BASKARAN. ORDER-BY THE BENCH: These cross-appeals are preferred by the assessee as well as the Revenue against the respective orders of the CIT(A). Since common issues are involved in these appeals, these were heard together and are being disposed of through this consolidated order for the sake of convenience. 2. There are four groups of appeal in which identical issues are involved except the difference in quantum. The grounds of appeal raised in the assessee's appeal were revised by the assessees and the revised grounds of appeal are taken on record. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y judgments of the Hon'ble Tribunal, Hyderabad in the cases of contractors working in the same vicinity, wherein, the Hon'ble Tribunal has confirmed the net profit rate of 10 per cent and above. 5. Any other ground or grounds that may be urged at the time of hearing." 4. From a careful perusal of the grounds of appeal raised in the assessee's appeal and the Revenue's appeal, we find that sole issue emerges in these appeals is with regard to the profit to be estimated in the hands of the assessees in the absence of proper maintenance of the books of accounts; whether it is to be estimated by applying a net profit rate of the contract receipt or on the basis of net wealth method. 5. The facts in brief borne out from the record are that the assessees are individuals engaged in the business of executing the civil contract works for Government of Andhra Pradesh and that the assessee got contract works in the individual names and thereafter for executing the said works, each of the assessee floated various partnership firms and the said works were executed through the partnership firms so floated. Accordingly, the returns were filed by these partnership firms and income from the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utions and also with regard to the contribution made to chit funds and various other assets acquired during the relevant period. After gathering all the relevant information regarding assets and liabilities at the end of every year, the assessee felt that it would be appropriate to offer the income on net worth basis/net wealth basis in the absence of proper and complete details regarding expenditure incurred for the business carried out by them. It was further stated that assessee never made profit at 4 per cent due to huge interest paid to banks and financial institutions and also huge losses incurred on bidding of chits apart from the fact that some of the works were obtained by quoting a price lower than the cost indicated in the tender. It was further contended that assessee has chosen to offer the total contract receipt in the individual hands as against the admission during the search proceedings to offer the receipts partly in individual and partly in HUF status. 9. It was further contended that during the assessment proceedings, AO has agreed to the proposition that the entire contract receipts are to be brought to tax in the individual status of the assessees since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce under s. 153A was not processed. under s. 143(1)(a) before issue of notice under s. 143(2) of the Act. The AO rejected the method of calculation of profit adopted by the assessees without realizing the fact that this net worth method basis is a recognized method for calculating the profit and the CBDT has made a clear direction in this regard. 13. The learned counsel for the assessee however accepted that in the case of K.S.V. Raja, there was an omission to include two properties that is agricultural land purchased on 29th July, 2003 and 11th March, 2004 respectively for Rs. 3,14,150 and Rs. 2,60,000 and the assessee accepted the same and revised its income to this effect for the relevant assessment year. Even the CIT(A) did not point out any specific defect in the net worth method adopted by the assessees. They have simply rejected the same on the basis of the presumptions. 14. So far as retraction from the admission made during the search proceedings are concerned, the learned counsel for the assessees that he has not made any disclosure or any statement on oath with regard to this estimation of profit at 4 per cent of the gross receipt. He has formally written a letter to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract receipts in the individual status and HUF status for the concerned years but this letter was not accepted by the Revenue authorities and they have framed the entire assessment in the hands of the assessees. Moreover this letter cannot be called to be a statement on oath in the light of judgment of this Karnataka High Court in the case of Chief CIT vs. Pampapathi in which their Lordships have held that a letter written by the partner of the assessee firm to the Department admitting undisclosed income higher than that disclosed in the statement under s. 132(4) of the Act with certain conditions and further stating that a revised return shall be filed accordingly, is not a statement under s. 132(4) nor a revised return and cannot be used as a basis for making the assessment. Moreover, in the instant case, the assessment was not framed by the AO on the basis of the letter written by the assessees. The AO has estimated the income at 8 per cent of the gross receipts in the individual hands of the assessees which is not in terms of the letter written to the Dy. Director of IT. As such this letter cannot be used against the assessees. While filing the return of income assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and K.C.K.A. Gupta vs. Asstt. CIT and the Tribunal has taken a view in the case of Smt. Rajni vs. ITO, that since the form of keeping/maintaining accounts has not been prescribed this computation was on the basis of circular dt. 26th Feb., 1969 by the CBDT, wherein net worth basis was recommended for computation of income, can be accepted. 20. In the case of K.C.K.A. Gupta vs. Asstt. CIT, the Tribunal has held. that income is generally arrived at based on 'income method' or 'net asset method'. In this case, latter method seems to have been applied, as the entire information is admittedly not available. The AO has been referring in his order, to the disclosure made by the entire group and no specific enquiry seems to have been made on the issue of total undisclosed sales in the assessee's case. But as a methodology of arriving at undisclosed income adopted by the AO being net assets, the reopening of the assessment on some other ground i.e., not taking the entire unaccounted sales as income does not stand to reason as the assessment was not based only on this. It cannot be said the adoption of net asset method is an impossible view. This is a permissible view. 21. From a carefu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintaining any books of accounts. Undisputedly, it is a case where the books of accounts and documents are not maintained by the assessees and in the absence of complete records the question comes how the profits of the year can be worked out. According to us it can only be worked out if one has to apply the net worth basis. One has to calculate the accretion of profit and increase in the net worth of the assessees. If the assessee has earned some profit or income it must have been spent in acquisition of wealth. So far as withdrawal towards the personal expenses are concerned, we find from the statement of the assessee that he has been regularly showing the withdrawal in every year the dispute was raised with regard to the quantum of withdrawal. In the absence of any evidence, it is also a question of estimate. 23. Keeping in view the totality of the facts and circumstances of the case, we are of the view that under the given facts and circumstances where the books of accounts and other records are not properly maintained by the assessees, the method adopted by the assessees i.e., net worth basis to determine the profit should have been accepted by the Revenue as it is a discre ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
