TMI Blog2010 (12) TMI 886X X X X Extracts X X X X X X X X Extracts X X X X ..... /closing stock is accordingly deleted Regarding disallowance of staff salary - Since the profit of the assessee is estimated by applying GP rate of 10% and the details of books of accounts have not been produced before the authorities below, no further addition is required to be made as per findings given above - appeal of the assessee is partly allowed - ITA No. 3201/Ahd/2008 - - - Dated:- 16-12-2010 - Bhavnesh Saini, D.C. Agrawal, JJ. S.N. Soparkar, AR for the Appellant M. Mathivanan, DR, for the Respondent ORDER Bhavnesh Saini: This appeal by the assessee is directed against the order of the learned CIT(A)-I, Surat dated 09-07-2008, for assessment year 2005-06 on the following grounds: "1) The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of the Assessing Officer in rejecting the book result. 2) The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the addition of Rs.8,30,000/- on account of estimation of gross profit @10%. 3) The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the addition of Rs.21,69 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Road, Surat but in the statement of the director, it was stated that the books of account were kept at the first floor of the said flat. He pointed out that the photographs of the flood submitted showed that only the ground floor was flooded and not the first floor. The AO, therefore, asked the assessee as to why the assessment may not be completed u/s 144 of the IT Act in the absence of books of account, bills and vouchers. In response to this notice, the assessee replied that despite destruction of records in the flood maximum possible details were given. He stated that purchases can be verified by issuing notice u/s 133(6) of the IT Act and in respect of some of the parties the assessee has submitted the reconciliation statements. No discrepancy was noticed except in the cases of three parties, namely, Shree Patel Stone Quarry, Shreeji Earth Moving Spares and Shree Unipave Engineering Products, where minor differences were noticed and the assessee provided the reconciliation. The assessee also stated that in their building the water level was at around 14 to 16 feet. The assessee further stated that the assessee has shown cash profits, i.e. profit before depreciation of almost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was stated that the present assessee has taken over the business from the D. G. Patel (individual) and this method was accepted by the department in the case of D. G. Patel (individual). The AO did not accept this argument and stated that the perusal of TDS certificate show the date of payment/credit mention on the TDS certificates show that the contractee has not raised bills till 31-03-2005. The AO, therefore, estimated that the assessee must have work in progress in the closing stock of the value of the direct cost incurred during the last 15 days of the year. The calculation of the work in progress was made by the AO a under: "Total direct cost debited during the year Rs.5,20,57,912/- The value of WIP being the direct cost incurred by the assessee during the last 15 days of the year would be as under: Rs.2169079/- = (52057912/12 months X 0.5 months)" In view of the above, the AO held that the assessee has debited cost of Rs.21,69,079/- but no corresponding income on these expenses have been credited by the assessee. Therefore, he treated this as work in progress and made addition of Rs.21,69,079/-. The AO however, gave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bill shall be submitted by a contractor each month on or before the date fixed by the Engineer In-charge for all works executed in the previous months and if the contractor does not submit the bill within the time limit then the Engineer In-charge may depute a subordinate to measure the said work in the presence of the contractor or his authorized agents. The assessee has stated that the bills were prepared by the Engineer In-charge up to 31-03-2005. The assessee further submitted that without prejudice to the above submission if the work in progress is considered then the GP rate would jump to 12.35% whereas the AO himself has estimated the GP in the assessee's case at 10%. The assessee also argued that various courts have held that when the books are rejected the same books cannot be used for the purpose of making other additions. 4. The learned CIT(A) considering the submissions of the assessee and the material on record dismissed the appeal of the assessee on all the 3 grounds. His findings in Para 2.3.1 to 2.3.2 are reproduced as under: "2.3.1 I have considered the submission made by the appellant and observation of the A O. Not going into the dispute as to whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould make the G. P. 12.35% does not hold in view of argument that at least 10 to 15 days would be required for processing the bills and making payment as on 31.03.2005. This only shows that the A. O. wrongly under estimated the G. P. rate @10%. The WIP addition made is correct. Therefore, the WIP addition of Rs.21,69,079/- is confirmed. As regards GP addition, since the WIP addition has increased the GP rate therefore no separate GP addition is required. The GP addition is, therefore, confirmed but it is telescoped into the addition of WIP and hence separate addition has not been made by the A. O. Hence, all the three grounds of appeal are dismissed." 5. The learned Counsel for the assessee reiterated the submissions made before the authorities below and submitted that though the assessee could not produce the books of accounts but the assessee produced sufficient material to show that rejection of the books of accounts is unjustified and that higher GP rate is unjustified. Since there was no work in progress, therefore, addition is merely made on assumption. He has also filed GP chart and submitted that present assessee being company has taken over this business from D. G. Pat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of accounts have been rejected and GP rate is applied, there was no need to make further addition like work in progress. The Hon'ble Allahabad High Court in the case of CIT vs Banwari Lal Banshidhar 229 ITR 229 held that "when GP rate is applied it would take care of everything". Since the addition of work in progress is made without any basis and if the same is considered as substituted for GP addition because the AO has given telescoping benefit of GP addition against WIP addition, it would enhance the GP rate of the assessee from 10% estimated by the AO on account of GP addition. Hon'ble Privy Council in the case of CIT, Central and United Province vs Laxminarain Badridas 5 ITR 170 held that "estimate rate fair. The AO should not act dishonestly or vindictively or capriciously. The previous and local knowledge and facts and circumstances of the assessee have to be considered in order to arrive at fair and proper estimation of income." Considering the facts of the case in the light of the findings of the authorities below, it is clear that addition made and sustained by the authorities below is still excessive and unreasonable. The authorities below in the absence of books ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
