TMI Blog2013 (11) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... ntained 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock register, though had shown opening stock (of materials) at nil and closing stock at Rs 87596/-. There was as such no record or manner to verify or ascertain the consumption of materials. The purchases for the period 01/4/2005 to 07.06.2005 (Rs. 24.70 lakh), when compared with the sales up to 09.06.2005, i.e., Rs. 82.94 lakh, yielded a material cost ratio at 29.77%, i.e., even if the closing stock as on 09.06.2005 were to be, though highly improbable, assumed at nil. This was at a significant variance with the overall material consumption rate of 52.05%, while that for the second period, i.e., 10.06.2005 to 31.03.2006, worked to even higher at 58.7%. The assessee sought to justify its book results on the basis of its aggregate statistics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3-month ratio (Period 1) to the nine-month ratio (Period 2). It could well, i.e., with equal justification, be the opposite, so that the ratio of Period 2 could be applied to Period 1. Though a difference had been found out by him, all that could be said is that the matter required further investigation, which was not carried out by the A.O., deciding the matter superficially, in a cryptic fashion, without pursuing the same to its logical end. The assessee had, besides contract receipt, labour receipt at Rs.82.95 lacs. The genuineness of the purchases had not been questioned, and in fact even otherwise verified by the A.O. by issuing summons/requisition to all the creditors. As such, the matter could only be decided on the basis of past and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counting, for the said concocted and/or arbitrary method of accounting being followed by the assessee. That the method has been followed from year to year, does not in any manner mitigate the defect, or justify its adoption. The assessee's books of account, as maintained, are thus not amenable to yielding correct operating results, so that the same stand rightly not accepted by A.O., applying sec. 145(3). 3.2 The next issue before us is the estimation of income. The assessee's books of account having been found as not reliable in explaining the disclosed book results, depending upon that derived therefrom, as, say, for Period 1, in determining the overall profit rate, would be incorrect. There is also no question, thus, of applying the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25% of total output value, the work corresponding to the labour receipt would be Rs. 332 lakh, as against Rs. 361 lakh in respect of labour plus material contract/s, i.e., almost at par for the current year. No meaningful comparison across different years could be made de hors such receipt. Continuing further, we also find no basis in the A.O.'s estimation of material consumption at 36%. Equally unjustifiable is his separate addition toward closing stock, which arises as a by-product to the finding of an actual lower material consumption. In fact, neither any separate addition can be sustained nor there is any warrant for allowing the assessee, as claimed by it, credit for the closing stock. The assessee would also have, similarly, openin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract 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. We decide accordingly. 3.4 As regards the assessee's cross-objection, we find it to have no legs to stand on, in view of our having upheld the rejection of the assessee's accounts under sec. 145(3) of the Act. In fact, there is no basis to state that the bill to M/s. Dhairyawan Developers was an advance bill. Again, the CO, it wo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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