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2015 (9) TMI 1173 - ITAT LUCKNOW

2015 (9) TMI 1173 - ITAT LUCKNOW - TMI - Bogus purchases - addition in respect of sundry creditors - Held that:- Find force in the contentions of the ld. counsel for the assessee that only on the basis of sample check on random basis the entire liabilities cannot be treated to be bogus liabilities. At the most, the Assessing Officer if intended to make an addition on the basis of random check, it can only be restricted at ₹ 9,13,613/-, but the entire outstanding liabilities cannot be treat .....

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of purchases as the purchases were not fully verifiable - CIT(A) deleted the addition - Held that:- Revenue could not place any evidence to justify that the assessee has not maintained complete details such as bills and vouchers for purchases. Since no specific defect was pointed out by the Assessing Officer, we find no merit in the disallowance. Accordingly we confirm the order of the ld. CIT(A) on this issue who has rightly deleted the addition. - Decided against revenue. - ITA No.799/LKW/2014 .....

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imate of profit of the appellant to 7.5% of gross receipts on the basis of past history of the case of the assessee. He failed to appreciate that huge unverified creditors shown as outstanding in the balance sheet are an extension of bogus purchases claimed in the P&L A/c, which has a direct bearing on the net profit of the assessee. 2. The Ld. CIT (A) has erred in law and on facts of the case in deleting the addition of ₹ 25,83,748/- against addition out of purchases as the purchases .....

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o 44 persons by the Assessing Officer on random basis and 36 notices were returned back with the postal remark that the persons did not reside at the given address. In one case, notice was served upon Shri. Sanjai Kumar who denied having any transaction with the assessee and in certain notices though served but no reply was received. On being confronted by the Assessing Officer, the assessee submitted that the addresses given by him are the same as provided by the sub-contractors and the petty c .....

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ooks of account and during the course of assessment proceedings, the books of account, bills, vouchers and other details were furnished before the Assessing Officer. It was also submitted that all the works were executed under direct control and supervision of the Senior Officers of Northern Railway which were measured, verified and only after their approval, payments were made. Hence it cannot be held that the works were not executed or expenses were not verifiable. It was further contended bef .....

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tended that notices were issued to 44 persons on random basis to whom payments were due of ₹ 9,81,613/-, therefore, if the contention of the Assessing Officer is to be accepted, only disallowance can be made to the extent of ₹ 9,81,613/- and not the entire payment. 4. The ld. CIT(A) re-examined the issue in the light of assessee s contentions and being convinced with it, he deleted the addition. He, however, estimated the profit for the assessee at 7.5% of the gross receipts of ͅ .....

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bmitted that the Revenue has not doubted the nature of business of the assessee and once it is admitted that the assessee is a contractor working for the Northern Railway, the expenditures are bound to be incurred in execution of tender issued by the Northern Railway. The Assessing Officer has made a simple check on random basis and at the most addition can be made with respect to those cases in which notices were issued, but the entire liabilities cannot be disallowed for the same reason. It wa .....

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Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that the nature of activities undertaken by the assessee was not disputed by the Revenue. The Revenue has also not disputed the contract receipts received by the assessee. Therefore, in execution of work, certain expenses are bound to be incurred. The dispute was raised with regard to the outstanding liabilities at the end of the year, for which assessee has contended that on account of .....

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s furnished by the appellant hi respect of civil work contract, the appellant has disclosed net profit of ₹ 40,95,326/- @ 6.07% on turnover of ₹ 6,74,52,799/-. It is noted that the appellant has claimed payment to subcontractors at ₹ 5,59,87,389/-in the profit and loss account out of which amount of ₹ 2,44,87,614/- has remained outstanding at the end of the year. The entire outstanding liability has been paid in the months of April & May, 2010 in the subsequent financ .....

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are surviving on day to day basis cannot keep the payments pending for more than one year is plausible. In the case of the appellant it is noted that about 45% of such payments debited in the profit and loss account remained outstanding at the end of the year. Further, the appellant is also not justified in taking the plea that he is not required to verify the addresses of the labourers and it is not his duty to maintain such record. It may be mentioned that in respect of expenses claimed in the .....

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conducted from 44 persons is also found to be justified. Also net profit rate of 46.20% assessed by the AO is very high in the case of a contractor. In view of the discussions made above it is held that the best option available to the AO was to reject the book results since he could not have satisfied himself about the correctness and completeness of the books of accounts maintained by the assessee and the Only alternative available was to complete the assessment in the manner provided under se .....

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of the Act estimating the profit of contractor @ 8% of the turnover are applicable for civil contractors adopting the presumptive scheme of taxation and the scope of the section is limited to contractors whose turnover does not exceed ₹ 40 lakh. In the case of the appellant, the gross receipts is ₹ 6,74,52,799/-. Hence, the said provisions are not applicable to the appellant. In CIT v. Laxminarain Badridas [1937] 5TTR 170 (PC) their Lordships of the Privy Council observed as follows .....

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umstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guesswork in the matter, it must be honest guesswork. In that sense, too, the assessment must be, to some extent, arbitrary." Since the law relating to "best judgment assessment" is the same both in the case of income-tax assessment and sales tax assessment, the .....

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R 239 (SC), which was a case under the Travancore-Cochin General Sales Tax Act, the court observed: "The limits of the power are implicit in the expression "best of his judgment'. Judgment's a faculty to decide matters with wisdom truly and legally. Judgment does not depend upon the arbitrary caprice of a judge, but on settled and invariable principles of justice. Though there is an element of guesswork in a 'best judgment assessment', it shall not be a wild one, but sh .....

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ssment year has declared net profit rate of 6.07% whereas in the preceding year it was 5.48% only. However, past history of the case of the appellant cannot be relied upon as returns filed for the preceding year has not been subject matter of scrutiny. The Hon'ble 1TAT, Lucknow SMC bench in ITA No. 574/Luc/05 dated 10.03.2006 in the case of M/s Gupta Constructions has confirmed the action of AO in estimating the profit at @ 7% of total turnover. The ITAT Allahabad Bench in case of Rajesh Kum .....

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I am of the considered opinion that it would be reasonable to estimate the profits of the appellant at ₹ 50,58,960/- @ 7.5% of gross receipts of ₹ 6,74,52,799/-. Accordingly, out of addition made of ₹ 2,44,87,614/- addition to the extent of ₹ 9,63,634/- (Rs750,58,960 - 40,95,326/-) is confirmed. 8. We also find force in the contentions of the ld. counsel for the assessee that only on the basis of sample check on random basis the entire liabilities cannot be treated to be .....

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