TMI Blog2016 (5) TMI 752X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ). 2. At the outset, the assessee has raised the following additional ground:- That in the facts and circumstances of the case the Assessment Order made after the computation of income by making additions to the Book Profit and disallowances in the manner done by the Assessing Officer after rejection of Books of Accounts under section 145(3) of the Act is not in consonance with the provisions of law and the judicial view and is therefore liable to be quashed. 3. We find that the admission of said additional ground would be of paramount importance as it goes to the root of the matter and would also be relevant for adjudication of other regular grounds of appeal as raised by the assessee before us. We also find that for admission of said additional ground does not require any fresh investigation of facts. Hence, in the light of the judgment of the Hon ble Supreme Court in the case of NTPC Ltd Vs. CIT reported in 229 ITR 383(SC), we admit the additional ground as raised by the assessee before us. 4. The assessee has raised the following regular grounds of appeal :- I. The ld. CIT(A) XXXI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee had shown the payment of ₹ 23,59,187/- and ₹ 9,63,325/- as payments made to 1) M/s. United Enterprise and 2) M/s. VTR Marketing respectively. As no details were filed by the assessee with regard to said discrepancy in payments, when pointed out by the ld.AO, he added the same as unexplained expenditure in the assessment proceedings. 7. The ld.AO had rejected the books of account of the assessee by furnishing elaborate reasons, which are reproduced herein below for the sake of convenience:- 3. Rejection of Accounts u/ s 145(3) : 3.1 In course of assessment proceedings the following discrepancies in accounts of the assessee were observed:- i) It was observed that there was difference in ledger accounts received under section 133(6) from M/s. V.T.R. Marketing Ltd and M/s. United enterprises, (creditors of assessee) about the transaction with assessee and the Ledger accounts submitted by the assessee about transaction with the said parties. ii) Further there was difference in opening balance as on 01.04.05 as per bank statement and the assessee's accounts. The assessee was unable to reconcile the said difference in the course of assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Indwell Constructions vs CIT reported in 212 ITR 776 (AP), wherein Lordships had held as under :- The pattern of assessment under the Income-tax Act, 1961, is given by section 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in sections 30 to 43D of the Act. Section 40 provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under section 29 is to be made under section 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the Income-tax Officer may reject those books and estimate the income to the best of his judgment. When such an estimate is made, it is in substitution of the income that is to be computed under section 29. In other words all the deductions which are referred to under section 29 are deemed to have been taken into account while making such an estimate. This will also mean that the embargo placed in section 40 is also taken into account. 11. We also find that the ld.AO has made separate addition u/s. 40A(3) of the Act amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted the books of account ought not to have made separate addition u/s. 40A(3) of the Act. We find that this aspect has been duly considered by the co-ordinate bench of this tribunal in the case of ACIT, Circle, Haldia Vs. Shri Jit Singh in ITA No.1961/Kol/2007 for the A.Y 2004-05 vide order dated 27-11-2007 , wherein it has been held as under:- 5.2 The AO applied 8% net profit rate for computing the income of National Transport Service, National Engg Co and Govind Chemicals. The Hon ble MP High Court in the case of Puroshottam Lai Tamrakar (supra) as well as Hon ble Allahabad High Court in the case of Banwarilal Bansidhar ( supra) have held that where the AO applied net profit in computing income, Section 40A(3) has no application and no disallowance can be made. The Allahabad High Court has also held that when the gross profit rate is applied that would take care of everything and there was no need for the AO to make scrutiny of the amount incurred on the purchases by the assessee. Further the ld. ITAT, Kolkata has held in the case of M/s. Koh Sinn Tannery and M/s. Chien Hsing Tannery (supra) that no disallowance u/s.40A(3) can be made in a case where the books of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 145(3) of the Act. In these circumstances, the ld.AO ought to have resorted to estimate the business profit in a rational manner. To meet the ends of justice, we deem it fit and appropriate , to direct the ld.AO to adopt 8% of the turnover of the assessee s business as taxable business profits . Accordingly, the additional ground as raised by the assessee before us is allowed and regular ground nos.1 to 5, 7 8 of the assessee s appeal are allowed for statistical purposes. 17. The last ground to be decided in this appeal of the assessee is as to whether an addition of ₹ 87,000/- could be made in the facts and circumstances of the case. 18. Brief facts of this issue are that the assessee made investment in land and building for ₹ 5,25,000/-. The ld.AO observed that the assessee has incurred a sum of ₹ 31,500/- towards stamp duty and ₹ 2,500/- towards other incidental expenditure for registration of the said property. These two payments were admittedly not recorded in the books of account of the assessee and the ld. AO brought the same to tax as unexplained investment. 19. Similarly, the ld.AO found that the assessee has made investment in rein ..... X X X X Extracts X X X X X X X X Extracts X X X X
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