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Shri Rambir Singh Chauhan Versus The A.C.I.T., Circle 38 (1) , New Delhi

2016 (6) TMI 937 - ITAT DELHI

Low net profit ratio - assessee had not provided any justification regarding reduction in N.P. during the period under consideration. - Held that:- We have found that the A.O. has nowhere rejected the books of account of the assessee either impliedly or expressly. Therefore, without pointing out any defects in the book results of the assessee and without rejecting the books of account by invoking the provisions of section 145 of the Act, it is not permissible for the AO to proceed to estimate th .....

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ing, wherein it is possible that expenses have been incurred on a particular work but the payment has not been received till 31.3.2008 and actually received and accounted as revenue after 31.3.2008 during the next financial period which resulted in to increase in N.P. rate for A.Y 2009-10 to 10.19% of turnover. The assessee also explained that he operates from his residence and due to cut throat competition, the N.P. reduced during the relevant period, above explanation has not been controverted .....

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eful consideration of all we have no hesitation to hold that the assessee could not establish that the cash deposits to ICICI Bank was from the cash in hand of new business of the assessee and no details of cash book and cash flow has been furnished. However, we are in agreement with the contention of the ld. AR and agreed by the ld. DR that in these set of facts and circumstances of the case, only peak balance can be taken for making addition and we order accordingly. Consequently, Ground No. 2 .....

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ngs the assessee was note asked to substantiate the debit of ₹ 2,67,234/- in the profit and loss account under the head short and excess The ld. CIT(A) also observed that the term short and excess suggest, any amount small or big, less received or paid in the day to day course of business may be debited/credited under this account. However, the ld. CIT(A) did not agree with factual position placed by the ld. AR during the appellate proceedings and confirmed the addition.From careful readin .....

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No. 2536/Del /2012 - Dated:- 10-6-2016 - Shri G. D. Agrawal, Vice President And Shri Chandra Mohan Garg, Judicial Member For the Appellant : Ms. Lalitha Krishnamurthy, CA For the Respondent : Ms. Susan D. George, Sr. DR ORDER Per Chandra Mohan Garg, Judicial Member This appeal filed by the assessee is directed against the order of the CIT(A)-XXVIII, New Delhi, dated 16/03/2012 for AY 2008-09. 2. The assessee has raised the following grounds of appeal: 1. That on the facts and circumstances of th .....

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anation for fall in net profit rate. 4. On the facts and circumstances of the case, the Ld. CIT (A) has erred in not appreciating the fact that the accepted net profit rate in the case of contractors u/s 44AD of the Income tax act, 1961 in the relevant assessment year is 8% and the appellant s net profit rate is 8.43%. 5. On the facts and circumstances of the case, the Ld. CIT (A) has erred in sustaining the net profit rate at 10.78% adopted by the Ld. A.O. in spite of the fact that; a) No discr .....

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n 16.12.2010 the date fixed as per the show cause notice dated 09.12.2010. 8. On the facts and circumstances of the case, the Ld. CIT(A) has erred in not considering the explanation of the appellant that the receipts in the ICICI Bank were out of cash in hand of the new business. 9. On the facts and circumstances of the case, the Ld. CIT(A) has erred in not adjudicating on ground of appeal no. 3 raised which reads as under: The addition of ₹ 19,50,000.00 is bad in law and cannot be sustain .....

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₹ 2,67,234.00 under the head Short & Excess expenses. 3. Ground Nos. 1 to 5 involve common issue, being low net profit ratio. 4. Briefly stated, the facts giving rise to these grounds are that the assessee is an Electrical Contractor, doing business in the name of Chauhan & Co., as a sole proprietor from his residence. The assessee followed cash method of accounting. The AO, during the course of assessment proceedings observed that during the year under consideration, he got elect .....

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. 2007-08. However assessee had not provided any justification regarding reduction in N.P. during the period under consideration. In the absence of any satisfactory explanation, average rate of N.P. for the last three years, which came to 10.87% was applied to the gross receipts of ₹ 1,83,70,885.00 and an addition of ₹ 4,33,533/ was made to the returned income of the assessee on account of low net profit rate. Aggrieved, the assessee went in appeal before the ld. CIT(A) who sustained .....

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oubted the expenses or pointed any discrepancy in the books. (iii) The AO did not resort to section 145 of the Act. (iv) AO is wrong in stating that no explanation was offered because of which she resorted to average net profit rate of three years. Last para of letter dated 16.12.2010 (pages 24 to 26) gives the reason for the fall in NP: The reason for fall in N. P. is attributable to the fact that the assessee maintains account on cash system. In this system it is possible that expenses have be .....

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sment Year Accounting year NP Ratio 2009-10 31.03.2009 10.19% 2010-11 31.03.2010 9.98% 2011-12 31.03.2011 10.59% The ld. AR contended that without prejudice to above, AO cannot resort to estimation of GP/NP unless: (i) Some defect is pointed out in the books. (ii) Books of account are rejected. (iii) Bogus expenditure is pointed out in the books of account. The ld. AR placed reliance on the following case laws: (i) 256 ITR 243, 244 Gotan lime Khanij Udyog (Raj) (ii) 332 ITR 540 Bindal Apparels. .....

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nt material on record. After considering the overall facts and legal position of this issue, we have found that the A.O. has nowhere rejected the books of account of the assessee either impliedly or expressly. Therefore, without pointing out any defects in the book results of the assessee and without rejecting the books of account by invoking the provisions of section 145 of the Act, it is not permissible for the AO to proceed to estimate the N.P. rate @ 10.78 of the turnover without any basis. .....

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vide order dated 16.12.2010 as follows: The reason for fall in N.P. is attributable to the fact that the assessee maintains accounts on cash system. In this system it is possible that expenses have been incurred on a particular work order but the payment has not been received till 31.3.2008 and is received after 31.3.2008 thus falling into the subsequent year. Further also, because of cut throat competition, the assessee had to cut down the margin of profit. 9. In view of the above explanation .....

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tion, the N.P. reduced during the relevant period, above explanation has not been controverted by the AO or by the co and thus their findings are not sustainable. On the basis of the foregoing discussion, we are satisfied that the explanation given by the assessee to justify the fall in N.P. rate, as noted above, is acceptable and we are inclined to accept the same. Consequently, addition made by the AO and upheld by the ld. CIT(A) on account of N.P. rate is not sustainable and we direct the AO .....

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th class pass and from being a small electrician working under other contractors, rose to be an independent electrical contractor. But for all purposes, was an uneducated person, not conversant with income tax law and accountancy and had to rely on accountants to prepare his books of account. Hence he was under the bonafide belief that the original income tax return would have included his income from both electrical contract with ITDC and trading in electrical parts. The AO asked the assessee t .....

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book on 16.12.2010 by letter of even date, pages 24 to 25 of the assessee s paper book. The AO completed the assessment without considering such explanation. This was objected to by the assessee vide letter dated 16.12.2010, placed at pages 24 to 25, which reads as under: The other business is new and the assessee inadvertently without any malafide intention forgot to include the profit/ loss of this business in his income tax return. Accordingly the assessee is filing a revised computation of .....

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that the assessee having explained the source of deposit cash of ₹ 19,50,000/- into the ICICI Bank to be out of cash in hand in the books, the addition was unsustainable on facts and law without examining the supporting vouchers produced by the assessee in assessment proceedings dated 16.12.2010 and in remand proceeding dated 09.01.2012. No questions were asked by the AO and these letters along with enclosures were just put on record. Appellant was under bonafide belief as he was not fami .....

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s was ₹ 1,69,997/- which was inadvertently not incorporated in the computation of income. The ld. AR contended that addition is unsustainable unless AO brings adverse material on record to controvert the explanation of the assessee. In administrative law, rules of natural justice are foundational to prevent miscarriage of justice and to allow for fairness of action. The ld. AR submitted that the assessee alongwith accountant had appeared on 16.12.2010 alongwith with the books of account wh .....

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have been restricted to the peak balance of the deposits made by the assessee in the previous year in ICICI Bank account. On perusal of the bank account, the peak balance would be ₹ 7,81,459/- as under: Peak balance as on 12.01.2008 ₹ 13,51,951.00 Less: Opening Balance as on 1.4.2007 ₹ 5,50,492.00 Balance peak balance of cash deposited in the Bank in the previous year ₹ 7,81,459.00 13. We have heard the arguments of both the sides and carefully perused the relevant materi .....

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planation of the assessee that the receipts in ICICI Bank were out of cash in hand of new business of the assessee. Alternatively, the ld. AR contended that the addition can only be made to peak balance. 14. The ld. DR supported the action of the AO. However, he pointed out that if addition is restricted to peak balance, then department has not serious objection to that. On careful consideration of the above, we have no hesitation to hold that the assessee could not establish that the cash depos .....

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e of deposits for making addition u/s 69 of the Act. 15. Last ground No. 10 relates to the disallowance of short and excess expenses amounting to ₹ 2,67,234/-. 16. Before us, the ld. AR submitted that the term short and excess means any amount small / less received or paid in the day to day course of business which is debited / credited under this account, copy of short and excess account has been placed at pages 30 to 48 of the paper book. It is amount that has not been received by the as .....

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n cash system of accounting, only cash receipts or cash disbursement would appear. Where accounts are maintained on cash basis, receipt of money or monies worth would be the determining factor. The follows cash system of accounting and hence income for tax purposes would be actual receipt flowing into the bank account. Hence the ld. AR prayed that disallowance of short and excess of ₹ 2,67,233/- which was not received by the assessee cannot constitute the income of the assessee. 17. The ld .....

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