TMI Blog2010 (12) TMI 1230X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary for adjudication as narrated in the appeal, are that the appellant-assessee is a partnership firm engaged in the business of construction of roads and executing various alike contracts. The assessee filed its return of income on 31.10.2000 at an amount of ₹ 2,30,820/-. The return was processed under Section 143(1) of the Act and a refund in the sum of ₹ 43,740/- was issued to the assessee. The case of the assessee was chosen for scrutiny and ultimately, the assessing officer made addition of an amount of ₹ 39,74,129/- on account of purchases made and of another amount of ₹ 26,99,959/- on account of expenses which, according to the Revenue, were not made wholly and exclusively for the purpose of business. The assessing officer, thus, vide order dated 28.3.2003, completed the assessment at an amount of ₹ 69,04,910/- creating a demand of ₹ 25,69,525/- and charging interest under Section 234B of the Act in the sum of ₹ 9,79,302/- whereby the interest under Section 244A, of an amount of ₹ 49,526/-, as allowed on the refund was withdrawn. The assessee filed appeal before the Commissioner of Income Tax (Appeals) [for short th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits at lower rate than the net rate of 8% applicable u/s 44AD. In the case of contractors whose gross receipts exceed ₹ 40 lacs, there is an obligation u/s 44AA to maintain such books of account and other documents as may enable the AO to compute his total income in accordance with the provisions of the Act, meaning thereby that the option of paying tax on 8% net profit without maintaining accounts is not permissible to the contractors having receipts of more than ₹ 40 lacs. In this case, assessee has claimed to have maintained books of account and audit report has also been furnished along with the return. Strangely, the assessee failed to produce the books of account before the Assessing Officer at any stage of the proceedings. Even before the CIT(A), the books of account have not been produced. The AO on the basis of the documents furnished by the assessee along with the return had detected certain anomalies in the statement of accounts. As pointed out earlier, the AO had found that assessee had received the last payment for the completion of works on 7.1.2000. It was further found that assessee had debited expenses in regard to purchases made after 7.1.2000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ablished principle of law that if a person who is to discharge the burden of proof fails to furnish the best evidence in his favour, an adverse inference can be drawn against him. Since the assessee has not produced the books of account nor has the assessee supported the explanation, it was permissible for the AO to take an adverse inference. As already pointed out, since the addition gives abnormal rate of profit, it would be just and reasonable to resort to a fair estimation of income taking into account all the factors including the factor that the assessee had failed to furnish the best evidence before the AO to support the claim. We find that on the basis of the addition made by the AO, the net rate of 37.62% is derived. The CIT(A) has applied a net rate of 10% on the net receipts i.e. the gross receipts minus the material supplied by the departments and further directed to allow depreciation. As per the information furnished before us, the claim of depreciation made by the assessee is of ₹ 9,94,557/-. Once the claim is allowed to the assessee, the net profit rate after depreciation works out to 4.6% only. This is even lower than the 8% rate applicable in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Tribunal. However, on appeal, the Hon ble Supreme Court reversed the decision of Punjab and Haryana High Court and upheld the order of the Tribunal. The result of the said decision of the Hon ble Supreme is that a net rate of profit of 10% was upheld on net receipts subject to no further deduction. In the case of contractors having receipts less than ₹ 40 lacs, the Legislature has fixed a net rate of 8%. In this case, assessee has been guilty of non-production of books of account and non-furnishing of necessary evidence. If one were to go by the defects detected by the AO, then substantial addition would be justified. So, however, when one has to take into account the totality of the facts and circumstances of this case into consideration, a reasonable estimate has got to be made keeping in view of the provisions of Section 44AD, the decision of the Hon ble Supreme Court in the case of Brij Lal Parduman Kumar etc. v. CIT (supra), including the fact that assessee has no explanation for non-production of books of account and other evidence before the AO cannot be utilized as an advantage by the taxpayers and a rate of profit applied in such cases less tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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