TMI Blog2016 (12) TMI 448X X X X Extracts X X X X X X X X Extracts X X X X ..... act in earlier year’s net profit as estimated by the Coordinate Bench @ 8% subject to allowance of depreciation and interest. Addition u/s 68 - Held that:- Once the book results are rejected by invoking provisions of section 145(3) of the Act, no separate additions could be made under section 68. As decided in CIT vs. G.K. Contractor [2009 (1) TMI 840 - RAJASTHAN HIGH COURT] even if the assessee has failed to discharge his onus of proof in explaining the cash credits shown in the books of account as "market outstanding", the AO having estimated the higher profit rate on total contract receipts after rejection of the books of account invoking the provisions of s. 145(3), no separate additions can be made on account of unexplained cash credit under s. 68 of the Act of 1961 - ITA No. 771/JP/2012 - - - Dated:- 10-11-2016 - SHRI KUL BHARAT, JM AND SHRI VIKRAM SINGH YADAV, AM For The Assessee : Shri Rajeev Sogani (C.A.) For The Revenue : Smt. Roshanta Meena (JCIT) ORDER PER SHRI KUL BHARAT, JM. This appeal by the assessee is directed against the order of ld. CIT (Appeals)-II, Jaipur dated 16.08.2012 pertaining to A.Y. 2009-10. The assessee has raised the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e written brief. The ld. Counsel submitted that it is a settled position that once the books of accounts are rejected by invoking provisions of section 145(3) of the Act, the only recourse available to the assessee is to make the assessment under section 144 of the Act. He submitted that for making the assessment under section 144, the past history of the assessee or history of similarly situated other businessmen/ traders is the best guide. The ld. Counsel placed reliance on the judgment of the Hon ble Jurisdictional High Court rendered in the case of Inani Marbles (P) Ltd. (2009) 316 ITR 125 (Raj.) in support of the contention that past history of the assessee is one of the most reliable guidance to make or not to make any estimation/addition. The ld. Counsel submitted that the Coordinate Bench of this Tribunal in the case of assessee for the immediate preceding assessment years has consistently upheld the Net Profit rate @ 8% subject to interest and depreciation. The ld. Counsel placed reliance on the decision of the Coordinate Bench in assessee s own case for the A.Y. 2008-09. The ld. Counsel submitted that the authorities below have failed to bring on record any material which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the expenditure was produced before the authorities below. The ld. D/R submitted that the AO, was therefore, justified in estimating the GP rate at 12.88%. 4.3. We have heard rival contentions and perused the material available on record. Undisputedly, the AO has rejected the books of account which is not challenged by the assessee. It is a settled position of law that when the books are rejected, the AO is required to make estimation of profit. In the present case the AO has accepted the gross receipts of the assessee. Consequently the work carried out by the assessee was accepted. Now the issue for estimation of profit before the AO would be how much expenditure the assessee might have incurred for the work carried out. The estimation of profit although involved some guess work, but it should not purely based on guess work. Assuming that the accounts of the assesee are not reliable for want of verification of expenses booked by it, the AO is not empowered to arrive at unrealistic figure of expenditure. If it is so done, that would tantamount the tax receipt which otherwise is not taxable. Under the Provisions of Income Tax, if any receipt is under the head Business or Profes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 [(iiie) any profit on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) ;] 29 [(iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession ;] 30 [(v) any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm : Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted ;] 31 [(va) any sum, whether received or receivable, in cash or kind, under an agreement for- (a) not carrying out any activity in relation to any business; or (b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent of net profit rate at 8% subject to allowance of depreciation and interest. In the year under consideration we find that the AO has pointed out reduction of hire charges expenditure. This fact is not rebutted by the assessee, hence this reduction of expenditure would certainly increase the profit margin of the assessee. As per the AO, in the assessment year 2008-09 the assessee had incurred hire charges expenditure of ₹ 45,62,140/- whereas hire charges incurred in the present year is ₹ 80,000/-. The assessee has not brought on record any material suggesting that the hire charges were paid on account of non functioning of the assessee s own machinery. Therefore, we deem it proper to restrict the disallowance @ 10% of the Net Profit subject to interest and depreciation keeping in view the fact in earlier year s net profit as estimated by the Coordinate Bench @ 8% subject to allowance of depreciation and interest. These grounds are disposed off accordingly. 5. Ground No. 3 is against confirming addition of ₹ 48,34,995/- u/s 68. 6. The ld. Counsel for the assessee reiterated the submissions as made in the written brief. The ld. Counsel made the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Case Law Page 37) .The Tribunal observed that the Assessing Officer rejecting the assessee's trading results under the proviso to section 145(1) of the Act had computed the assessee's income by applying the gross profit rate of 15 per cent. on sales, as shown in the head office as well as in the branch office. The Tribunal further observed as follows: ...The question arises whether in such a case any deduction on account of purchases is at all allowed to the assessee, though it may be true that a gross profit rate of 15 per cent. was fixed keeping in view all relevant facts including the purchases made by the assessee. Inasmuch as we are of the view that no deduction as such having been allowed to the assessee on account of purchases, we hold that no question of any disallowance on account of purchase can be made in this case under section 40A(3) . 4.4. Hon ble ITAT Jaipur Bench in the case of Nardev Kumar Gupta [2013] 142 ITD 303 (Jaipur - Trib.) (Case Law Page 40) held that There is no dispute to the fact that the AO rejected the book results u/s 145(3) of the Act. Now the question arises as to whether any addition inter alia u 40A(3) can be made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Jurisdictional High Court which is binding in nature. 4.6. Ld. CIT(A) misplaced his reliance on the judgment of the Hon ble Supreme Court in the case of Devi Prasad Vishwanath (Supra). Hon'ble Apex Court (Case Law Page 25-27) in this case had, inter alia, observed that whether in a given case the Income-tax Officer may tax the cash credit entered in the books of account of the business, and at the same time estimate the profit must, however, depend upon the facts of each case. Therefore, the facts have to be examined before arriving at any conclusion. Ld. CIT(A) has not highlighted any fact which made him come to the conclusion that both the additions are to be made simultaneously. Also in this case of Devi Prasad Vishwanath (Supra) certain amount was deposited in the account of the assessee which was from a completely different source of income, whereas in the present case there is no inflow of funds in the accounts of the assessee also the credits belong to the same income stream for which additions have been made by the ld. AO. 4.7. In the case of the appellant, the additions made by the ld AO u/s 68 are in respect of credits which are second leg of the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer to hold that it is income of the assessee, and no further burden lies on the Income-tax Officer to show that that income is from any particular source. It is for the assessee to prove that, even if the cash credit represents income, it is income from a source which has already been taxed.'' (p. 194) As per the decision of the Supreme Court, it is open to the assessee to prove that the cash credits came from the suppressed profits towards which an addition has already been made and, therefore, there should be telescoping of one with the other .. 4.9. Ld. AO, estimated a NP Rate of 12.88% on the basis of the material and consumption ratio. Whereas, if the current addition u/s 68 is considered, it would result into NP rate shooting up to 17.88% which is not only contradictory to the NP rate estimated by the ld. AO, but will also be against the NP rates upheld by the Hon ble ITAT Jaipur Bench in assessee s own case. In view of the above, additions made by the ld. AO and confirmed by ld. CIT(A) deserve to be deleted. 6.1. On the contrary, the ld. D/R supported the orders of the authorities below. He submitted that the additions made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen gross profit rate is applied after rejecting books results. The Hon'ble Jurisdictional High Court in the case of G.K. Contractor (supra) has held that when estimated profit is considered after rejecting assessee's books accounts by invoking the provision of Section 145(3) of the Act, no separate addition can be made even u/s 68 of the Act, even though the assessee has failed to discharge the onus of proof in explaining the amount shown in the books of accounts as 'market outstanding'. The Hon'ble Gujarat High Court in the case of CIT v. Pravin Co.[2005] 274 ITR 534/144 Taxman 210 has held that once the addition has been made by increasing the gross profit rate then there is no further scope of making separate addition under different heads. The ITAT Jaipur Bench in the case of Choudhary Bros in ITA No. 1177/JP/2010 vide order dated 31-05-2010 has also taken a view that composite addition by way of application of gross profit rate and net profit rate would be sufficient to take care of such discrepancies. Similar view has also been taken by Hon'ble Allahabad High Court in the case of CIT v. Banwari Lal Banshidhar[1998] 229 ITR 229 wherein it was held th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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