TMI Blog2018 (9) TMI 864X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of ‘VrajlalManilal & Co. Vs CIT’ [1972 (11) TMI 9 - MADHYA PRADESH HIGH COURT] “Section 145 of the Income-tax Act, 1961 Method of accounting - Estimation of profit - Assessment year 1957-58 - Whether previous orders of assessment, although they may even be best judgment assessments, would form good material or good evidence for purpose of computing income of assessment year in question - Held, yes.” The grievance of the assessee is accepted as justified. It is just fair and reasonable to estimate income of the assessee at the Net Profit rate of 5.0% as against 8% estimated by the authorities below. Accordingly, the ground is partly allowed. - ITA No. 182 /Agr/2016 - - - Dated:- 4-9-2018 - Shri A. D. Jain, Judicial Member And Shri Dr. Mitha Lal Meena, Accountant Member Appellant by : Shri K.C. Agarwal, Advocate Respondent by : Shri Waseem Arshad, Sr. D.R. ORDER Per Dr. Mitha Lal Meena, A.M.: This appeal has been filed by the assessee against the order of the ld. CIT(A) dated 29.02.2016, for A.Y. 2010-11wherein the assessee has raised the following grounds of appeal: 1. On the facts and in the circumstances of the case, the Ld Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be produced. Vide para 8 of reply, the assessee admitted that there are some discrepancies in the books of accounts and some vouchers are not available for verification and himself accepted that a net profit of rate of 5% may be applied. Therefore, in this view of the matter, the assessee admitted the irregularities in the books of accounts. In the cases of contractors, the application of rate of 8% is reasonable, which is in conformity with provisions of section 44AD of the Act. Though provisions of section 44AD of the Act may not be invokable where the turnover exceeds the amount liable for audit, however these provisions definitely serve as a guide for adopting the net profit rate when the book version of an assessee is found to be suffering from infirmities and unreliable. In this regard, it is observed that the facts of the appellant's case are squarely covered by a decision of Hon'ble ITAT Agra as rendered in the case of Mahesh Chandra Contractor, vs. Income-tax Officer (ITA No.359/Agra/2011) wherein it has been held that: - 6. We have heard the Ld. Departmental Representative and considered the Paper Book filed by the assessee. Admitted facts of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me and the same need not be separately added in estimation by applying 8% profit rate. The interest income which is business income of the assessee is covered in the said estimation and separate addition is not required. We, therefore, modify the order of the Assessing Officer and CIT(A) and direct the Assessing Officer not to include the interest income of ₹ 79,400/- in estimation of total income. The assessee gets relief of ₹ 79,400/-. With the above direction, the order of CIT(A) is confirmed. 5. The counsel for the assessee submitted that the assessee has maintained regular books of account, bills and vouchers which are subject to audit u/s 44AB of the Act; that during the year, he has shown a net profit rate at ₹ 28,19,606/- after the deduction of depreciation of ₹ 5,64,864/- and payment made to sub-contractors of ₹ 3,00,26,349/- out of the total contract receipt of ₹ 9,82,78,472/- which comes to 2.8% of the gross contract receipt and that the net profit of the immediately preceding A.Y. i.e. 2009-10 was shown at ₹ 33,36,268/- from the gross receipt of ₹ 11,39,80,532/- with a net profit rate of 2.93% had been scrutinized by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintenance of account, assessee agreed for application of net rate of profit at 5% to buy peace of mind and to keep cooperation with the department and to avoid further litigation with the department subject to no penal action taken by AO. 5. But to the assessee utter surprise, the learned AO instead of applying net rate of 5%, as discussed with him, he applied net rate of 8% on the total gross receipts and made addition of ₹ 50,41,687/- as mentioned at page 3 4 of the assessment order. 6. The assessee submitted the full facts again before CIT Appeal and nature of the business of completing the contracts at interior places and some of the goods were purchased locally for which internal vouchers are submitted and were to the extent of ₹ 3,00,26,349/- was given to sub- contract for competing the same at 2% and IDS was also deducted. He has also submitted as in the past similar rates of net profit have been accepted by the department with minor additions of expenses and other comparable cases net profit rate of 2% have been applied vide written reply filed before CIT Appeal. 7. The learned CIT Apeal did not appreciate the submission of the assessee and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 in which CIT Appeal applied a net rate of 2% and on further appeal by the assessee in that case the Hon'ble ITAT by order dt. 28.06.13 maintained net rate of 2% on the basis of judgment of AR Enterprises rendered by ITAT in other cases referred to the order of ITAT in the page 4,5 6. 5. Recently, the present bench in the case of Satish Thakur Vs ACIT Gwalior had upheld net rate of 3% in the similar types of cases judgments is filed. 6. That the lordship of Allahabad High Court in the case of Delta Engineering Co. Pvt. Ltd. Vs CIT (1990) 186 ITR page 383 Allahabad has held that the estimate of income made by the AO and in that case was correctly made on the basis of material on record and past history of the case and it was perfectly in accordance with the law. In support, the assessee he further relies on various High Courts and Supreme Court that no addition can be made or sustain based on mere presumption surmises and suspicion as it cannot take placed of proof. 1. Lal Chand Bhagat Ambica vs. CIT (1959) 37 ITR Page 271 (SC) 2. Uma Charan Shaw Bros. Vs. CIT (1959) 37 ITR Page 271 (SC) In view of this matter, it is submitted that entire addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. 10. The counsel contended that the addition made by AO and sustained by CIT Appeal by applying a net rate of 8% is neither based on the material available on record nor as agreed by the assessee vide its reply dated 11.03.2013 for application of 5% NP Rate made with JCIT during the course of assessment proceeding (Assessee s reply, point 8, as per assessment order Page 3). 11. The comparative of N.P. chart against gross receipts for last three year is reproduced hereunder: Asstt. year Gross receipts Net profit % 2008-09 71313104/- 2036086/- 2.86 2009-10 113980532/- 3336268/- 2.93 2010-11 98278472/- 2819606/- 2.87 12. The Ld. CIT(A) relied on the decision of Mahesh Chandra Contractor, vs. Income-tax Officer(Supra)wherein the case of civil contractor in the absence of maintenance of books of account, bills and vouchers and stock register a N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion should have reasonable nexus to the material available on records and circumstances of the case. It is also equally settled position in law that the estimation of N.P rate has to be made on the basis of past trading results (history) or comparable case on similar facts. Estimation of profit is purely a question of fact meaning thereby that no particular rate of profit has universal application and depending upon the facts and circumstances of each case the rate of profit varies. It therefore implies past history of the assessee s own case is the most relevant guide for estimation of profit. 18. It is noted that ld CIT(A) has also ignored the provisions of Sec. 145(3)/144 of the Act by not appreciating the trading results declared by the assessee in the earlier years and has confirmed the avery high and unreasonable net profit rate of 8% on the gross total receipts which is without any basis by taking support of the provisions of sections 44AD which are not applicable in the present case because the turnover of the assessee is in several crores. 19. For arriving at the view that past history is the best guide to estimate profit where book profit is unbelievable, we derive ..... X X X X Extracts X X X X X X X X Extracts X X X X
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