TMI Blog2022 (9) TMI 343X X X X Extracts X X X X X X X X Extracts X X X X ..... even a single instance of any such defect or irregularity which would have evidenced that the assessee even during the year under consideration had continued with the accounting malpractices that were adopted by him in the preceding years. Presumption drawn by the AO that that as the assessee had indulged into accounting malpractices in the preceding years, therefore, he would have continued with the same in the succeeding years in the absence of any supporting evidence cannot be subscribed on our part. Interestingly, if the observation of the AO is to be accepted, then, it would mean that once an assessee is visited with search proceedings and he after considering the incriminating documents unearthed during the course of such proceedings comes forth with a disclosure of his unaccounted income, then, in all the subsequent years despite there being no iota of evidence that the assessee had indulged in any such nefarious activities for garnering unaccounted income it is to be so presumed because of his chequered past. By no means such an incomprehensible observation of the AO can be accepted. As regards the reference to the Standard Operating Rate (SoR) by the AO to support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and evidences brought into light by the A.O during assessment proceedings. 2. Without prejudice to the above, the learned CIT(A) failed to appreciate the fact that the assessee himself had computed the net profit rate @10% of the gross contract receipt before the Hon ble ITSE, Addl. Bench, Kolkata for the last seven A.Ys. 2006-07 to 2012-13 and the same has also been considered by the ITSE while passing the order u/s.245D(4) of the Income Tax Act, 1961. 3. The appellant reserves his right to add, amend or alter the grounds of appeal on or before the date, the appeal is finally heard for disposal. On the other hand the assessee as a cross-objector (CO No.04/RPR/2018) has assailed the impugned order on the following grounds: 1. Ld. CIT(A) was not justified in rejecting the application filed by the assessee for admission of additional evidence u/r. 46A. Rejection of additional evidence is contrary to provisions of law and is not justified. 2. The cross objector reserves the right to add, amend or alter any of the ground/s of cross objection. 3. Succinctly stated, the assessee who is a civil contractor and derives income from the business of construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006-07 to 2012-13 @10% of the gross contract receipts, which was accepted by the assessee and the corresponding amount of demand therein raised was paid by him. Also, it was observed by the A.O that ITSC in the case of the real brother of the assessee, viz. Shri Sanjay Kumar Agarwal who too was engaged in a business akin to that of the assessee had in his case for A.Y.2013-14 applied the net profit @10% of his gross receipts. 5. On the basis of the aforesaid facts, it was observed by the AO that as the assessee had voluntarily rejected his books of accounts for all the preceding years i.e AYs 2006-07 to 2012-13, therefore, the correctness of the opening and closing balances of different ledger accounts pertaining to the books of accounts of the assessee for the year under consideration could not be relied upon. Accordingly, the AO on the basis of his conviction that the opening and the closing balances of the various ledger accounts of the assessee for the year under consideration i.e AY 2013-14 could not be relied and acted upon, thus, rejected his books of accounts. Observing, that as the assessee had on a suo-motto basis after rejecting his books of accounts for the precedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeals) that for the aforesaid reasons the AO had after rejecting the books of accounts of the assessee estimated his income @10% of the amount of gross contract receipts. However, the CIT(Appeals) was not persuaded to subscribe to the view taken by the AO. It was observed by the CIT(Appeals) that the contention of the AO that once the rate of profit was voluntarily declared by an assessee in any previous year owing to the facts and circumstances of that year, the same rate of profit could safely be made a basis for assessing his income for the subsequent years without considering the facts and circumstances of the earlier years or the year in question was bereft of any merit and could not be accepted. It was observed by the CIT(Appeals) that as each year assessment was a separate assessment, thus, the same would not govern that of the later years. It was further observed by him that the assessment of each year has to be framed after separately considering the facts and circumstances of the said year. Elaborating on the facts involved in the case of the assessee before him, it was observed by the CIT(Appeals) that the books of accounts of the assessee were subjected to a tax audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gross contract receipts, it was observed by the CIT(Appeals) that the same was not based on any cogent material, but was a mere extrapolation by the AO of the net profit rate that was adopted by the assessee in the preceding years i.e AYs 2006-07 to 2011-12. Also, it was observed by the CIT(Appeals) that in the case of two similarly placed group entities of the assessee, viz. Shri. Radhey Sham Agrawal; and Shri. Sanjay Kumar Agrawal, a similar rejection of books of accounts and estimation of their income @10% of gross receipts by the AO was vacated by his predecessor vide his order dated 03.01.2018. It was, thus, noticed by the CIT(Appeals) that the AO had failed to place on record any supporting or corroborating material which would justify adoption of net profit @10%. Observing, that as a decline in the net profit rate during a year cannot on a standalone basis justify rejection of the book results of an assessee u/s 145(3) of the Act, the CIT(Appeals) was of the view that there was no material which would point out towards unreliability of the books of accounts of the assessee. Accordingly, on the basis of his aforesaid observations the CIT(Appeals) not finding favor with the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Assessing Officer refused to admit the explanation and evidence with regard to net profit disclosed by him, and therefore, it is requested that the additional evidence be admitted under Rule 46A of the IT Rules. 6.1.6. The additional evidence sought to be admitted, as aforesaid, is in the form of comparable cases where net profit rate of 3.87% and below was accepted in assessment, Rule 46A of the IT Rules reads as under: [Production of additional evidence before the [Deputy Commissioner (Appeals)] [and Commissioner (Appeals)]. (1) The appellant shall not be entitled to produce before the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)], any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the [Assessing Officer], except in the following circumstances, namely:- (a) where the [Assessing Officer] has refused to admit evidence which ought to have been admitted; or (b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the [Assessing Officer]; or (c) where the appellant was prevented by s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hyam Agrawal and Sanjay Kumar Agrawal have been recently decided by Ld. CIT(A) - II, Raipur vide appeal no. 68/17-18 and 70/17-18 respectively, vide order dt. 03.01.2018. The CIT(A) - II, Raipur in those two cases held that rejection of books of accounts and estimation of income @ 10% of gross contract receipts does not have justification and he accordingly deleted entire edition made on this account vide his order dt. 03.01.2018. 6.1.8. The facts and circumstances of the appellant's case are similar and identical. Apparently, the AO has based his assessment on the outcome of Settlement Commission proceedings for the block period covered during the search Action u/s 132 and has extended the same to the assessment year 2014-15. The AO has not brought on record any irregularity or defects in the books, bills and vouchers etc. as aforesaid. There is no specific finding of the AO that the appellant had booked expenditure without having incurred it or there is inflation in the amount of expenses or that the appellant had claimed any bogus expenditure. Merely because books of accounts of appellant were rejected in the preceding year will not make them liable for rejection u/s 145 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be rejected, and reads as under: (3). Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144. On a perusal of the aforesaid statutory provision, it can safely be gathered that the books of accounts of an assessee can be rejected on satisfaction of either of the three situations, viz. (i). where the AO is not satisfied about the correctness or completeness of the accounts of the assessee; or (ii). where the method of accounting i.e, cash or mercantile system of accounting is not being regularly followed by the assessee; or (iii). where the assessee is not regularly following any accounting standard that had been notified by the Central government in the official gazette and is to be followed by any class of assessee or in respect of any class of income. In the case of the present assessee before us, it transpires that the AO had tried to justify the rejection of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on filed before the ITSC, Kolkata for the earlier years i.e AYs 2006-07 to 2012-13 after referring to the peculiar nature of his business had admitted certain irregularities in his books of accounts for the said preceding years and, on the said count had on a suo-motto basis declared his income from the contract business @10% of the gross contract receipts of all the said years, therefore, he was of the view that as the nature of the assessee s business during the year under consideration remained the same, thus, his income from the said stream of business i.e contract business after rejection of his books of accounts justifiably be estimated @10% of the amount of gross contract receipts. In sum and substance, the AO going by the suo-motto rejection of books of accounts and declaration of net profit rate @10% of the amount of gross contract receipts by the assessee before the ITSC, Kolkata in the preceding years i.e AYs. 2006-07 to 2012-13, had as a matter of fact tried to extrapolate both the facts and the net profit rate declared by the assessee in those preceding years to his case for the year under consideration i.e AY 2013-14. 12. We are unable to persuade ourselves to conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, neither of any such infirmity, viz. (i). booking of any bogus purchases; or (ii). inflating of expenses by the assessee had either been pointed out by the AO while framing the assessment in the case of the assessee for the year under consideration i.e AY 2013-14 or ever admitted by the assessee. Apart from that, it is also a matter of fact borne from record that though certain incriminating documents evidencing the aforesaid infirmities had surfaced in the course of the search proceedings conducted u/s 132(1) in aforementioned preceding years, however, no such material evidencing such infirmities or irregularities in the books of the assessee for the year under consideration is discernible from the records. We, thus, are of the considered view that as the aforesaid peculiar facts as were prevailing in the preceding years were not there during the year under consideration i.e AY 2013-14, therefore, it was absolutely incorrect on the part of the AO to have tried to justify the rejection of the assessee s book results by drawing support from the suo-motto rejection of his books of accounts in the preceding years, which, as observed by us hereinabove was prompted by substantially d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income it is to be so presumed because of his chequered past. By no means such an incomprehensible observation of the AO can be accepted. As regards the reference to the Standard Operating Rate (SoR) by the AO to support his conviction that the income of the assessee from his contract business was justifiably determined by applying a net profit rate @10% to the gross contract receipts for the year under consideration, we are unable to concur with the same. As claimed by the ld. AR, and rightly so, as the SoR for works contracts fixed by the Government departments merely indicates the estimated price of the inputs and expenses and also an estimate of the physical quantity that would be required for execution of the contract, the same, thus, considering manifold factors is too far from the ground realties to have justified earning of a profit margin @10% of the gross contract receipts by the assessee. 14. We, thus, in terms of our aforesaid observations and concurring with the well-reasoned view taken by the CIT(Appeals) that there was no justification on the part of the AO in rejecting the books of accounts of the assessee and estimating his income from the contract business @ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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