TMI Blog2021 (9) TMI 1515X X X X Extracts X X X X X X X X Extracts X X X X ..... declared. AO is stoically silent on any kind of deficiency in books or excessive claim of any expenses etc. which could substantiate his action. It is incumbent upon the AO to record the inconsistency or incorrectness in the books which prevents the AO to ascertain true income chargeable to tax. The AO has neither rejected the books nor a single voucher was alleged to be unverifiable. The pre-condition for estimating business income, where the assessee maintains books of account is that the books of assessee should be found to be unreliable or otherwise not realistically capable for demonstrating the income of assessee. Without this first step, the fact that the gross profit/net profit is low cannot by itself be a ground for taking a view that it is open to the AO to make good alleged deficiency in profits declared. Thus, the action of the AO requires to be cancelled and set aside on this score alone being devoid of any legitimacy. Gross profit rate/net profit rate cannot be estimated cursorily and in a routine manner without showing as to how the book results are superfluous.AO has not brought any material which has any reasonable nexus to the estimation. As rightly st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d A.O has erred on facts and in law in determining the income from construction activities by applying 8% to enhanced gross contract receipts i.e. Rs. 102,71,69,868/-, ignoring the audited financial statements, without any basis which is wholly arbitrary and unjustified and the Learned CIT(A) has erred on facts and in law in confirming the said arbitrary estimation of income. 2. On the facts and in the circumstances of the case, the Learned A.O has erred on facts and in law in enhancing the Gross Receipts of the assessee from construction contracts by Rs. 7,67,46,776/- i.e. from Rs. 95,04,23,092/- to Rs. 102,71,69,868/- merely on the basis of figures appearing in Form 26AS which is wholly arbitrary and unjustified and the Learned CIT(A) has erred on facts and in law in confirming the said enhancement of gross receipts. 3. Without prejudice to the above, on the facts and in the circumstances of the case, the Learned A.O has erred on facts and in law in making separate addition of Rs. 99,90,703/- on account of interest and Rs. 1,46,250/- on account of Miscellaneous Income already appearing in Profit Loss A/c which is wholly arbitrary and unjustified and the Learned CIT(A) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 8,10,16,240/-. 4. Aggrieved by the substitution and adoption of receipts as appearing in Form 26AS in place of entries shown as per audited book and estimation of net profit thereon @ 8% discarding the book results, the assessee preferred the appeal before the CIT(A). 5. The CIT(A), however, was not persuaded by the submissions made by the assessee and sustained the addition without granting any relief by way of a brief and laconic order. 6. Further aggrieved, the assessee preferred appeal before the Tribunal on both the counts i.e. (i) substitution of gross receipts as per annual statement in Form 26AS generated by the department; (ii) estimation of business income by applying @8% at net profit rate. 7. When the matter was called for hearing, the learned counsel for the assessee reiterated the facts submitted before the lower authorities and pointed out that the assessee firm is engaged in civil contract business as a Government Contractor carrying out construction work on behalf of the Government department and PSUs. In this background, the learned counsel firstly submitted that the difference in the gross receipts between the books of accounts and the annual stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92,345/- and thus action of assessee is prejudicial to him and not to the Revenue over a longer period. Similarly reference was made to elaborate submission made before CIT(A) in this regard. It was thus submitted that the amount received by way of advance would be reported in the year as income as and when the income accrues and becomes due as per accounting policy consistently followed and which is a perennial exercise. The accounts are audited and the amounts have been received from Government organizations which overriding fact should also be borne in mind. 7.3 It was next contended that the action of the AO in substituting the turnover would result in double taxation of the same income once in the year of advance received and later when the receipt is recognized as income on performance of work. 8. The learned DR for the Revenue, on the other hand, relied upon the action of the lower authorities. 9. It may be in a fitness of things to address the issue at this stage itself. The assessee has demonstrated on facts that as per the method of accounting adopted by him accrual of income is the key for it be a taxable event. Accrual of income depends on realization and conve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pleted in the case of the assessee involving A.Ys. 2005-06 to 2011-12. In rebuttal, it was submitted that while net profit @ 8% was offered in search assessment, the same cannot be applied mechanically perfunctorily. It was contended that every assessment year is independent and self-contained and hence book results of one year cannot be applied to the other year without showing specific defects. It was contended that it is elementary that dynamics of business gets influenced by variety of factors peculiar to a business as also demand and supply environment. The broad argument raised on behalf of the assessee are listed hereunder: (i) The principles of res judicata do not apply to the income tax proceedings and each assessment is a separate assessment as held in several decisions including Bharat Sanchar Nigam Ltd. and another V. Union of India (2006) 282 ITR 273 (SC); ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335 (SC). (ii) Even where the best judgment assessment is framed, the same is to be done on some reasonable basis and cannot be done in a vindictive manner. For this proposition, following decisions were referred and relied upon: (a) State of Kerala vs. C. Velukut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remarks that in the absence of any defects in the books despite its production before the AO, the book results could not have been discarded by the AO. The onus cast upon the Revenue in this regard is not discharged. The action of the Revenue in adopting the net profit @ 8% merely on account of declarations made in the search assessment in some earlier years is wholly unjustifiable and arbitrary. Such action is neither inconsonance with law nor in accord with the view taken by the AO in the subsequent assessment years. The learned counsel accordingly urged for restoration of book results as declared by the assessee. 12. We have perused the assessment order and the first appellate order. Both the orders are totally non-descript and has nothing worth to say for substitution of book results with estimated profits. Noticeably, in the assessment order, the AO has categorically made an averment to the effect that books of accounts have been produced by the assessee and test checked. The AO has not made mention of any material which could questions the correctness and bonafide of the book results declared. The AO is stoically silent on any kind of deficiency in books or excessive claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermissible only on showing that the books of accounts are so defective that it is not possible to ascertain the truthfulness of the profits arising therefrom. 14. The co-ordinate bench in ITO vs. Shri Shravan Kumar Arora ITA No. 144/BLPR/2011 has made interesting observation and recorded that there is no rule that the gross profit ratio should followed as noted hereunder: There is no rule that the gross profit ratio should follow a constant ratio with mathematical precision. We further note that there has been a huge and over 100% increase in the turnover as compared to preceding year. Hence, the explanation that increase in turnover has affected margin cannot be brushed aside. In these circumstances, we uphold the order of the learned CIT(A) and delete the addition of 4.77 lakhs on account of low gross profit. 15. In ACIT vs. Ramesh Industries Ltd., the co-ordinate bench has observed as under: The graph of the business profit is always not straight line but it fluctuates year to year. The reasons for fluctuations as given by the assessee that there was higher expenditure of electricity, stated to be main ingredient for the manufacturing of steel products MS ingot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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