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TMI Blog2025 (3) TMI 1047X X X X Extracts X X X X X X X X Extracts X X X X ..... en accepted in the facts and circumstances of the case. 2. That in any view of the matter the income tax is levied on real income only and not on artificial income as worked by the Assessing Officer in his order in the present case because the appellant declared true and correct income in the return based on closed books of accounts which is the real income. Even appellant's accounts are complete in all respect which are maintained on the basis of correct principles of accounting and therefore in the facts and circumstances of the case the provisions of Section 145(3) of the Income Tax Act as involved by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeal) is unjustified, incorrect and illegal in the eyes of law, hence rejection of accounts in highly objectionable and illegal. 3. That in any view of the matter all the contract receipts were from various Central Government Department and received through account payee cheques which are duly recorded in books also but the two lower authorities failed to consider the same judiciously, hence enhancement in receipt as made and maintained is unwarranted. Even the entire discussion, observations and findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present case and the copies of those cited cases should have been provided to the appellant before taking the shelter of those cases for making and maintaining the addition in which the lower authorities totally failed, hence the addition as made and maintained on this count is unwarranted and illegal. 9.That in any view of the matter the interest charged under different sections of the Income Tax Act is highly unjustified and illegal in the facts and circumstances of the case. 10.That in any view of the matter the assessee reserves his right to take any fresh ground of appeal before hearing of the appeal. 2. The facts of the case are that during the year under consideration, the assessee declared contractual receipts from various Government Departments at Rs. 10, 66, 77, 556/-. Of the above, receipts amounting to Rs. 5, 87, 25, 039/- came from Branch Office of Jaipur and pertained to sales of Generators that were dispatched from Jaipur Branch against Government orders. The Assessing Officer, on going through the agreements entered into by the assessee with various Government Departments, noticed that some of the works had been completed before the end of the financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explaining why the observations made by the Assessing Officer were not of a nature that would require rejection of its books. It was submitted that in some cases, there were variations in receivables on account of the fact that the work had either been increased or reduced by the concerned Government Departments. However, it was not in a position to provide details, as the respective Government Departments were not providing the evidences for such extension/reduction. Regarding the payment made to Advocate without deduction of TDS, it was submitted that the same was not made according to the bonafide belief that tax deduction was not required for the amounts below Rs. 50, 000/-. Regarding the payments disallowable under section 40A(3) of the Act, it was submitted that these were made after office hours at various sites. Regarding the difference in amount of bank guarantee and commission as reported by the Bank, the assessee submitted that the guarantees were taken from Bank of Baroda, Main Branch, Allahabad and the fees were collected by them from the bank account and such bank account tallied with the books of account. On the issue of entry of five months of payment to LED Power, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer rejected the book results and applied net profit rate of 7% on the contractual receipts of Rs. 10, 66, 77, 556/- as against the declared net profit rate of 2.02%. He also made an addition of Rs. 56, 69, 837/- on account of short receipts as disclosed above and thus assessed the total net profit at Rs. 79, 09, 394/- on total receipts of Rs. 11, 29, 91, 342/-. 4. Aggrieved with this addition, the assessee went in appeal before the ld. CIT(A), Allahabad. Before the ld. CIT(A), it was submitted that the assessee firm was mainly engaged in electrical contracts for Central Government Departments, such as MES, Railway and BSNL. Regular books of account had been maintained on day-to-day basis, which were audited year after year. In the last five years, all the assessments have been completed under section 143(3) of the Act and no additions of the nature made in the current year, had been made previously. It was submitted that all the books of account had been produced before the Assessing Officer and all the required information/details as per his queries were furnished. No specific fault was found in the books of account or the audit report. It was submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cope of work. He also rejected the arguments of the assessee that addition made on account of suppression of receipts amounted to double addition, observing that it was the responsibility of the assessee to declare income according to the method of accounting regularly followed by it. He held that debtors could not be shown in the balance sheet without routing the same through the profit and loss account. He upheld the decision of the Assessing Officer to rely upon the decision of the Hon'ble Supreme Court in the case of CIT vs. Wood Word Governor India Pvt. Ltd. (2009) 312 ITR 254 (SC), in which it has been held that the income has to be declared on due basis, even before it is actually received. Therefore, he confirmed the addition of Rs. 56, 69, 837/- made by the Assessing Officer. On the issue of rejection of the books of account, the ld. CIT(A) observed that different ITAT Benches in the cases of Goyal Construction Company, Pooja Construction Company, Singhal Builders Contractor and Gupta Construction Company had confirmed the profit rates of 11%, 10%, 12% and 8% respectively. He agreed with the Assessing Officer on the fact that there were mistakes in the books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and reconciliation had also been furnished, showing how the receipts were taken into their accounts. In this background, it was not proper to consider higher receipts on presumption basis. Hence, the additions made were liable to be deleted. It was further submitted, without prejudice to these arguments, that there was no suppression of receipts and that even if the amounts have to be added back, it could not constitute income, as there was expenditure component involved in the same and, therefore, only profit element of the same could be added back. For this reason, it was submitted that the addition made was unwarranted. 7. On the other hand, Shri A. K. Singh, the ld. Departmental Representative (hereinafter know as ld. D.R.), pointed out that the Assessing Officer had observed that the assessee had suppressed receipts of Rs. 56, 69, 827/- and the ld. CIT(A) had also observed that the same were disallowable as per mercantile system of accounting that was adopted by the assessee. The assessee's claim of rejection in quantity of receipts due to reduction in scope of work had not been borne out by correspondence with certain Government Departments that the Assessing Officer ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bliged to show receipts on accrual basis and since it had failed to do so, the addition was confirmed. On going through the order of the ld. CIT(A), we find that the assessee had submitted a reconciliation chart accounting for and showing the breakup of Rs. 56, 69, 837/- added back by the Assessing Officer. It is observed that of this amount, only Rs. 9, 39, 029/- have been held to be short receipts on account of reduction of scope of work. With regard to the same, it is not clear as to whether the Assessing Officer has made specific queries/confirmations with respective Government Departments regarding whether there was actually any reduction in the scope of work before making this addition. We further observe that no amount is paid by the Government Departments without deduction of tax at source. The TDS statements were before the Assessing Officer and from the same it would have been possible to quantify the amount actually paid by each Government Department to the assessee. Therefore, without pointing out that TDS had been deducted for higher amount of payment and without pointing out that the said Government Department had denied any reduction in the scope of work, merely beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without examination of whether the amounts had actually accrued and were unaccounted for. We, therefore, direct the AO to examine the reconciliation statement with reference to the books of the assessee and arrive at a final decision on the matter thereafter. Grounds No.3, 4 and 5 are accordingly allowed for statistical purposes. 9. The next issue is with relation to the rejection of the books of account and the decision of the ld. CIT(A) to estimate profit @ 5% of net receipts. While there is certain amount of guess work involved in making estimate, we believe that estimate should be made having regard to the previous history of the assessee or with reference to comparable cases. The Assessing Officer has pointed out several discrepancies in the books of the assessee which would make it evident that the books of the assessee were not complete and correct in all respects. Therefore, his decision to reject the books under section 145(3) of the Act is upheld. However, with regard to the estimation of profits, the Assessing Officer has not brought on record the fact that comparable cases upon which profits of the assessee are estimated, are cases of electrical contractors. As the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X
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