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Before: SHRI N.K. SAINI, HON’BLE VICE- & SHRI N.K. CHOUDHRY, HON’BLE JUDICIAL MEBMER
IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENCH : JODHPUR BEFORE SHRI N.K. SAINI, HON’BLE VICE-PRESIDENT AND SHRI N.K. CHOUDHRY, HON’BLE JUDICIAL MEBMER ITA No. 205/Jodh/2018 (A.Y. 2014-15) M/s. Babu Lal & Company, vs ACIT, Circle-1, C/o. Sh. Rajendra Jain, Advocate, Bikaner. 106, Akshay Deep Complex, 5th B Road, Sardarprua, Jodhpur. PAN NO. AAGFB3045A
(Appellant) (Respondent)
Date of hearing : 03/05/2019 Date of pronouncement : 03/05/2019 Assessee by : Shri Rajendra Jain, Advocate. Department by : Sh. P.K. Singi, JCIT-DR.
ORDER PER N. K. SAINI, V.P.: This appeal by the assessee is directed against the order dated 07.12.2017 of the CIT(A), Bikaner. Following grounds have been raised in this appeal :-
That on the facts and in the circumstances of the case, the ld. CIT(A) grossly erred in upholding the application of provisions of section 145(3). 2. That on the facts and in the circumstance of the case, the ld. CIT(A) grossly erred in sustaining the addition of Rs. 5,00,000/- to trading account on estimation basis. 3. That on the facts and in the circumstances of the case, the ld. CIT(A) grossly erred in not considering the explanation and submission of the assessee that the declared trading result is very reasonable looking to nature of business of the assessee. 4. That on the facts and in the circumstances of the case, the ld. CIT(A) erred in charging interest u/s 234A, 234B and 234C.”
Vide ground No. 1 to 3 the grievance of the assessee relates to the sustenance of addition of Rs. 5,00,000/- out of trading account on estimation basis.
Facts of the case in brief are that the assessee filed the return of income on 30.11.2014 declaring an income of Rs. 44,22,310/-. Later on the case was selected for
scrutiny. The AO during the course of assessment proceeding noticed that the assessee had not maintained day to day stock register in respect of material consumption and certain cash payments had been made exceeding Rs. 20000/- on a single day and there were other infirmities. He, therefore, rejected the books of account u/s 145(3) to the I.T. Act, 1961.(herein after referred as to Act’). The AO noticed that for the A.Y. 2013-14 the assessee had shown net profit rate of 3.03% on the turnover of Rs. 4,9425563/- while for the year under consideration net profit shown was 2.74% on the turnover of Rs. 16,11,50,379/-.
According to the AO the assessee was bound to increase the net profit when the turnover increased. He estimated the net profit rate of 11% subject to depreciation, interest and remuneration to the partners. Accordingly, net profit was determined at Rs. 70,89,682/- as against Rs. 44,52,310/- declared by the assessee. Being aggrieved the assessee carried the matter to the ld. CIT(A) and furnished the written submission which has been incorporated at page no. 3 to 5 of the impugned order by the ld. CIT(A). It was further submitted that the assessee, out of gross turnover of Rs. 16,11,50,379/- executed contract work of Rs. 15,41,64,363/- as sub contractor wherein the profit was low in comparison to main contract. It was also submitted that the assessee had shown net profit rate of 9.35% subject to depreciation, partner’s interest & salary and if the recovery made on account of material supplied by the main contractor was to be deducted from the gross turnover, the net profit rate came at 9.77%. It was further stated that the AO while applying the net profit rate of 11% had not cited any comparable case. Therefore, the income estimated by the AO was unreasonable.
The ld. CIT(A) after considering the submissions of the assessee observed that the AO was not justified in applying net profit rate of 11% and that at the same time the books of accounts maintained by assessee suffered from various defects, he, therefore, sustained the addition of Rs. 5,00,000/- to cover up all possible leakage of the revenue. Now the assessee is in appeal.
The ld. counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the AO while making the addition by applying net profit rate of 11% had not cited any comparable case. It was further submitted that the addition sustained by the ld. CIT(A) was highly excessive particularly when he had accepted the explanation given by the assessee. In his rival submissions the ld. DR supported the impugned order passed by the ld. CIT(A).
We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case it appears that the AO had not considered the facts of the present case in right perspective particularly he has not considered this vital fact that the assessee was doing the major work as a sub contactor and also certain deductions were made by the contractor on account of material supplied to the assessee. Therefore, the net profit rate at 11% applied by the AO without citing any comparable case was not justified. It is also noticed that the ld.CIT(A) while sustaining the addition of Rs. 5,00,000/- has not given any cogent reason. In our opinion the addition sustained by the ld. CIT(A) is on higher side, we therefore, to meet the ends of justice deem it appropriate to sustain the addition of Rs. 2,00,000/- to cover up the leakage of revenue if any.
In the result, appeal of the assessee is partly allowed.
Order pronounced in open court on 03/05/2019.
Sd/- [N. K. CHOUDHRY] [N.K. SAINI] JUDICIAL MEMBER VICE PRESIDENT
Dated : 03/05/2019. A/N Copy forwarded to : 1. Appellant. 2. Respondent 3. CIT 4. CIT(A) 5. DR
Assistant Registrar ITAT, Jodhpur.