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Income Tax Appellate Tribunal, DELHI BENCH “E” NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI L.P. SAHU
PER AMIT SHUKLA, J.M.: The aforesaid appeal has been filed by the assessee against the impugned order dated 27.02.2015, passed by the CIT (Appeals), Gurgaon for the quantum of assessment passed u/s.143(3) for the Assessment Year 2011-12. In the grounds of appeal, the assessee is aggrieved by rejection of books of account and levying of net profit rate of 10% by the Assessing Officer, which has been reduced to 8% by the ld. CIT (A).
2. The brief facts are that the assessee is engaged in the business of civil construction and during the year under consideration, it had shown turnover of Rs.7.85 crore and net loss of Rs.3,96,998/- has been shown in the computation of income and thereafter assessee has added back the expenses disallowable u/s 43B for a sum amounting to Rs.13,93,526/-. Accordingly, the taxable income shown in the return of income was Rs. 9,96,528/-. In the impugned assessment order, the Assessing Officer noted that despite notices and several order sheet entries to produce the complete details, bills and vouchers, the assessee could not submit the books of account. Accordingly, he proceeded to make the assessment u/s 144 after rejecting the books of account u/s.145(3) and applied net profit rate of 10% after quoting following judicial pronouncement; (i) Awdesh Partap Singh Abdul Rehman & Bros vs. CIT, (1994) 76 Taxman 106 (All). (ii) S.N. Namasivayan Chettier Vs. CIT, (1960) 38 ITR 579 (SC). Apart from that, he also made addition of Rs.1,19,909/- on account of payment of employees contribution of PF on the ground that same was paid beyond the due date. The later addition got deleted from the first appellate proceedings, but the ld. CIT (A) has upheld the rejection of books of account on the ground that same was not produced before the Assessing Officer. However, he reduced the net profit of 8%.
3. Before us the ld. counsel for the assessee submitted that the assessee during the course of assessment proceedings had stated that due to recurring loss, the assessee was on the verge of closing down its business and there was no man power left to co-operate with the assessee. Apart from that, the assessee had submitted all the requisite details as required by the Assessing Officer from time to time which is evident from the copy of replies and letters filed before the Assessing Officer which has been annexed in the appeal set. However, for the books of account, the assessee had requested some more time which Assessing Officer has not taken note of such a request and has said that no books of account have been produced. Before the ld. CIT (A) the assessee had explained the entire facts and circumstances of the case and the details which were produced to the Assessing Officer and also filed a petition for admission of additional evidence under Rule 46A for submitting the books of account. However, the ld. CIT (A) without acknowledging such submission/application has simply upheld the order of the Assessing Officer that no books of account have been produced. He submitted that the assessee is maintaining regular books of account which were subject to audit u/s. 44AB and all the accounts in trading account were duly submitted before the Assessing Officer, viz., details of opening/ closing stock, work in progress, etc. was produced along with the reasons for losses/low profit and comparative statement of expenses for last two years. He also pointed out that in the earlier years, the assessment of the assessee has been completed under scrutiny proceedings wherein the books of account have been duly examined and the trading result showing net profit of 1.07% and 1.19% has been accepted. This year the net profit was 1.27% and the loss was due to disproportionate increase in various head of expenditure. He thus submitted that both the authorities have violated the principle of natural justice despite assessee’s request made before the first appellate authority as well as before the Assessing Officer; and accordingly rejection of books of account on this ground alone cannot be sustained. Alternatively he submitted that the profit rate of 8% upheld by the ld. CIT (A) is without looking into the assessee’s own past history and the facts and material on record and therefore, such an arbitrary application of net profit rate of 8% on the basis of Section 44AD is not justified. Thus, the order of the ld. CIT (A) should be set aside and assessee is ready to produce the books of account if opportunity is given before the Assessing Officer, if this Tribunal deems fit to remand back the matter back to the file of the Assessing Officer.
On the other hand, learned Department Representative submitted that assessee per the noting of the Assessing Officer that on two occasions Assessing Officer has asked for the books of account and same were produced and therefore, in absence of such a vital material, Assessing Officer has no option but to compute the assessment by applying a net profit rate. So far as applicability of 8% of net profit rate, he submitted that in the case of civil construction 8% net profit rate is quite reasonable and therefore, the order of the ld. CIT (A) is justified.
We have heard the rival submissions and also perused the relevant finding given in the impugned order as well as the material referred to before us. The only basis given by the Assessing Officer for rejection of books of account and completing the assessment u/s.144 is that, books of account were not produced by the assessee despite opportunity given to the assessee. From the record, it is seen that the assessee has filed its audited balance sheet and P&L account along with tax audit report u/s.44AB. Apart from that the details of entries appearing in the books of account, like unsecured loans, sundry debtors, details of opening and closing stock, work chart including gross work done, etc., however regular books of account has not been submitted. The reasons given by the learned counsel was that assessee’s business was closing down and it did not have any responsible person to provide the assistance. Before the ld. CIT (A), the assessee apart from various explanations had also made a request under Rule 46A to submit the books of account. However, the ld. CIT (A) has not even referred to such an application. From the records submitted before us, we find that assessee did make request before the ld. CIT (A) vide its application dated 28th March, 2014 under Rule 46A and thereafter vide submission dated 10th February, 2015, it has been submitted and stated as under:- “As regards the observation o page 2 of AO that books of accounts were never produced is not all correct. Book were produced one occasion but AO refused to examine them without complete set of vouchers & records for which A’ sought time. Although there were still
complete two months to go for case getting time barred, ‘A’ was not given further time fort no purpose our explanation that ‘A” his closed down business, all old stage his left. Only one/two new staff is there, previous were and due to host of other reason time is needed but this was not appreciated & AO proceeded to make adhoc additions. As no reasonable opportunity of heard was given you are requested to give this A” one more opportunity to produce the necessary records as his case is well covered by Income Tax Rule 46A.” However, there is no rebuttal by the ld. CIT (A) on this request or application. Apart from that, we find that assessee has given detail chart of comparative statement of the trading account as well as various expenditure debited in the P&L account for last three years and out of which earlier two years were subjected to scrutiny u/s.143(3) on the basis of books of account produced. None of these factors have been taken into account by the Assessing Officer or by the ld. CIT (A) even while applying the net profit rate. Under these facts and circumstances of the case and in the interest of substantial justice we feel that the entire matter of rejection of books of account and application of net profit rate should be remanded back to the file of the Assessing Officer to carry out fresh examination of books of account and trading result. The assessee is also directed to produce the books of account and substantiate its case. In case the assessee fails to produce the books of account, then Assessing Officer may draw adverse inference and compute the income in accordance with law. Accordingly, the entire issue is set aside and restored back to the file of the Assessing Officer for making the fresh assessment and assess the income from civil construction business after giving due opportunity to the assessee.
In the result, the appeal of the assessee is allowed for statistical purposes.