SMEC INTERNATIONAL PTY. LTD.,,NEW DELHI vs. ADIT, INTL. TAXATION, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘G’ NEW DELHI BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA No. 5926/Del/2012 Assessment Year: 2008-09 Vs. ADIT, Intl. Taxation, Range-2, M/s. SMEC International Pvt. Ltd., Bansal’s Flat, P-39 , 1st New Delhi Floor, South Extension, Part-2, New Delhi PAN : AAICS3406K (Appellant) (Respondent) Appellant by Sh. R. M. Mehta, CA Respondent by Sh. Anuj Arora, CIT(DR) Date of hearing 21.09.2016 Date of pronouncement 30.11.2016 ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 17/10/2012 passed by the Assessing Officer under section 143(3) read with section 144C of the Income-tax Act, 1961 (in short ‘the Act’) for assessment year 2008-09. The impugned order has been passed giving effect to the direction of Dispute Resolution Panel (in short ‘DRP’). The grounds raised in appeal were modified through an application dated 24/09/2015, which are reproduced as under: “ 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER HAS ERRED IN REJECTING BOOKS OF ACCOUNT AS THERE ARE NO DESCREPANCIES AND THE LOWER PROFIT IS NO REASON TO REJECT THE BOOKS OF ACCOUNT AND THE A O IS ALSO WRONG IN HOLDING THAT THE SEPARATE PROJECT WISE

2 ITA No.5926/Del/2012 AY: 2008-09 PROFITABILITY AND SEPARATE BOOKS OF ACCOUNT IS REQUIRED BY LAW AND THE BOOKS ARE REJECTED ON THAT BASIS? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER HAS ERRED IN MAKING AN ESTIMATE WITHOUT THERE BEING ANY MATERIAL IN HIS POSSESSION AND THAT NO OPPORTUNITY WAS PROVIDED AND THE MATERIAL COLLECTED MADE KNOWN TO THE ASSESSEE BEFORE ESTIMATING THE PROFIT? 3. • WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER HAS ERRED IN MAKING AN ESTIMATE BY DRAWING A COROLLARY WITH SECTION 44BB AND ESTIMATING NET PROFIT 10% OF GROSS RECEIPTS WITHOUT THERE BEING ANY MATERIAL IN HIS POSSESSION AND THAT NO OPPORTUNITY WAS PROVIDED AND THE MATERIAL COLLECTED MADE KNOWN TO THE ASSESSEE BEFORE ESTIMATING THE PROFIT? 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER HAS ERRED IN MAKING ADDITION U/S 40(a) OF RS 9,60,21,829/-TO THE NET PROFITS ARRIVED AT BY HIM? 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER HAS ERRED IN MAKING DISALLOWANCE AS ADHOC %AGES AS UNDER AND THEN PROCEEDING TO REJECT ACCOUNTS INSTEAD: COMMUNICATION CHARGES 10% OF THE TOTAL EXPENSES……..RS. 220642/- OFFICE MAINTENANCE 20% OF THE TOTAL EXPENSES …………RS.1114768/- PRINTING & STATIONERY 25% OF THE TOTAL EXPENSES ……….RS. 2763992/- TRAVELLING AND CONV 15% OF THE TOTAL EXPENSES…………RS. 4334062/- VEHICLE RUNNING MAINT 25% OF THE TOTAL EXPENSES ……. .RS 467773/- DEPRECIATION ……… RS 546815/- 6. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER HAS ERRED IN TAKEING AN ALTERNATIVE ASSESSEMNT BASED ON EITHER THE ESTIMATED DISALLOWANCE OR TO REJECT THE BOOKS AND ESTIMATE PROFITS? 7. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER HAS ERRED IN TREATING THE EXPENSES INCURRED IN REIMBURSING THE HEAD OFFFICE AT AUSTRALIA (HO) FOR THEIR STAFF COST, HOLDING IT AS FTS (FEE FOR TECHNICAL SERVICES) IN THE HANDS OF HO THOUGH IT WAS DEDUCTIBLE EXPENDITURE INCURRED FOR DETERMINING PROFITS AS PER SECTION 44DA OF THE ACT? 8. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER HAS ERRED IN MAKING A SEPARATE ASSESSMENT AT RS 11,56,81,419/- AS FTS IN THE HANDS OF THE HO WHICH WAS ACTUALLY REIMBURSEMENT OF HO STAFF COST AND THE NOMENCLATURE OF SUB CONSULTING DOES NOT CHANGE THE

3 ITA No.5926/Del/2012 AY: 2008-09 SUBSTANCE OF THE TRANSACTION AND WHETHER NOTICE U/S 163 WAS A PRE- REQUISITE TO MAKE AN ASSESSMENT IN THE NAME OF SMEC INTERNATIONAL PTY LTD AUSTRALIA I.E. THE HEAD OFFICE IN THE HANDS OF THE LOACL PROJECT OFFICE, OF THE SAID SUM OF RS 11,56,81,419/-? 9. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER HAS ERRED IN MAKING ASSESSMENT AT RS 11,56,81,419/- AS FTS IN THE HANDS OF THE HO AT 10 % OF GROSS RECEIPTS AND NOT ALLOWING EXPENSES INCURRED BY THEM IN EARNING THIS INCOME FORM RENDERING SERVICES FOR INDIAN PROJECTS ? 10. THE APPELLANT CRAVES LEAVE TO ADD/ ALTER/ MODIFY OR WITHDRAW ANY GROUND(S) OF APPEAL.” 2. The facts in brief of the case as culled out from the order of the lower authorities are that the assessee company, a tax resident of Australia, was engaged in providing consultancy services in the field of road construction and maintenance, water and environment, power and hydroelectric projects etc. Mostly, the projects financed by World Bank loan, Asian Development Bank assistance etc. were awarded by various State Governments on the basis of global tenders. Besides, the assessee was also engaged in design and supervision of contract works. During the year under consideration, the assessee was engaged in executing 30 projects, against which the revenue of Rs.65,29,46,965/- was recognized. 2.1 The assessee filed return of income on 30/09/2009 declaring total income of Rs.8,89,55,679/- under section 44DA of the Act. The case was selected for scrutiny and notice under section 143(2) of the Act was issued and complied with. The Assessing Officer framed a draft assessment order on 30/12/2011 under section 144C(1) of the Act proposing certain additions/disallowances. Against the draft assessment order, the assessee filed objections before the DRP under section 144C(2)(b) of the Act on various grounds. After considering submission of the assessee, the DRP issued direction to the Assessing Officer under

4 ITA No.5926/Del/2012 AY: 2008-09 section 144C(5) of the Act on 28/09/2012. The Assessing Officer in compliance to the directions of the DRP, completed the assessment on 17/10/2012 under section 143(3) read with section 144C(5) of the Act. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above. 3. In grounds No. 1 to 3 , the assessee challenged rejection of books of accounts and estimation of net profit at the rate of 10% of the revenue recognized during the year. 3.1 The facts in respect of issue in dispute are summarized as under: (i) the Assessing Officer observed increase in operating expenses despite major part of the work was subcontracted. (ii) The Assessing Officer asked the assessee for submitting project-wise profit and loss account and project-wise summary of expenses & bills and vouchers for major expenses (ii) It was explained by the assessee that major expenses were paid by cheque and wherever applicable, the TDS was deducted. Further, the expenditure was controlled and monitored by the Australian office through a multilayer authorization internal process. (iii) It was further explained that the companies business was very diverse and no hard and fast rules could be made for determination of the profit and the company had to manage the overall business at all the sites, without regard to the level of subcontracting, due to which the net profit was lower. (iv) The Assessing Officer observed that adequate supporting bills and vouchers to the reasonable acceptable extent against various major expenses were not produced. He referred to the submission dated 19/12/2011 of the assessee, in which, it was admitted by the company that supporting documents vouchers

5 ITA No.5926/Del/2012 AY: 2008-09 being voluminous, it was not feasible to bring all the documents to the office of the Assessing Officer. (vi) The Assessing Officer examined the bills and vouchers on test check basis and proposed disallowances as follows: S.No. Expenses Disallowance in Rs. 1. Communication charges 2,20,642+2,20,642 10% for no bills and vouchers and 10% for personal use of telephone/mobiles by the employees 2. Office maintenance 11,14,768 (at the rate of 20% of the total amount debited) 3. Printing and stationary 27,63,992 (at the rate of 25% of the amount debited ) 4. Travelling and conveyance 43,34,062 (at the rate of 15% of the total amount including personal use by the company) 5. Vehicle operating cost 5,46,815 at the rate of 20% of the total amount debited which includes petty cash payment also 6. Depreciation on fixed assets in 4,67,77 absence of bills and vouchers produced 7. Total 96,68,694

(vii) Instead of disallowing the expenses, the Assessing Officer issued show cause as to why the books of accounts of the assessee may not be rejected invoking section 145 of the Act and assessment might be finalized as best judgment due to reasons, which are summarized as under: (a) project wise profit and loss accounts were not maintained and the expenses booked against the revenue recognition in each project and there allowability could not be verified.

6 ITA No.5926/Del/2012 AY: 2008-09 (b) The claim of expenses and the picture of profitability against each project was not clear and verifiable. (c) bills and vouchers of major expenses were not produced and therefore entire claim of expenses was not verifiable and certain expenses like Vehicle operating expenses were incurred mostly in cash (d) bills and vouchers in respect of various fixed assets were not produced and and the corresponding depreciation was not an allowable expenditure (viii) In response, the submission filed by the assessee are summarized as under: (a) the case was examined for transfer pricing wherein all accounts were examined and no defect was found out in the accounts (b) the accounts of the company were audited by the chartered accountant and all the audit reports were without any any auditors qualifications. (c) all transactions were accounted for as required by the provisions of FEMA applicable to a non-resident foreign company and there has never been any adverse action or finding by the FEMA authorities (d) most of the vouchers demanded were produced and photocopies filed for major items as desired. (e) complete details of addition to assets was filed and vouchers for some fixed assets were at project sites and could not be produced due to shortage of time.

7 ITA No.5926/Del/2012 AY: 2008-09 (f) the section 145 of the income tax Act does not require any maintenance of separate project-wise accounts and income and expenses (g) the sub-consulting activity went up from Rs.23.45 crores to Rs.46.28 crores, which was hundred percent more than the preceding year and the increase in sub-consulting requires more supervision and thus higher the sub consulting input, the lower was the margin. (ix) The Assessing Officer did not accept the submission of the assessee and observed that the assessee had neither prepared nor submitted separate profit and loss account for each project and in absence of such separate accounting, the assessee failed to bring on record justification for alignment with matching system of accounting. The Assessing Officer was of the view that in absence of such project wise ascertainment of the cost & allocation of cost, the project-wise profitability could not be ascertained and in absence of the same profit of the enterprise could not be ascertained. The Assessing Officer rejected the claim of the assessee for excessive cost on account of sub-consultancy, resulting in low profitability. (x) Looking to the faults in the books of accounts of the assessee, on-maintenance of records for separate projects coupled with the fact of fall in net profit rate, the Assessing Officer, invoking the section 145 (3) of the Act, rejected books of accounts of the assessee. (xi) The Assessing Officer estimated the profit at the rate of 10% on the gross receipts drawing a corollary from the provisions of

8 ITA No.5926/Del/2012 AY: 2008-09 section 44BBB of the Act and computed the net profit of the assessee at Rs.6,52,94,598/- on the gross receipts of Rs.65,29,46,988/-. The Assessing Officer noted that since net profit was estimated, no further additions disallowance on account of the claim of expenses for depreciation was required to be made. (xii) The dispute resolution panel also affirmed the action of the Assessing Officer, observing that when the project-wise revenue recognition was done, the project wise attribution of expenses was also possible particularly when the assessee was duly assisted by highly qualified accounting professionals. (xiii) Regarding estimation of net profit also, the DRP concurred with the Assessing Officer observing that in the best judgment, there is always some guesswork. 3.2.1 Before us, the learned Authorized Representative of the assessee filed the paper book and submitted that the assessee was not required to maintain project-wise books of accounts either under the provisions of the Income Tax Act framed thereon and the books prescribed under section 44AA read with rule 6F of Income-tax Rules, 1962 were duly maintained. He further submitted that this was also not a requirement stipulated by the accounting standards framed by the ICAI. In this connection, the learned Authorized Representative relied on the decision of the Hon’ble Delhi High Court dated 03/05/2012 in the case of CIT Vs. Winner Construction Private Limited in ITA 796/2011. 3.2.2 The learned Authorized Representative further submitted that the Assessing Officer did not point out any specific defects in the books of account maintained, which were duly audited and free from any qualification by the auditors. 3.2.3 Regarding the non-production of bills and vouchers, the learned Authorized Representative submitted that in the consultancy business

9 ITA No.5926/Del/2012 AY: 2008-09 carried on by the assessee, its cost was personnel based taking into account the actual time spent by persons on numerous project. It was submitted that majority of the cost was related to transaction entered into its associated enterprise, which was accepted by the Transfer Pricing Officer. The learned Authorized Representative submitted that majority of the details and vouchers in respect of expenses were produced before the Assessing Officer and sample vouchers were filed. The copies of bank book and cash running into hundreds of pages were filed alongwith copies of bank statements, however, no discrepancies were pointed out. Similarly, complete details of fixed assets alongwith copies of vouchers were also filed. The learned Authorized Representative referred to pages 121 to 345 of paper book No. 2, and pages No. 53 to 120 of paper book No. 1, which are the letters sent/submitted to the Assessing Officer, and argued that all details in respect of expenses were filed before the lower authorities. 3.2.4 It was further submitted that decline in NP rate cannot be a reason for rejecting books of accounts. In this connection, the learned Authorized Representative relied on various decisions including the decision of the Hon’ble Delhi High Court in the case of CIT Vs. Jackson’s house (2011) 198 Taxmann 385 (Delhi). 3.2.5 The learned Authorized Representative submitted that having accepted in preceding and succeeding years, the manner in which the assessee maintained its books of accounts, the Department cannot turn around and impose in a solitary year, the condition of project-wise records for purpose of rejecting the books of accounts, especially when the statute does not provide for such records. It was argued that to this extent the rule of consistency should be followed rather than principle of res judicata. In this connection, the learned Authorized Representative placed reliance on the decision in the case of CIT Vs. Gopal Purohit in

10 ITA No.5926/Del/2012 AY: 2008-09 ITA No. 1121/2009 dated 05/01/ 2010, CIT Vs. Escorts Ltd., 338 ITR 435 (Delhi) and DIT(E) Vs. Escorts Cardiac Disease Hospital Society, 300 ITR 75( Delhi). 3.2.6 The learned Authorized Representative further submitted that the Assessing Officer had not given any basis for applying a rate of 10% net profit on the receipt and which has been picked up from section 44BBB of the Act, which was otherwise not applicable. The learned Authorized Representative submitted that the Assessing Officer ignored the presumptive net profit rate of 8% provided under section 44AD, net profit rate of 5% under section 44AF, net profit rate of 7.5% under section 44AB and net profit rate of 5% under section 44BBA of the Act. 3.3.1 On the other hand, learned CIT(DR) relied on the finding of the lower authorities and particularly referred to the directions of the DRP in para 4.3 of the order of the DRP justifying rejection of books of accounts. It was submitted that as per section 5(2)(b) of the Act total income of any previous year of a person, who is a non-resident include incomes from whatever source derived which is either accrues or arises or is deemed to accrue or arise to him in India during such year. In the case of assessee, payment of consultancy project, received from the government or other agency, is recognized as revenue in the proportion of the work executed towards that project in the relevant year. Thus, for ascertaining the correct amount of revenue recognized by the assessee from various projects, it was essential to know the expenses incurred towards execution of those projects. With reference to the decision of winner construction Private Limited (supra) the learned CIT(DR) submitted that in that case, the Commissioner of Income Tax (Appeals) had already given finding that in the written submission before the Assessing Officer, the assessee clarified the details of direct expenses of project were maintained and Administration and other overhead expenses were

11 ITA No.5926/Del/2012 AY: 2008-09 recorded in the books of head office and as such the project-wise details were available for verification. In view of the observation of the Commissioner of Income Tax (Appeals) in the case of Winner Construction Private Limited (supra), the CIT(DR) submitted that the Hon’ble High Court observed that the revenue was not able to show on the basis, on which the finding of the appellate authority was challenged and in view of such observation of the Hon’ble High Court, the decision was not applicable over the instant case. 3.3.2 It was submitted by the learned CIT(DR) that low profit of the assessee was not the sole reason for rejection of books of accounts. Further, it was also submitted that in best judgment assessment, there is always a certain degree of guesswork. In this connection, the learned CIT(DR) relied on the judgment of the Hon’ble Supreme Court in the case of Kachwala Gems Vs. Joint Commissioner of Income-tax reported in (2007) 158 taxmann 71 (SC) . The learned CIT(DR) also relied on the judgment of the Hon’ble Supreme Court in the case of CIT Vs. British Paints India Ltd. (1991) 188 ITR 44, wherein the application of section 145 of the Act was upheld, if the correct income of the assessee was not deductible. 3.3.3 In view of the submissions, learned CIT(DR) prayed for upholding the finding of the DRP on the issue in dispute. 3.4.1 We have heard the rival submissions of the parties and perused the relevant material on record. In the case, books of accounts of the assessee have been rejected invoking provision of section 145(3) of the Act and net profit has been estimated at the rate of 10% of the receipts. The DRP in para-4.3 of its order has upheld the rejection of books of accounts with following observations: “4.3 We have considered the submissions of the assessee and have perused the material on 'record. Before dealing with this objection, it would be apt to go through the findings/observations of the

12 ITA No.5926/Del/2012 AY: 2008-09 Assessing Officer as given in the draft assessment order. It is seen that the AO had asked the assessee (i) to justify the increase in operating expenses; (ii) to explain the very low net profit; (iii) to submit project wise profit and loss account; (iv) to submit project wise summary of the expenses; (v) to produce bills and vouchers. The assessee instead of. making specific compliance of the aforesaid as sought by the AO narrated the circumstances of its working and clearly expressed its inability to produce all the documents in the office. Till the preparation of the draft order the compliances as sought by the AO were strictly not met. In view of these circumstances, the AO thought it proper only to make certain disallowances out of certain expenses narrated in the order. The assessee in response to specific query of the AO about preparation of the project-wise final accounts simply submitted that they do not maintain any separate accounts for each project without explaining as to how it was not possible especially when the accounts are electronically kept and when project-wise revenue recognition is done. The AO also noticed that all the heads of expenditure are hot common in all the projects undertaken during the year. In view of these circumstances and for want of lull verification the AO found himself unable to get satisfied about the genuineness or allowability of the expenses. Even, in response to the specific show cause notice issued for rejecting the books of accounts, the assessee did not advance anything to satisfy the AO in regard to complete verification. In view of the roundabout/bald reply filed by the assessee to the various queries raised by the AO, he was constraint to reject the books of account of the assessee and to work Out the correct taxable income to the best of his judgment by resorting to the provisions of section 145 of the Income tax Act, 1961. Even in the present proceedings before the DRP, the project-wise accounts have not been filed which would have been helpful in judging the correctness of the AO’s findings. The contention of the AO that not all the bills and vouches as directed by him were produced is not disputed. Practically nothing new has been filed before us also except filing inference based arguments. We observe that the assessee’s stand that project- wise final accounts cannot be prepared is not acceptable especially when project-wise revenue recognition is done which itself explains that project-wise attribution of expenses was also possible which in turn would have meant

13 ITA No.5926/Del/2012 AY: 2008-09 project-wise final accounts taking into account the important factor that the assessee is duly assisted by highly qualified accounting professionals* In the light of these observations, we are of the view that the AO was fully justified in rejecting the books of account of the assessee company and in the absence of project-wise accounts it is not possible to ascertain correctness of the profit. With this, we do not find any merits in the objection raised by the assessee.”

3.4.2 We find that the section 145(3) of the Act specifies three circumstances, under which the Assessing Officer may make best judgment assessment as under: (1) the Assessing Officer is not satisfied about the correctness and completeness of the accounts of the assessee or (2) the cash or mercantile method of accounting has not been regularly followed by the assessee or (3) income has not been computed in accordance with the standards notified under section 145(2) of the Act. 3.4.3 In the case in hand, the Assessing Officer has noticed presence of first circumstance, i.e., defects in the accounts of the assessee and in view of the defects, he observed that correct profit for the year could not be deduced from the records submitted with assessee. Main two defects pointed out by the Assessing Officer are non-production of complete vouchers/bills of the expenses and non-submission of project-wise profit and loss accounts and project-wise summary of expenses. Before the lower authorities, the assessee itself has accepted the fact of non- production of part of the vouchers before the Assessing Officer in letter dated 19/12/2011, addressed to the Assessing Officer. It is contention of the learned CIT(DR) that the assessee has not given any basis for recognizing the revenue from various projects and due to which the correct profit of the assessee for the year under consideration cannot be ascertained. This contention is factually found to be correct.

14 ITA No.5926/Del/2012 AY: 2008-09 3.4.4 According to the section 145(1), the income under the head ‘profit and gains of the business’ is required to be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Further, section 5(2) of the Act has specified that what will constitute the total income in case of non-residents. The relevant part of the provision is reproduced as under: “Scope of total income. 5. (1) ……………………………………………… (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which— (a) is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year.”

3.4.5 Since the assessee was following Mercantile method of accounting, it was incumbent upon the assessee to recognize the revenue according to the percentage completion of the project. The total income of the assessee as per section 5(2) of the Act, was whatever income accrued to the assessee during such previous year. For example, if the assessee completed 25% of the particular project and incurred/debited expenses in the profit and loss account accordingly, the assessee was required to recognize at least 25% of the revenue, receivable from that project. 3.4.6 The learned Authorized Representative contended that the assessee was not under obligation either under the Act or under the guidelines of Institute of Chartered Accountants of India (ICAI), to maintain project-wise details, but when the Assessing Officer specifically asked to prepare the project-wise details of expenses and profit and loss account for ascertaining the true profit accrued to the assessee from

15 ITA No.5926/Del/2012 AY: 2008-09 each project, the assessee did not provide the required details of project- wise expenses and profit and loss account to the Assessing Officer. In our opinion, the assessee was required to prepare and provide the details in the manner asked by the Assessing Officer for deduction of true profit from the projects carried out with assessee. In absence of providing such details, it was difficult for the Assessing Officer to ascertain the true profit accrued from each project during the period under consideration. In the case of CIT Vs. British Paints India Ltd. (supra) the Hon’ble Supreme Court has held as under:

“20. Sec. 145 of the IT Act, 1961, confers sufficient power upon the officer—nay it imposes a duty upon him—to make such computation in such manner as he determines for deducing the correct profits and gains. This means that where accounts are prepared without disclosing the real cost of the stock-in-trade, albeit on sound expert advice in the interest of efficient administration of the company, it is the duty of the ITO to determine the taxable income by making such computation as he thinks fit. 21. Any system of accounting which excludes, for the valuation of the stock-in-trade, all costs other than the cost of raw materials for the goods-in-process and finished products, is likely to result in a distorted picture of the true state of the business for the purpose of computing the chargeable income. Such a system may produce a comparatively lower valuation of the opening stock and the closing stock, thus showing a comparatively low difference between the two. In a period of rising turnover and rising prices, the system adopted by the assessee, as found by the Tribunal, is apt to diminish the assessment of the taxable profit of a year. The profit of one year is likely to be shifted to another year which is an incorrect method of computing profits and gains for the purpose of assessment. Each year being a self- contained unit, and the taxes of a particular year being payable with reference to the income of that year, as computed in terms of the Act, the method adopted by the assessee has been found to be such that income cannot properly be deduced therefrom. It is, therefore, not only the right but the duty of the Assessing Officer to act in exercise of his statutory power, as he has done in the instant case, for determining what, in his opinion, is the correct taxable income.”

16 ITA No.5926/Del/2012 AY: 2008-09 3.4.7 The Hon’ble Supreme Court has thus held that each year being a self-contained unit, the taxes or income particular year should be payable in that year only. In the instant case, if the revenue from particular project is not recognized according to the amount which accrued in the particular year, the income figure of that particular year will be distorted. The Hon’ble Court has held that in such circumstances, it is not only the right but the duty of the Assessing Officer to act in exercise of his statutory power. 3.4.8 Further the finding of the Hon’ble Delhi High Court in the case of Winner Constructions Private Limited (supra) is not applicable in the instant case because of two reasons. Firstly that the learned Commissioner of Income Tax (Appeals) has recorded that project-wise direct expenses and project-wise details of indirect expenses was available for verification with the Assessing Officer and the Hon’ble High Court has said that the finding recorded with appellate authority was factual and revenue had not been able to show the basis for challenging such finding . We find that in instant case the assessee did not produce project-wise details of expenses before the Assessing Officer or before the DRP, thus, facts and circumstances of the instant case are different from the cited case. Secondly, in the case of the assessee in addition to the absence of project wise details, absence of vouchers/bills of different expenses has been pointed out by the Assessing Officer which is one more ground for rejection of books of accounts. As regard the ground of low profit for rejection of books of accounts, we are of the opinion that books of accounts cannot be rejected on the sole basis that profit of the assessee is low, but in the present case in addition to the low profit other defects have been pointed out by the Assessing Officer. 3.4.9 Further, the learned Authorized Representative contended that the assessee should be given benefit of the rule of consistency as in

17 ITA No.5926/Del/2012 AY: 2008-09 preceding and succeeding years the books of accounts have not been rejected in the case of the assessee. We do not agree with the contention of the assessee because in the case of the assessee the specific defects have been noticed in the books of accounts of the year under consideration in respect of expenses and thus the rule of consistency cannot be extended in the case of the assessee. In the case of Kishan Chand Chelaram 125 ITR 73(SC), the Hon’ble Supreme Court has held that the rule of consistency is applicable to the income tax proceedings and unless some specific material is found against the assessee, the IT Authorities are not permitted to take a contrary view, which has been accepted in earlier years. As we find in the instant case specific material is found against the assessee, the rule of consistency cannot be invoked. 3.4.10 In background of the above discussion, we uphold the action of the DRP in sustaining the rejection of books of accounts invoking section 145(3) of the Act. Accordingly, ground No. 1 of the appeal is dismissed. 4. The second issue in the grounds no. 2 & 3 raised by the assessee is regarding the net profit rate of 10% applied over the receipt. We find that the Assessing Officer has taken the rate of 10% from section 44BBB of the Act, which is a special provision for computing on presumptive basis income of foreign companies engaged in the business of civil construction etc. in certain turnkey power project. The relevant provision is reproduced as under: "Special provision for computing profits and gains of foreign companies engaged in the business of civil construction, etc., in certain turnkey power projects.

44BBB. (1) Notwithstanding anything to the contrary contained in sections 28 to 44AA, in the case of an assessee, being a foreign company, engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with a

18 ITA No.5926/Del/2012 AY: 2008-09 turnkey power project approved by the Central Government in this behalf, a sum equal to ten per cent of the amount paid or payable (whether in or out of India) to the said assessee or to any person on his behalf on account of such civil construction, erection, testing or commissioning shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession". (2) ………………………………………………….”

4.1 We find that in the instant case, the assessee is engaged in providing consultancy for various projects including construction, power projects etc. In our opinion, the sub-section is exactly not applicable over the facts of the instant case. 4.2 Once books of accounts are rejected for estimating the profit of the assessee , the Assessing Officer may apply profit rate of any comparable case. We are of the opinion that the profit in the case of the assessee should be estimated at a value that the other assessees in similar circumstances could earn. There cannot be a wild guess while estimating the profit of the assessee. In the case of consultancy, major expenses are on human resources whereas in the construction or other business of erection etc. of turnkey power projects involves materials and wages etc. and hence cannot be compared with consultancy business. Since the Assessing Officer has not cited any case comparable to the assessee and no opportunity has been granted to the assessee on this issue, in the interest of Justice, we find it appropriate to restore the matter to the file of the Assessing Officer to apply the net profit rate on the basis of comparable cases. Nevertheless to mention that the assessee shall be afforded reasonable opportunity of hearing. Accordingly, the grounds No. 2 and 3 of the appeal are allowed for statistical purpose. 5. In ground No. 4, the assessee challenged disallowance of Rs.9,60,21,829/- under section 40(a) of the Act.

19 ITA No.5926/Del/2012 AY: 2008-09 5.1 The learned Authorized Representative reiterating the grounds relied on the decision of the Tribunal in 7 ITR(Trib) 495 (Chennai )and 7 ITR (Trib) 183, (Ahmedabad). 5.2 The learned CIT(DR), on the other hand, submitted that this issue in dispute has not been discussed by the Assessing Officer in the body of order and the assessee has also not challenged before the learned DRP, and thus it was not clear whether it was addition made by the assessee suo motu in the computation or it was made by the Assessing Officer. In view of the fact, he prayed for restoring the issue to the Assessing Officer for deciding afresh. 5.3 We have heard the rival submission and perused the material on record. We find that in the body of assessment order, the Assessing Officer has not discussed any addition/disallowance under section 40(a) of the Act. In the computation of total income, the Assessing Officer has reduced the disallowances under section 40(a) for the last year and added the expenses disallowed under section 40(a) during the year, but it is not clear from the computation of taxable income reported in the assessment order whether the disallowance under section 40(a) has been computed by the assessee itself. We also find that this ground has not been taken before the learned DRP. In view of the facts, we feel it appropriate to restore the issue to the file of the Assessing Officer for deciding afresh. The assessee shall be afforded reasonable opportunity of hearing on the issue in dispute. Accordingly, the ground No. 4 is allowed for statistical purpose. 6. The Grounds No. 5 and 6 were not pressed by the learned Authorized Representative and therefore same are dismissed as infructuous.

20 ITA No.5926/Del/2012 AY: 2008-09 7. The Grounds No. 7 to 9 were also not pressed by the learned Authorized Representative and therefore same are dismissed as infructuous. 9. The ground No. 10 being general in nature, we are not required to adjudicate upon. 10. In the result, appeal is allowed partly for statistical purpose. The decision is pronounced in the open court on 30th Nov., 2016.

Sd/- Sd/- (H.S. SIDHU) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 30th November, 2016. Laptop/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi