ERA INFRA SAIDUTTA JV,NOIDA vs. CIRCLE 5(1)(1), GB NAGAR, NOIDA

The assessee was awarded a contract by Mumbai Rail Vikas Corporation (MRVC) by way of successful tender for construction of Foot Over Bridges, Skywalks, and other works such as overhead electric equipment installations, etc in connection with Trespass control at Kurla and Dadar Stations in Mumbai - LOT III amounting to Rs. 60 Cr.

The assessee filed its return of income declaring income of Rs. 34,95,789/- alongwith audited financial statements. The assessment was completed u/s 143(3) of the Income-tax Act, 1961 [the Act, for short] while rejecting the books of account and an adhoc addition of Rs. 1,66,01,922 was made by estimating net profit @ 8% of gross receipts of Rs. Page 3 of 8 granted and a net addition of Rs. 1,31,06,133 (Rs. 1,66,01,922 Less Rs. 34,95,789) was made.

Aggrieved, the assessee went in appeal before the ld. CIT(A) who dismissed the appeal of the assessee and observed that some details were furnished by the assessee but the relevant ledgers like Contract Charges PC; Contract Charges PC with materials; Wages (direct wages) and Wages and Muster Roll which were vital to determine the net profit, were not submitted. Accordingly, the CIT(A) affirmed the action of the AO.

Aggrieved further, the assessee is in appeal before us.

Before us, the ld. counsel for the assessee vehemently stated that the rejection of books of account u/s 145(3) of the Act for want of furnishing of complete books is improper as no incompleteness was specified in the assessment order. The ld. counsel for the assessee invited our attention to the relevant extract of Section 145(3) of the Act and submitted that in the instant case, the Assessing Officer has not pointed out any incorrectness or incompleteness in the books of account submitted by the assessee and outrightly rejected the same as the assessee failed to produce complete books of account with supporting documents. It is the say of the ld. counsel for the assessee that if the assessee fails to produce Page 4 of 8 are not produced, it cannot be said that the books of account are incomplete to fall within the ambit of Section 145(3) of the Act. The assessee has submitted most of the documents sought for by the Assessing Officer and if a couple of ledgers are not furnished, it cannot be a basis of rejection of books of account until and unless any discrepancy or infirmity is detected in the books already furnished by the assessee.

The ld. counsel for the assessee submitted that the assessee submitted the audit report and the audited financial statement when the complete books of account were sought since complete books of accounts including all documents and invoices would have meant humongous details and the Assessing Officer did not specifically ask the assessee any specific question in the show cause notice issued and kept on asking complete books of account. Further, the Assessing Officer neither pinpointed any defect in the information submitted earlier nor sought for any further information or queries.

The ld. counsel for the assessee relied on ITO vs Sh. Sunil Nayyar, 24 Feb, 2020, CIT-IX vs Jas Jack Elegance Exports, 325 ITR 217 (Del HC) and a catena of other decisions of various courts to support his submissions. Page 5 of 8 Assessing Officer rejected the books u/s 145(3) on account of the failure to submit complete books of accounts and evidence required to determine the net profit of the assessee. The ld DR submitted that the AO made the adhoc addition@ 8% of gross receipts for the reason that the assessee failed to produce "complete" books of account along with supporting documents.

We have heard the rival submissions and have perused the relevant material on record. We find that in the immediately preceding year, the NP rate of the was 1.74% which has now reduced to 1.65% in the impugned year. Considering the reduction of net profit coupled with non-furnishing of relevant documents/evidence, the AO rejected the books of account u/s 145(3) and estimated the NP rate at 8%.

In the given factual matrix of the instant case, we note that the assessee has not given any details of the contract and various expenses incurred for those contracts. The accordingly had show caused the assessee that in absence of the complete books of account, the same will be rejected and net profit would be estimated at @ 8% of the Turnover. Thus, where the assessee failed to furnish complete books of account enabling the AO to determine the net profit of the assessee properly, the assessee’s books of account are liable to be rejected/s 145(3) as the AO cannot be Page 6 of 8 assessee in absence of relevant documents/evidence. We are of the considered view however, that the estimated NP rate at 8% of turnover is at a higher side considering the trend of net profit declared by the assessee in previous years.

Considering the entire factual matrix in perspective and in the interest of justice, we are of the considered view that 2% of the NP rate be considered as adequate for the instant year. Since the assessee has not given any plausible reason for non-submission of complete books of account, therefore, estimation of 2% of NP rate is considered reasonable to cover all loopholes in submission of various details. Accordingly, the balance 6% of estimated profit is directed to be deleted. The ground 1 to 4 are partly allowed.

Ground 5 regarding penalty is premature. partly allowed.