ITO, NEW DELHI vs. SH. BRIJ SATVINDER PAL SINGH AHLUWALIA, NEW DELHI

The Revenue is aggrieved against reducing the total additions made by the AO from Rs.88,25,556/- to Rs.5,21,692/-.

Briefly stated, the facts of the case are that the assessee carried on the business of providing earth moving machines. Net profit of Rs.8,02,345/- was declared on total receipts of Rs.1,65,50,462/-, giving NP rate of 4.84%. On perusal of the Profit & Loss Account of the assessee, the AO found that Job charges amounting to Rs.62,78,646/- and Hire charges of Rs.22,61,875/-, totaling to Rs.85,40,521/- were claimed by the assessee as deduction. On being called upon to explain as to why no deduction of tax at source was made u/s 194C on payment of job work and hire charges, the assessee contended that there was no obligation to deduct tax at source. The AO further found that the assessee made payments to various persons at marginally less than Rs.20,000/- to avoid the attractability of the provisions of Section 40A(3) of the Act. Thus, it was inferred that the assessee manipulated its accounts, so that payment of job work charges and hire charges did not exceed the specified limits attracting the provisions of section 194C and 40A(3). As the assessee failed to produce complete books of account along with supporting vouchers, the AO rejected the books and made addition of Rs.85,40,521/- by disallowing the entire amount of job 2 charges and hire charges. Apart from that, the AO also made disallowance @ 10% from Salaries paid and 10% from Mobile and telephone expenses. This resulted into completing the assessment at Rs.95.27 lac as against Rs.7.02 lac declared by the assessee. The ld. CIT(A) noticed that the provisions of section 40A(3) and 40(a)(ia) were admittedly not attracted. He did not accept the AO’s version of making total disallowance of job work charges and hire charges, which, if accepted, would increase the net profit rate to 57.57%. In view of the fact that the assessee did not produce complete books of account, the ld. CIT(A) held that the declared profit was not capable of acceptance.

We have heard the rival submissions and perused the relevant material on record. It is seen that the assessee did not produce complete books of account with supporting vouchers before the AO. In such circumstances, the ld. CIT(A) was justified in upholding the rejection of books of account by the AO. After rejecting the books of account, the next pertinent thing is to estimate the income. Such estimation of income has necessarily to be based on some logic and cannot be determined arbitrarily. The AO in the instant case disallowed the entire amount paid of Job work charges and also Hire charges, which, in our considered opinion, was not justified by any standard. As regards the estimate of income made by the ld. CIT(A) at 8% of gross receipts, we are satisfied that such an estimate of net profit is quite reasonable and does not require any interference. It is more so in view of the fact that the assessee declared net profit rate of 4.84% for the year in question and 3.65% for the preceding year, as has been recorded on page 2 of the assessment order. We, thus, uphold the estimate of net profit at 8% by the ld. CIT(A). It is further noticed that the ld. CIT(A) did not apply the provisions of section 44AD as has been alleged in the ground of 4 appeal. He clearly mentioned in the impugned order that such a section was not applicable, but he was taking a clue from this section for estimating the income. Once income is estimated at a particular rate of net profit, then there can be no question of making further disallowances from expenses. We, therefore, affirm the view taken by the ld. CIT(A).

In the result, the appeal is dismissed.