CHINTAMANI PROJECTS P.LTD,RAIGAD vs. JCIT PANVEL, PANVEL

There is a delay of 13 days in filing the appeal. The assessee has filed an affidavit explaining the cause of delay and seeking condonation thereof.

The solitary issue arising for consideration in the aforesaid appeal is in relation to the decision of the CIT(A) in upholding the rejection of books of account and estimation of profit @8.5% of the gross turnover.

Briefly, the facts of the case are that the assessee - a company, is engaged in the business of executing civil contract works. For assessment year under consideration, the assessee filed its return of income on 15.10.2010, declaring total income of Rs.89,15,250/- As alleged by the AO, inspite of issuance of statutory notices u/s. 142(1) and 143(2), no one appeared on the dates fixed. Subsequently, in pursuance to further notice issued, though, authorized representative of the assessee appeared however no books of account with supporting details were produced despite reasonable opportunity of being given to the assessee. The AO therefore, issued a notice directing the assessee to show cause in absence of books of account and supporting details, why the assessment should not be completed u/s. 144 of the Act by estimating the profit. In response to the said show cause notice, as observed by the AO, the assessee expressed its inability to produce the books of account and requested for more time. Though, the AO acceding to the request of the assessee granted one more opportunity to produce the books of account, still, the assessee failed to produce the books of account with supporting details. Therefore, the assessing officer proceeded to complete the assessment to the best of his judgment by estimating the profit of the assessee @10% of the gross contract receipts.

The learned CIT(A) after considering the submissions of the assessee and perusing the materials on record, though, was satisfied that in absence of books of account and supporting details the AO was justified in rejecting the book result and resorting to estimation of profit to the best of his judgment. However, he was of the opinion that 10% profit rate applied by the AO is on the higher side. Accordingly, he reduced the net profit rate to 8.5% of the gross receipts.

We have considered the rival submissions and perused the material on record. Though, the learned AR admitted before us that the assessee was unable to produce the books of account and supporting details, however, he submitted that the net profit rate adopted @8.5% by the CIT(A) is on the higher side compared to the net profit rate shown in the preceding as well as subsequent assessment years. In this context, he drew our attention to the comparative net profit rate for earlier and subsequent assessment years as referred to in para 4.1 of the order of the learned CIT(A). He therefore, submitted that a net profit rate comparable to the net profit of the preceding assessment years can be applied, which according to the learned AR would be 6.5%. As could be seen from the facts on record, this is a case where the assessee, though, claimed to have maintained books of account, however, he has failed to produce the same with supporting details either before the AO or before the CIT(A). The learned AR has stated before us, since the books of account were destroyed in a riot it could not be produced. Though, it may be a fact that assessee’s books of account might have been destroyed due to some untoward incident, it appears such incident happened subsequent to the completion of the assessment. Therefore, there was no reason for the assessee not to produce the books of account and supporting details to justify its claim. That being the case, there was no other option before the AO but to proceed for best judgment assessment by resorting to estimation of profit. Thus, the only issue arising for consideration is what can be the reasonable profit said to have been earned by the assessee from execution of work contract. It is evident, while the AO has estimated the profit @10% of the gross receipts, the learned CIT(A) has reduced it to 8.5% However, as can be seen from the net profit rate of the preceding and subsequent assessment years shown by the assessee, as referred to in para 4.1 of the CIT(A)’s order, it hovers around 4% to 6.5%. As per the provisions of section 44AD of the Act in case of non-maintenance of books of account, net profit rate applicable is 8% of the gross receipts. In the present case, however, the assessee’s turnover is more than 14 crore therefore, as per the provisions of the Act assessee is required to not only maintain its books of account but also get it audited. Considering the overall facts and circumstances of the case and keeping in view the net profit rate shown by the assessee in the past years as well as the fact that the assessee was unable to justify its claim by producing books of account and supporting details, we consider it appropriate to fix the net profit @7.5% of the gross receipts. The AO is directed to compute the net profit @7.5% of the gross receipts. At this stage we must clarify, the net profit rate of 7.5% applied by us is purely on the basis of peculiar facts involved in the present case, hence should not be considered as precedent. Accordingly, the grounds are partly allowed.

In the result, the assessee’s appeal is partly allowed.