MAHESH LADHA KAROTRA,NAVI MUMBAI vs. ITO 22(3)(2), MUMBAI

The first issue in this appeal of assessee is against the order of CIT(A) rejecting the books of account and estimating the adhoc profit rate at the rate of 10% of the total turnover and not allowing loss to be set off against the income. For this, assessee has raised the following two grounds: - “1. The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer of rejecting books of accounts. 2. The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer on calculation of adhoc profit @ 10% of turnover and no loss to be set off against such allowance.”

I have heard the rival contentions and gone through the facts and circumstances of the case. Before me, the learned Counsel for the assessee stated that the AO rejected the books of account and made addition of ₹21,26,746/- by estimating the profit rate at the rate of 10%. The learned Counsel for the assessee stated that he has no objection in case of reasonable profit rate is estimated and rejection of books of accounts is not adjudicated. The learned Counsel for the assessee stated that the flats sold by assessee justifying that some of the flats has 3 | P a g e Mahesh Ladha Karotra been sold at a lesser price than that of the Government value was in order to get liquidity and possibly repay the borrowing and to balance the working capital requirement and further to repay loans outstanding which was increasing the interest burden of the assessee. Hence, the assessee has sold the flat at a lower rate and accordingly, profit estimated at 10% on working in progress is higher. The learned Counsel for the assessee stated that reasonable profit estimated by AO cannot be estimated at 10% but it is to be estimated at about 5%. The learned Departmental Representative only supported the orders of the lower authorities.

I have gone through the facts and noted that the reasons stated by assessee for sale of flats for the value at which price stood in the subsequent years of booking available before finalization of financial statement of FY 2007-08 and the value of closing stock as on 31.03.2009 at the price at which flat sold in the subsequent year or booking value available before the finalization of FY 2008-09 is quite reasonable. Hence, I am of the view that 5% profit which is quite reasonable and the AO is directed to apply 5% of the sale consideration of ₹2,12,67,416/-. I direct the AO accordingly.

The next issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO treating agriculture income as business income. For this, assessee has raised the following ground: -