TARA CHAND JAIN,KOLKATA vs. ITO, WARD-45(1), KOLKATA, KOLKATA

The assessee in the present case is an individual, who is engaged in the business of civil construction under the name and style of his proprietary concern M/s. Jain Construction Company. The return of income for the year under consideration was filed by him on 29.10.2007 declaring total income of Rs.1,50,920/-. During the course of assessment proceedings, enquiry was conducted by the Assessing Officer with the concerned parties in order to verify the correctness of contract receipts shown by the assessee. The said enquiry revealed the following difference ./2014 Assessment year: 2007-2008 Page 2 of 5 in respect of contract receipts declared by the assessee from one party, namely M/s. Bengal Ambuja Housing Development Limited:- Sr. Bill Date Amount of bill Bill passed Shown as No No. raised by the sale by the . assessee assessee 1. B097/ 22.08.2006 Rs.1730,920/- Rs.17,30,920 Rs.1730,920 02 vide bill dated 03.06.2006 2. B097/ 16.11.2006 Rs.22,39,690/- Rs.22,39,690 Rs.2239,690 03 & vide bill dated FINAL 03.10.2006 3. SP- 06.03.2007 Rs.19,50,858.92 Rs.16,44,664 010/0 vide bill dated 1 22.12.2006 SP- 06.03.2007 Rs.16,44,664 Rs.44,664/- 010/0 1/A TOTAL Rs.72,59,938 Rs.4015,274

Against the order passed by the Assessing Officer under section 143(3), an appeal was preferred by the assessee before the ld. CIT(Appeals) disputing the addition made by the Assessing Officer on account of difference in contract receipts as well as disallowance of labour charges. After considering the submissions made by the assessee and the material available on record, the ld. CIT(Appeals) found merit in the contention of the assessee that the bill of Rs.16,44,664/- raised on 06.03.2007 was wrongly entered twice by M/s. Bengal Ambuja Housing Development Limited. He accordingly held that the addition made by the Assessing Officer to that extent was not sustainable. He also found from the relevant material placed on record by the assessee that the balance amount of Rs.16,00,000/- received from M/s. Bengal Ambuja Housing Development Limited as advance in the earlier years was duly declared by the assessee in the said years. He, therefore, held that the said amount again could not be added to the total income of the assessee in the year under consideration. He, however, found that the relevant work was completed by the assessee in the year under consideration as the bill for the same was raised only on 06.03.2007. He held that the expenses incurred by the assessee for the said work that was claimed in the year under consideration while the corresponding income was shown in the earlier years and there was thus a violation of matching principle. He held that the profit declared by the assessee for the year under consideration was not true and correct and rejecting the same, he proceeded to determine the income of the assessee from the business of construction by applying the net profit rate of 5%. Having estimated the income of the assessee by applying the net profit rate of 5%, the disallowance made by the Assessing Officer out of labour charges was deleted by the ld. CIT(Appeals) holding that no such disallowance could separately be made when the income of the assessee was determined on estimated basis. Still aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal. ./2014 Assessment year: 2007-2008 Page 4 of 5

I have heard the arguments of both the sides and also perused the relevant material available on record. The first contention raised by the ld. counsel for the assessee is that the books of account of the assessee having been not rejected by the authorities below, his income cannot be determined on estimated basis by applying net profit rate. In support of this contention, he, inter alia, has relied on the decision of the Mumbai Bench of this Tribunal in the case of M/s. Prem Enterprises –vs.- ITO (ITA No. 4189/M/2008 and dated 25.07.2012) and the Coordinate Bench of this Tribunal in the case of Makhan Bhogh Food Products Pvt. Limited –vs.- ACIT (ITA Nos. 996/KOL/2011 & 943/KOL/2011 dated 20.01.2016). However, as rightly pointed out by the ld. D.R., the books of account of the assessee have been specifically rejected by the ld. CIT(Appeals) after recording specific adverse findings as is evident from paragraph no. 4.8 of his impugned order. It is settled position that the powers of the ld. CIT(Appeals) are co-terminus with that of the Assessing Officer and he can do what the Assessing Officer can and he can also do what the Assessing Officer has failed to do. There was thus rejection of book results declared by the assessee by the ld. CIT(Appeals) in the present case and the action of the ld. CIT(Appeals) in determining the income of the assessee on estimated basis by applying the net profit rate, in my opinion, is correct in law as well as in the facts of the case.

The second contention raised by the ld. counsel for the assessee is that the net profit rate of 5% applied by the ld. CIT(Appeals) is excessive and unreasonable keeping in view that the net profit rate of 3% declared by the assessee for the immediately preceding year was accepted by the Department. In this regard, the ld. D.R. has pointed out that even the net profit rate declared by the assessee in the immediately preceding year was not reliable as pointed out by the ld. CIT(Appeals) in his impugned order. No doubt, there was a specific defect pointed out by the ld. CIT(Appeals) in so far as the book results of the assessee for the immediately preceding year are concerned in declaring the advance received as income when the corresponding expenses were claimed in the ./2014 Assessment year: 2007-2008 Page 5 of 5 year under consideration. However, this defect pointed out by the ld. CIT(Appeals) clearly shows that the net profit declared by the assessee for the immediately preceding year was higher than the normal profit. In my opinion, the net profit rate of 3% declared by the assessee for the immediately preceding year, therefore, can be taken as the basis for estimating the income of the assessee for the year under consideration. I, therefore, modify the impugned order of the ld. CIT(Appeals) on this issue and direct the Assessing Officer to re-compute the income of the assessee from construction business by applying the net profit rate of 3% to the contract receipts.