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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & SHRI RATHOD KAMLESH JAYANTBHAI
आदेश / ORDER
PER RAVISH SOOD, JM:
The present appeal filed by the department is directed against the order passed by the CIT(Appeals)-II, Raipur, dated 03.01.2018, which in turn arises from the order passed by the A.O under Sec.143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 29.12.2016 for assessment year 2014-15. Before us the department has assailed the impugned order on the following grounds of appeal: “(1). On the facts and in the circumstances of the case the Ld. CIT(Appeals) erred in not appreciating that the books of accounts were rejected in the Assessment Years 2006-07 to 2013-14 voluntarily by the assessee before the Settlement Commission. (2). On the facts and in the circumstances of the case the Ld. CIT(Appeals) erred in not appreciating that the assessee before the Settlement Commission has voluntarily accepted the NP rate at 10% for as many as eight consecutive assessment years by rejecting his own audited books of account. Therefore, when there is no change in the business and the modus operandi the CIT(A) ought to have accepted 10% NP for A.Y.2014- 15 also. (3). On the facts and in the circumstances of the case the Ld. CIT(Appeals) erred in deciding the appeal for A.Y.2014-15 when the appeal on similar issues is pending for disposal for A.Y.2013-14. (4). Any other ground that may be adduced at the time of hearing”
Succinctly stated, the assessee who is a civil contractor and derives income from the business of construction of canals, dams and other infrastructural projects a/w income from various other streams of income
3 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal booked under the other heads of income, had e-filed his return of income for assessment year 2014-15 on 19/12/2014 declaring an income of Rs. 1,65,14,400/-. Case of the assessee was thereafter selected for scrutiny assessment under Sec. 143(2) of the Act.
During the course of the assessment proceedings, it was observed by the AO that search and seizure proceedings were conducted on the assessee on 17.10.2011 u/s 132(1) of the Act. On a perusal of the records it was gathered by the AO that apart from unaccounted cash several incriminating documents were also found and seized in the course of the aforesaid search proceedings from the premises of the assessee. Notice u/s 153A for the AYs 2006-07 to 2012-13 and Notice u/s 142(1) for AY 2013-14 were issued to the assessee. It was observed by the AO that the assessee a/w three other persons of his group had thereafter in order to settle their income-tax matters for the AYs 2006-07 to 2013-14 approached the Income-tax Settlement Commission, Additional Bench, Kolkata (“ITSC”, for short) by filing applications on 14.03.2014. It was noticed by the AO that the assessee had in his application filed before the ITSC submitted, that due to peculiar nature of his business as proper bills of expenses could not be obtained, therefore, in order to set-off the same either some bills were arranged from 4 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal outside parties; or in some cases such unaccounted expenses were set-off by inflating the expenses. Admitting the aforesaid discrepancies in his books of accounts, it was observed by the AO that the assessee had voluntarily rejected his books of accounts and initially offered to declare his income from the contract business @8% of the gross contract receipts of his business for all the years i.e AY 2006-07 to 2013-14. It was further noticed by the AO that the assessee had thereafter vide his letter dated 18.09.2015 that was filed before the ITSC, Kolkata enhanced his aforesaid offer to declare his income from the contract business @ 10% of the amount of his gross contract receipts for all the aforementioned years. It was observed by the AO that the ITSC, Kolkata on the basis of the aforesaid offer of the assessee, had thereafter vide its order passed u/s 245D(4) of the Act, dated 28.09.2015 determined his total income for the aforesaid period i.e AYs 2006-07 to 2013-14 @10% of the gross contract receipts, which was accepted by the assessee and the corresponding amount of demand therein raised was paid by him.
On the basis of the aforesaid facts, it was observed by the AO that as the assessee had voluntarily rejected his books of accounts for all the preceding years i.e AYs 2006-07 to 2013-14, therefore, the correctness of 5 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal the opening and closing balances of different ledger accounts pertaining to the books of accounts of the assessee for the year under consideration could not be relied upon. Accordingly, the AO on the basis of his conviction that the opening and the closing balances of the various ledger accounts of the assessee for the year under consideration i.e AY 2014-15 could not be relied and acted upon, thus, rejected his books of accounts. Observing, that as the assessee had on a suo-motto basis after rejecting his books of accounts for the preceding years i.e AYs 2006-07 to 2013-14 declared his income from contract business @10% of the amount of gross contract receipts, therefore, called upon him to put forth an explanation that as to why the estimation of his income from contract business may not be similarly worked out i.e @10% of the amount of his gross contract receipts for the year under consideration. Fortifying his aforesaid conviction as regards estimation of the assessee’s income from contract business @10% of the amount of gross contract receipts, the AO had drawn support from certain observations that were recorded by the ITSC, Kolkata in its order passed u/s 245D(4), dated 28.09.2015, viz. (i). that the assessee had suo-motto rejected his books of accounts for AYs 2006-07 to 2013-14 and had offered to declare his income from contact business for all of the said years @10% of the amount of gross
6 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal contract receipts; and (ii). that the Standard operating rate (“SoR”, for short) was usually around 10% to 13% of total cost. After deliberating on the explanation of the assessee and not finding favor with the same, the AO on the basis of his aforesaid observations estimated the assessee’s income from contract business @10% of the amount of gross contract receipts at Rs. 3,55,95,782/- [10% of Rs. 35,59,57,821/-].
Aggrieved, the assessee assailed the assessment order before the CIT(Appeals). It was noticed by the CIT(Appeals) that the AO while framing the assessment had though not brought on record any irregularity or defect in the books of accounts, bills, vouchers and confirmation of accounts pertaining to the year under consideration, but had rejected his book results and estimated the income from contract business @10% of the amount of gross contract receipts, for two fold reasons, viz. (i) that as the assessee in the course of proceedings before the ITSC, Kolkata for the earlier years i.e AYs. 2006-07 to 2013-14 had on a suo-motto basis rejected his books of accounts, therefore, the opening and closing balances of different ledger accounts pertaining to his books of accounts for the year under consideration could not be relied upon and were liable to be rejected; and (ii). that as the assessee in his application filed before the ITSC, Kolkata for 7 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal the earlier years i.e AYs 2006-07 to 2013-14, had after referring to the peculiar nature of his business and admitting certain irregularities in his books of accounts for the said preceding years, viz. that as proper bills of expenses could not be obtained by him therefore, in order to set-off the same either some bills were arranged from outside parties or the expense were inflated, had on a suo-motto basis declared his income from the contract business @10% of the amount of the gross contract receipts of all the said years, therefore, as the nature of his business during the year under consideration remained the same and the turnover/gross receipts was also well above those of the aforementioned preceding years, thus, his income from the said stream of business i.e contract business could after rejection of his books of accounts for the year under consideration justifiably be estimated @10% of the amount of gross contract receipts. However, the CIT(Appeals) was not persuaded to subscribe to the view taken by the AO. It was observed by the CIT(Appeals) that the contention of the AO that once the rate of profit was voluntarily declared by an assessee in any previous year owing to the facts and circumstances of that year, the same rate of profit could be made a basis for assessing his income of the subsequent years without considering the facts and circumstances of the earlier years or 8 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal the year in question, was devoid and bereft of any merit and could not be accepted. It was observed by the CIT(Appeals) that as each year assessment was a separate assessment, thus, the same would not govern that of the later years. It was further observed by him that the assessment of each year has to be framed after separately considering the facts and circumstances of the said year. Elaborating on the facts involved in the case of the assessee before him, it was observed by the CIT(Appeals) that the books of accounts of the assessee were subjected to a tax audit and the same a/w bills, vouchers, confirmations etc. were produced before the AO who had after carrying out necessary examination and cross-verifications had not pointed out any infirmity in the same. It was noticed by the CIT(Appeals) that there was no such finding by the AO that the assessee had either booked any expenditure without having incurred it or had claimed any bogus expenditure which was not supported by bills and vouchers. Apropos the observation of the AO that as the assessee had suo-moto rejected his books of accounts for the preceding years i.e AYs 2006-07 to 2013-14, therefore, the correctness of the opening and closing balances of different ledger accounts pertaining to the books of accounts of the assessee for the year under consideration could not be relied upon, it was observed
9 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal by the CIT(Appeals) that the same was a hollow claim as the AO had not brought on record any specific defect or irregularity in the books of accounts of the assessee to support his contention that the correct profits of his business could not be deduced. On the basis of his aforesaid observations, it was observed by the CIT(Appeals) that the AO had without giving any reasons on the basis of material on record had rejected his books of accounts for the year under consideration. Observing, that a suo-motto rejection of the books of accounts by an assessee for a year or some years on the basis of facts and discrepancies prevailing in those years would not ipso facto and directly lead to an inference that the books of accounts of the assessee for the subsequent years were also to be rejected, the CIT(Appeals) did not find favour with the view taken by the AO that as the assessee after admitting certain specific defects in his books for the preceding years had voluntarily rejected the same, therefore, the rejection of the books of accounts of the assessee for the subsequent year under consideration would stand justified. On the basis of his aforesaid observations, the CIT(Appeals) concluded that a mere rejection of the books of accounts of the assessee for the preceding years i.e AYs 2006-07 to 2013-14 did not justify their rejection u/s 145(3) during the year under 10 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal consideration i.e AY 2014-15, specifically when the attributes for rejection of the books of accounts for the aforesaid preceding years was not prevailing during the year under consideration. In so far the estimation of the net profit rate @10% of the gross contract receipts, it was observed by the CIT(Appeals) that the same was not based on any cogent material, but was a mere extrapolation by the AO of the net profit rate that was adopted by the assessee in the preceding years i.e AYs 2006-07 to 2013-14, without giving any cogent reason and justification for adopting of the same during the year under consideration. Also, it was observed by the CIT(Appeals) that the AO had not placed on record any comparable instances of similarly placed entities in the trade line which would justify adoption of the net profit rate @10% of the amount of the amount of gross contract receipts. It was, thus, noticed by the CIT(Appeals) that the AO had failed to place on record any supporting or corroborating material which would justify adoption of net profit @10%. Observing, that as a decline in the net profit rate during a year cannot on a standalone basis justify rejection of the book results of an assessee u/s 145(3) of the Act, the CIT(Appeals) was of the view that there was no material which would point out towards unreliability of the books of accounts of the assessee. Rebutting the adoption of the NP rate @10% of 11 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal the amount of gross receipts by the AO, it was observed by the CIT(Appeals) that the profit declared by the assessee was better than that of the similarly placed entities whose cases had been scrutinized by the AO and was also commensurate with that prevailing in the trade line. Accordingly, on the basis of his aforesaid observations the CIT(Appeals) not finding favor with the rejection of the books of accounts of the assessee a/w estimation of his income @10% of the amount of gross contract receipts, thus, vacated the consequential addition that was made by the AO.
The department being aggrieved with the order of the CIT (Appeals) has carried the matter in appeal before us.
We have heard the ld. Authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the ld. AR to drive home his contentions. On a perusal of the order of the CIT(Appeals) we find that he had observed as under :
“7. I have considered grounds no. 1 and 2, gone through the submissions of the appellant and seen the order of the A.O. I observe that the AO made the additions by estimating net profit @10% of the gross contract receipt after rejecting the books of accounts of the appellant. The only reason for 12 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal rejection of books of accounts adduced by the AO is that the appellant had declared income below 10% of gross contract receipts which was also the basis for issuing the show cause notice and estimation of income relating to the earlier years covered in the settlement proceedings wherein the appellant had suo-motto declared and agreed on determination of income @ 10% of gross contract receipts. In the opinion of the AO the income of the appellant should have been the same in all the years as the nature of business is same as it was during the period covered under the Settlement Commission proceedings. I further observe that in the assessment order the AO has not brought on record any irregularity or defects in the books of accounts, bills and vouchers and confirmation of accounts pertaining to the year under consideration. What can be noticed from the assessment order is that the AO has based his assessment on the outcome of Settlement Commission proceedings for the block period covered during the search action u/s. 132 of the Act and extended the same to the assessment year 2014-15 which in my opinion had no bearing for the assessment proceedings of the impugned assessment year. There is no merit in the contention of the AO that once the rate of profit has been voluntarily declared by the appellant in any previous assessments owing to the facts and circumstances of that year or those years the same rate of profit can be made the basis for assessing the income of other subsequent years without considering the facts and circumstances of earlier years or the year in question. Each year assessment is a separate assessment which attains finality for that year, unless disturbed by cogent facts and material, and does not govern later years. The facts and circumstances of each year are to be considered separately and must find reference in the assessments completed. From the material before me I observe that the books of accounts of the appellant were subject to tax audit which were produced before the AO and were examined by him including the bills and vouchers. In the period covered under the Settlement Commission proceedings there were specific findings from the incriminating material to the effect that inflated bills and expenses were recorded in the books of accounts to cover up the expenses of which proper bills were not available. This fact has been recorded by the AO in his assessment order for the years before the Settlement Commission. However for the year under consideration there is no specific finding of the AO that the appellant had booked expenditure without having incurred it or there is inflation in the amount of expenses or that the appellant had claimed any bogus expenditure which is not supported by bills and vouchers. No such instances of bogus claim of expenditure has been brought on record by the AO for the year under consideration. The AO contended that the appellant suo motto rejected its books of accounts for the assessment year 2006-07 to 2012-13 in the proceedings before the 13 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal Settlement Commission and also for the assessment year 2013-14 and therefore the correctness of the opening and closing balances of different ledger accounts pertaining to the books of accounts for the year under consideration could not be relied upon by him and were hence rejected. The AO has not brought on record any specific or material defect in the books of accounts of the appellant as a result of which correct profits of the business cannot be deduced for the impugned assessment year. He has laid emphasis and based his assessments on the proceedings before the settlement commission and has failed to record reasons based on material on record to reject the books of accounts and estimate the income @ 10% of gross contract receipts.
8. In my view the books of accounts voluntarily rejected by the appellant for a year or for some years on the basis of facts and discrepancies prevailing in those years on the basis of cogent material and facts does not ipso facto and directly lead to the inference that the books of accounts of subsequent years is also liable to be rejected by the AO. In the decision of the hon'ble High Court of Delhi in CIT vs. Smt. Poonam Rani reported in 326 ITR 223 and in the decision of CIT vs. Ram Pistons and Rings Limited also of the hon'ble High Court of Delhi reported in 80 CCH 055 the hon'ble Court took note of the fact that each year assessment is final for that year and does not govern subsequent or later years. Drawing reference from the decisions cited above, merely because the books of accounts of the appellant were rejected in the preceding years will not make them liable for rejection u/s. 145 during the year under consideration also particularly when none of the attributes for the rejection of the books of accounts for the AY 2006-07 to 2013-14 are prevailing for the year under consideration.
Coming to adoption of net profit @ 10% of gross receipts it is seen that the AO had not pointed out suppression of income based on cogent material. There is no material showing financial nexus for making the additions, and no document showing any financial dealings by the appellant justifying the adoption of net profit @ 10% has been referred in the assessment order. The facts and circumstances of the present case reveal that the AO has not appreciated the facts and circumstances as well as the submissions put forth by the appellant. The rate of 10% of gross receipts has been stretched by the AO from the AY 2006-07 to 2013-14 up to the assessment year 2014-15 which does not have any correlation with the earlier years. The assessment order is silent on comparable instances of other entities engaged in identical business of civil construction showing net profit @ 10% of the gross receipts. There appears no cogent material before the 14 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal
AO nor has he brought any such evidence on record to corroborate the basis for adoption of net profits @ 10%. Importantly the low net profit rate in comparison to preceding years cannot by itself be a ground to reject the books of accounts u/s. 145(3) of the Act enabling the AO to make estimated addition especially when there is no material pointing towards unreliability of the books of accounts. My attention was invited by the counsel appearing on behalf of the appellant that the appellant had declared higher NP rate than the rate assessed by the AOs of other assessees and in this context copies of assessment orders of other assessees was brought to my notice confirming the facts. I observe that the net profit declared by the appellant is commensurate with the industry average as has been demonstrated by him with reference to the comparable cases. In the light of the above the estimation done by the AO cannot be said to be justified. Considering the facts and circumstances of the case and also the decisions relied upon by the appellant I am of the view that there was no finding to the extent that the accounts were not correct and complete and hence the resultant addition to the income by estimating the NP does not have justification. In view of the above observations and facts and circumstances of the case the addition made in ground no. 2 is d ground no. 1 and 2 are allowed.
As observed by us hereinabove, it is a matter of fact borne from the record that the AO had examined and cross-verified the books of accounts, bills, vouchers and confirmation of accounts etc. pertaining to the year under consideration that were produced by the assessee in the course of the assessment proceedings before him. Although the AO had not brought on record any irregularity or defect in the books of accounts, but had rejected the same, for the reason, that as the assessee in the course of proceedings before the ITSC, Kolkata for the earlier years i.e AYs. 2006-07 to 2013-14 had on a suo-motto basis rejected his books of accounts, therefore, the opening and closing balances of different ledger accounts pertaining to his
15 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal books of accounts for the year under consideration i.e AY 2014-15 could not be relied upon. However, we find that the AO except for harping on his aforesaid contention, i.e, the opening and closing balances of different ledger accounts pertaining to the books of accounts of the assessee for the year under consideration could not be verified by him, had not brought on record any such specific or material defect in the books of accounts on the basis of which the deducing of the correct profits of the assessee’s business for the aforesaid reason was jeopardized.
9. Before adverting any further, we deem it fit to cull out the provisions of Sec. 145(3) of the Act which contemplates the circumstances under which the books of accounts of an assessee can be rejected, and reads as under :
“(3). Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144.” On a perusal of the aforesaid statutory provision, it can safely be gathered that the books of accounts of an assessee can be rejected on satisfaction of either of the three situations, viz. (i). where the AO is not satisfied about the correctness or completeness of the accounts of the assessee; or (ii). where
16 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal the method of accounting i.e, cash or mercantile system of accounting is not being regularly followed by the assessee; or (iii). where the assessee is not regularly following any accounting standard that had been notified by the Central government in the official gazette and is to be followed by any class of assessee or in respect of any class of income. In the case of the present assessee before us, it transpires that the AO had tried to justify the rejection of his book results, for the reason that he was not satisfied about the correctness or completeness of the accounts of the assessee. However, we find that though the assessee in the course of the assessment proceedings had produced before the AO his books of accounts which had been subjected to a tax audit a/w bills, vouchers, confirmations etc., which were examined and cross-verified by him, but there is not a word of whisper in the assessment order about any defect or irregularity emerging therefrom. On the contrary, as observed by the CIT(Appeals), there is no such finding by the AO that the assessee had either booked any expenditure without having incurred it or had claimed any bogus expenditure which was not supported by bills and vouchers. In our considered view, the AO is obligated to point out the specific defects or irregularities falling within parameters of sub-section (3) of Sec. 145 of the Act, before rejecting the books of 17 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal accounts of an assessee. Our aforesaid view is supported by the judgment of the Hon’ble High Court of Punjab & Haryana in the case of CIT Vs. Om Overseas (2009) 315 ITR 185 (P&H). In its aforesaid order the Hon’ble High Court while upholding the order of the Tribunal had observed, that as the AO had rejected the books of accounts of the assessee without pointing out any specific defect, therefore, the impugned addition was rightly deleted by the lower authorities. Also, the Hon’ble High Court of Allahabad in the case of Dr. Prabhu Dayal Yadav Vs. CIT (2018) 253 Taxman 191 (All), had observed, that the rejection of the books of accounts is unsustainable where the assessee had maintained his accounts and recorded his professional receipts and there is no evidence to doubt the correctness or completeness of the books of account. Our aforesaid view that existence of infirmities and discrepancies in the accounts maintained by the assessee is a pre-requisite for invoking the provisions of Sec. 145 of the Act, and the AO has to show that the accounts are either incomplete or incorrect, is supported by the judgment of the Hon’ble High Court of Himachal Pradesh in the case of CIT Vs. Swastik Food Products (2015) 275 CTR 109 (HP).
As observed by the CIT(Appeals), the fact as it so remains is that the AO had rejected the books of accounts of the assessee for the year under 18 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal consideration i.e AY 2014-15, for the reason that as the assessee in his application filed before the ITSC, Kolkata for the earlier years i.e AYs 2006- 07 to 2013-14, had after referring to the peculiar nature of his business and admitting certain irregularities in his books of accounts for the said preceding years, viz. that as proper bills of expenses could not be obtained by him therefore, in order to set-off the same either some bills were arranged from outside parties or the expense were inflated, had on a suo- motto basis declared his income from the contract business @10% of the amount of the gross contract receipts of all the said years, therefore, he was of the view that as the nature of the assessee’s business during the year under consideration remained the same and the turnover/gross receipts was also well above those of the aforementioned preceding years, his income from the said stream of business i.e contract business could thus after rejection of his books of accounts for the year under consideration justifiably be estimated @10% of the amount of gross contract receipts. In sum and substance, the AO going by the suo-motto rejection of books of accounts and declaration of net profit rate @10% of the amount of gross contract receipts by the assessee before the ITSC, Kolkata in the preceding years i.e AYs. 2006-07 to 2013-14, had as a matter of fact tried to extrapolate both
19 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal the facts and the net profit rate declared by the assessee in those preceding years to his case for the year under consideration i.e AY 2014-15.
At this stage, we may herein observe, that we are unable to persuade ourselves to concur with either the aforesaid view or the basis that had been adopted by the AO for rejecting the books of accounts of the assessee for the year in question and estimating his income from contract business by adopting the net profit @10% of the amount of gross contract receipts. Although the book results of an assessee in a preceding year could be adopted as a yardstick for comparing those shown by him in a subsequent year, but the same by no means can be stretched any further to form a standalone reason for rejecting his books of accounts for the said subsequent year. Our aforesaid conviction is fortified by the following judicial pronouncements: (i). RMP Perianna Pillai & Co. Vs. CIT (1961) 42 ITR 370 (Mad) (ii). CIT Vs. Winner Constructions Pvt. Ltd. (2012) 81 CCH 91 (Del) (iii). CIT Vs. K S Bhatia (2004) 269 ITR 57 (P&H)
At this stage, we may herein observe that the AO while rejecting the books of accounts of the assessee for the year under consideration, i.e AY 2014- 15, had observed, that as the assessee in the preceding years i.e AYs 2006- 07 to 2013-14 had on a suo-motto basis rejected his books of accounts for 20 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal all the years and declared his income from the contract business @10% of the gross contract receipts thus, the nature of his business during the year under consideration i.e AY 2014-15 remaining the same, his income could be estimated on the similar lines, but while so observing he had lost sight of certain material facts on the basis of which the aforesaid estimation of income was carried out by the assessee in the preceding years i.e AYs 2006- 07 to 2013-14. One of the material aspect that the AO had failed to take cognizance of is that in the aforementioned preceding years the assessee in his application filed before the ITSC, Kolkata had though categorically admitted that due to the peculiar nature of his business as proper bills could not be obtained, therefore, to set-off the same either bills were arranged from outside parties; or in some cases such unaccounted expenses were set-off by introducing inflated expenses. As such, the aforesaid admission of the assessee in his application filed with the ITSC. Kolkata for the preceding years i.e AYs 2006-07 to 2013-14 in itself formed a substantial piece of evidence about the existence of the aforesaid infirmities and irregularities in his books of accounts for the said preceding years. However, neither of any such infirmity, viz. (i). booking of any bogus purchases; or (ii). inflating of expenses by the assessee had either been pointed out by the AO while
21 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal framing the assessment in the case of the assessee for the year under consideration i.e AY 2014-15 or ever admitted by the assessee. Apart from that, it is also a matter of fact borne from the record that though certain incriminating documents evidencing the aforesaid infirmities had surfaced in the course of the search proceedings conducted u/s 132(1) of the Act for the period pertaining to aforementioned preceding years, however, no such material evidencing such infirmities or irregularities in the books of the assessee for the year under consideration is discernible from the records. We, thus, are of the considered view that as the aforesaid peculiar facts as were prevailing in the preceding years were not there during the year under consideration i.e AY 2014-15, therefore, now when the very basis which had prompted the suo-motto rejection of his books of account by the assessee in the aforesaid preceding years is found amiss during the year under consideration i.e AY 2014-15, it was absolutely incorrect on the part of the AO to have tried to justify the rejection of the assessee’s book results by drawing support from the suo-motto rejection of his books of accounts in the preceding years, which as observed by us hereinabove was prompted by substantially differently placed circumstances in the said preceding years.
22 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal
Also, we are unable to comprehend the observation of the AO, who had proceeded with the rejection of the assessee’s books of accounts for the year under consideration and estimation his income from the contract business @10% of gross contract receipts, for the reason that as the assessee in his application filed before the ITSC, Kolkata for the preceding years i.e AYs. 2006-07 to 2013-14 had admitted certain defects and irregularities in his books of accounts, therefore, it was to be presumed that he would have continued with such malpractices and irregularities in the subsequent years too. Our aforesaid conviction is all the more fortified by the fact that the AO had after calling for and examining the books of accounts of the assessee for the year under consideration a/w bills, vouchers, confirmations etc. had not referred to even a single instance of any such defect or irregularity which would have evidenced that the assessee even during the year under consideration had continued with the malpractices that were adopted by him in the preceding years and the same haunted his business even during the year in question also. A mere presumption of the AO that as the assessee was admittedly carrying out certain malpractices in the preceding years would mean that despite absence of any evidence, it is still to be taken that he would be continuing
23 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal with the same malpractices in the succeeding years, in our considered view is such a broad and incomprehensible proposition which cannot be subscribed on our part. As stated by the Ld. AR, and rightly so, as each years assessment is a separate assessment, therefore, the facts emanating from the assessment for a specific year cannot in the absence of any supporting evidence be extrapolated to another year. Our aforesaid conviction is supported by the judgment of the Hon’ble Supreme Court in the case of, viz. (i). M.M Ipoh & Ors. Vs. CIT (1968) 67 ITR 106 (SC); (ii). ITO Vs. Murlidhar Bhagwandas (1964) 52 ITR 335 (SC); and (iii). Bharat Sanchar Nigam Ltd. & Anr. Vs. UPI & Ors. (2006) 282 273 (SC). Interestingly, if the observations of the AO are to be accepted, then, it would mean that once an assessee is visited with search proceedings, and he after considering the incriminating documents unearthed during the course of such proceedings comes forth with a disclosure either regards his modus operandi or unaccounted income, then, in all the subsequent years despite there being no iota of evidence that the assessee had continued with his malpractices and modus operandi to generate unaccounted income, it is to be presumed otherwise and has to be made to suffer because of his chequered past. By no means such an incomprehensible and baseless
24 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal observation of the AO can be accepted. Also, we concur with the view taken by the CIT(Appeals) that even otherwise as the net profit rate disclosed by the assessee during the year under consideration, as demonstrated by him, was better than those of other similarly placed assessee’s of his trade line and was commensurate with that prevailing in the industry, therefore, no adverse inferences on the said count itself i.e as regards the profit disclosed by him was liable to be drawn. As regards the reference to the “Standard Operating Rate” (SoR) by the AO to support his conviction that the income of the assessee from his contract business was justifiably determined by applying a net profit rate @10% to the gross contract receipts for the year under consideration, we are unable to concur to the same. As claimed by the ld. AR, and rightly so, as the SoR for works contracts fixed by the Government departments merely indicates the estimated price of the inputs and expenses and also an estimate of the physical quantity that would be required for execution of the contract, the same, thus, considering manifold factors is too far from the ground realties to have justified earning of a profit margin @10% of the gross contract receipts by the assessee.
We, thus, in terms of our aforesaid observations and concurring with the well reasoned view taken by the CIT(Appeals) that there was no 25 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal justification on the part of the AO in rejecting the books of accounts of the assessee and estimating his income from the contract business @10% of the gross contract receipts, uphold his order.
Resultantly, the appeal filed by the revenue being devoid and bereft of any merit is dismissed. Order pronounced in open court on 31st day of May, 2022. Sd/- Sd/- RATHOD KAMLESH JAYANTBHAI RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 31st May, 2022 SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :
1. 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent.
3. The CIT(Appeals)-II, Raipur (C.G) 4. The Pr. CIT (Central), Raipur (C.G) 5.�वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,रायपुरब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.
26 ACIT (Central)-2 Vs. Sri Sanjay Kumar Agarwal
Date 1 Draft dictated on 24.05.2022 Sr.PS/PS 2 Draft placed before author 24.05.2022 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr. Sr.PS/PS PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order