POONAM BUILDERS Vs. DEPUTY COMMISSIONER OF INCOME TAX
LAWS(IT)-2014-5-63
INCOME TAX APPELLATE TRIBUNAL
Decided on May 22,2014

Poonam Builders Appellant
VERSUS
DEPUTY COMMISSIONER OF INCOME TAX Respondents

JUDGEMENT

P.M.JAGTAP,AM. - (1.) THIS appeal filed by the assessee is directed against the order of Id. CIT(A) - 26, Mumbai - dated 1.3.2012 and the solitary issue arising out of the same relates to the estimation of assessee's income from business.
(2.) THE assessee in the present case is a partnership firm which is engaged in the business of builder and developer of residential and commercial premises. The return of income for the year under consideration was filed by the assessee on 8.10.2007 declaring total income of Rs.10,20,372/ -. During the course of assessment proceedings, the books of accounts and record maintained by the assessee were verified by AO and on such verification, he found that the register of material purchases and consumed was not maintained by the assessee. He also found that the majority of the cash expenses were not supported by any vouchers. He also noted that salary to two employees amounting to Rs.99,600/ - was debited in the books of account of the assessee entirely in the month of March 2007. The assessee was also found to have claimed prior period expenses and the purchase account was also debited by the assessee on account of goods which had even not reached at site up to 31.3.2007. Selling rate shown by the assessee for different tenements of the same project also valued in the range of Rs.651 to 1200 per sq. ft.. Keeping in view all these defects found in the books of account and other record maintained by the assessee, the AO came to the conclusion that the construction account of the assessee was not open for verification and the correct profit of the business of the assessee could not be properly deduced from the books of account of the assessee. He, therefore, rejected the book results declared by the assessee by invoking the provisions of section 145(3) of the Income Tax act, 1961 (the Act) and estimated the total sales for the year under consideration at Rs.3,60,00,000/ - as against Rs.3,08,52,131/ - declared by the assessee thereby making an addition of Rs.51,47,869/ - to the total income of the assessee. He also disallowed the expenditure claimed by the assessee to the extent of Rs.5,00,000/ - for the unverifiable element involved in the expenses claimed by the assessee. Thus, the addition of Rs.56,47,869/ - was made by the AO to the income returned by the assessee in the assessment completed u/s 143(3) vide order dated 11.12.2009.
(3.) AGAINST the order passed by the AO u/s 143(3), the appeal was preferred by the assessee before the ld. CIT(A) and after considering the submissions made by the assessee as well as material available on record, the ld. CIT(A) agreed with the stand of the assessee that in the absence of any material defect or serious discrepancy found in the sales disclosed by the assessee, the estimate of sales made by AO at 3.60 crores without any basis was not justified. The ld. CIT(A), however, upheld the action of the AO in rejecting the books of account of the assessee on the basis of material defects pointed out therein and held that in the facts and circumstance, it was more appropriate to apply reasonable net profit rate to the sales declared by the assessee for estimating the income of the assessee from business. In this regard, he noted that the assessee itself has disclosed net profit of about 13% in the subsequent year whereas in the earlier year, the assessee had disclosed net profit of 3.08 %. Accordingly, average profit rate was arrived by the ld. CIT(A) at 8% and AO was directed by him to estimate the income of the assessee from business by applying 8% net profit rate to the sales declared by the assessee. As regard disallowance of Rs.5 lakhs made by the AO on account of unverifiable expenses, the ld. CIT(A) sought remand report from the AO on verification of all the expenses claimed by assessee and keeping in view the remand report submitted by the AO, the dissonance of Rs.5 lakhs was restricted by him to Rs.21000/ - on account of bonus payment made in cash and Rs.17,635/ - on account of prior period expenses. Still aggrieved by the order of ld. CIT (A), the assessee has preferred this appeal before the Tribunal. We have considered the rival submissions and also perused the relevant material available on record. As rightly submitted by the ld.DR there were specific material defects pointed out by the AO in the books of account maintained by the assessee and keeping in view the same, the ld. CIT(A), in our opinion, was fully justified in upholding the action of the AO in rejecting the books of account. As regard net profit rate of 8% applied by the ld. CIT(A) to estimate the income of the assessee from the business, we find that the same was arrived at as per the average rate of net profit of 13% declared by the assessee in the subsequent year and 3.8% declared in the earlier year. In our opinion, this basis adopted by the ld. CIT (A) to determine the net profit rate be applied in the case of assessee to estimate the business income was quite fair and reasonable in the facts and circumstances of the case warranting no interference. Similarly, very fair view was taken by the ld. CIT(A) to restrict the disallowance of Rs.5 lakhs made by AO on account of unverifiable expenses to Rs.38,665/ keeping in view the remand report submitted by the AO after verification of the expenses claimed by the assessee. We find no justifiable reason to interfere with the same. It is pertinent to note here that the addition made by the AO by estimating sales of the assessee at higher figure was deleted by the ld. CIT(A) vide his impugned order by giving substantial relief to the assessee and nothing has been brought on record by the ld. DR to show that the revenue has filed an appeal before the Tribunal disputing the said relief allowed by the ld. CIT(A) to the assessee. As such considering the facts and circumstances of the case, we are of the view that there is no infirmity in the order of the ld. CIT(A) on the issue of estimation of assessee's income by applying net profit rate of 8% and upholding the same, we dismiss the assessee's appeal.;


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