Vijay Pal Rao ORDER
Vijay Pal Rao, Member (J)
1. This appeal of the assessee is directed against the order dated 10.05.2018 of Ld. CIT(A), Allahabad for the A.Y. 2013-14.
2. The assessee has raised the following grounds.:-
"1. That in any view of the matter assessment order dated 30.03.2015 passed u/s. 143(3) of the Income Tax Act is bad both on the facts and in law and in the circumstances of the case. Therefore in all fairness the declared income on the basis of closed books of accounts should have been accepted in the interest of justice.
2. That in any view of the matter net profit rate of 7% as applied by Assessing Officer by applying the provision of Section 143(3) of the Income Tax Act is highly unjustified, especially when books are properly maintained and verified hence the addition made by rejecting the books of accounts this count is unwarranted.
3. That in any view of the matter a net profit rate of 7% as applied by the Assessing Officer on declared receipt is highly unjustified and illegal in the facts and circumstances of the case and therefore the extra addition so made amounting to Rs. 3,68,770/- on this account is unwarranted and liable to be declared.
4. That in any view of the matter interest charged u/s. 234A, 234B of the Income Tax Act is highly unjustified.
5. That in any view of the matter the appellant reserves his rights to take any fresh ground of the appeal before hearing of the appeal.
It is therefore prayed that a suitable order may kindly be passed and relief may please be allowed accordingly.
3. The only issue arises in this appeal of the assessee is regarding addition made by Assessing Officer by applying net profit rate of 7% as against net profit declared by assessee at 6.5%.
4. I have heard the Ld. AR as well as Ld. DR and considered the material available on record. The Ld. AR has submitted that the Assessing Officer after rejection of books of accounts has estimated the income by applying the net profit at 7%. The Assessing Officer has invoking the provision of Section 144AD for adopting the net profit rate at 7%. He has contended that once the books of accounts are rejected and assessee does not falls in the ambit of provisions of section 44AD of the I.T. Act, 1961 thus the Assessing Officer is not ...in applying the N.P. as per Section 44AD. He has referred to the comparative detail of net profit as well as turnover of the assessee for the A.Y. 2011-12 and 2013-14 and submitted that the Assessing Officer has accepted the net profit at 6% declared by assessee on turnover of Rs. 1.98 crores for A.Y. 2011-12 whereas the net profit declared by assessee for the year under consideration at 6.5% on turnover of Rs. 7.25 crores is not accepted by Assessing Officer. Thus, the Ld. AR has submitted that after rejection of books of account if the net profit declared by assessee is better than the past history then no addition is justified. In support of his contention, he has relied upon the decision of this Tribunal dated 11.10.2010 in the case of ACIT Vs. Hemant Kumar Sindhi as well as in the case of M/s. Baba Builders in ITA. Nos. 234 & 274/Alld/2010. These decisions have been upheld by jurisdiction High Court. Thus he has submitted that in view of the binding precedence the addition made by Assessing Officer is not justified the same may be deleted.
5. On the other hand, the Ld. DR has submitted that the net profit declared by assessee for the A.Y. 2011-12 is not comparable for the year under consideration as two counts. First the return of income filed by assessee for the A.Y. 2011-12 was processed u/s. 143(1) and there is no scrutiny assessment and secondly the turnover has increased more than three times. He has relied upon the Judgment of Hon'ble jurisdiction High Court in the case of PCIT Vs. Rimjhim Ispat Ltd. MANU/UP/0357/2016 : 382 ITR 152 as well as Hon'ble Delhi High Court in the case of Goodyear India Ltd. Vs. CIT MANU/DE/0419/2000 : 246 ITR 116. He has also relied upon the order passed by the authorities below.
6. I have considered the rival submissions as well as relevant material on record. The Assessing Officer has rejected the books of account of assessee by invoking the provision of Section 145(3) of the Act for want of supporting the evidence. After rejection of books of account, the Assessing Officer proceed to estimate the income of assessee and referred the provision of Section 44AD of the I.T. Act. At the outset, it is pertinent to note that when the turnover for the year under consideration is about Rs. 7.25 crores then the assessee does not falls in the ambit of provisions of section 44AD of the I.T. Act, 1961. The Assessing Officer is not permitted to invoke the said provisions of Section 44AD of the Income tax Act. The Assessing Officer has estimated the income of the assessee by applying the net profit at 7% as against the net profit declared by assessee at 6.5% while estimating the income. The Assessing Officer made reference of various cases where the income estimated declared by taking net profit rate 4.5% to 12% as well as well as the provision of Section 44AD and then taken the net profit at 7%. It is pertinent to note that after rejection of books of account u/s. 145(3) of the I.T. Act, 1961 it is incumbent upon the Assessing Officer to pass the best judgment assessment. While estimating the income of the assessee there should be a proper and reasonable basis and guidelines. It is settled proposition of law that past history of the assessee is a proper and reasonable guidelines for estimation of income after rejection of books of account. The comparative details for the A.Y. 2011-12 and for the year under consideration are not in dispute. The assessee has declared better N.P. for the year under consideration on a substantial higher turnover in comparison to the A.Y. 2011-12. The net profit declared by assessee for A.Y. 2011-12 is accepted by revenue though u/s. 143(1) and the said return of income filed by assessee has not been disturbed till date. Accordingly, when the Assessing Officer has not carried out any exercise to determine the proper and reasonable rate of net profit by considering the proper criteria/basis in the processed of estimating the income of the assessee after rejection of books of account then the rate of profit at 7% is highly arbitrary and unjustified. The rejection of books of account would not be ipso facto result in an addition to the income declared by assessee if G.P./N.P. declared by assessee is better than the past history of G.P./N.P. or any other reasonable criteria/guidance to be considered as basis for estimation of income. In view of the fact that the assessee has declared net profit at 6.5% on turnover of 7.25 crores is higher than the N.P. declared by assessee in preceding year and in the absence of any reasonable basis, criteria or guidelines applied by Assessing Officer the adoption of net profit at 7% is not justified. The decision relied upon by Ld. DR in the case of PCIT Vs. Rimjhim Ispat Ltd. MANU/UP/0357/2016 : 382 ITR 152 is in respect of the disallowance of expenses which were made by Assessing Officer @ 10% which were sustained by appellate authorities at 5%, therefore, the said decision is only on the point of reasonable disallowance of expenses and not on the estimation of income after rejection of books of account. Hence, the said decision would not help the case of revenue. Similarly under similar the decision in the case of Goodyear India Ltd. Vs. CIT MANU/DE/0419/2000 : 246 ITR 116 was again on the issue of disallowance of the expenses and not regarding estimation of income after rejection of books of account. Hence in view of the facts and circumstances as discussed above the addition made by Assessing Officer is not sustainable and the same is deleted.
7. In the result, appeal filed by the assessee is partly allowed.
(Order pronounced on 15/07/2021 at Allahabad in the open Court through Video Conferencing)
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