Manoj Kumar Agarwal, Ghaziabad vs Department Of Income Tax

PER CHANDRAMOHAN GARG, J.M.

This appeal has been preferred by the revenue against the order of

the CIT(A) Ghaziabad dated 11.06.2013 in Appeal No. 1278/2011-12/GZB

for AY 2008-09.

2. The main grounds raised by the revenue in this appeal read as

under:-

"1. That in the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.9,46,4511- on account of consumable stores.

2. That in the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition

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of Rs.3,07,680/- out of labour charges and Rs.60,OOO/- out of various expenses.

3. That in the facts and circumstances of the case, the Ld. CIT(A) is not justified in restricting the income of the assessee @ 7.5% of net profit, therefore, the order of the CIT(A) may kindly be set-aside and order of AO may be restored."

3. Briefly stated, the facts giving rise to this appeal are that the

assessee's case was picked up for scrutiny and accordingly notices u/s

143(2) and 142(1) of the Income Tax Act, 1961 were issued to the assessee.

The AO completed assessment proceedings by making three disallowances

viz. disallowance out of consumables stores, disallowance out of labour

charges etc. and disallowance of other expenses and finalised assessment at

taxable income of Rs.23,10,890 as against the returned income of

Rs.9,96,755. Being aggrieved by the above assessment order, the assessee

preferred an appeal which was allowed by holding that the action of the AO

rejecting books of accounts u/s 45(3) of the Act was justified and the first

appellate authority following the provisions of section 44AD of the Act

estimated the NP rate of the assessee at 7.5% and all the disallowances

made out of various expenses separately were ordered to be deleted. Now,

the aggrieved revenue is before this Tribunal with the grounds as

reproduced hereinabove.

4. We have heard arguments of both the sides and carefully perused the

relevant material placed on record, inter alia assessment order and

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impugned order of the CIT(A). From careful reading of the operative part of

the impugned order, we observe that the CIT(A) allowed the appeal of the

assessee with following observations and conclusion:-

"All the grounds of appeal can be taken together in this case since it is a case of disallowance out of consumable store, labor charges and other expenses; all on the ground of non verifiability of the entire extent of these expenses claimed /non maintenance of bills and vouchers, which has led the A.O. to conclude that "......what it means that the books of account of the assessee are not much reliable... .." I find that it is a case where book results cannot be wholly relied upon since some of the expenses are not fully verifiable. To that extent, in my view, this is an appropriate case for application of section 145(3) of the act, rejecting the book results partly to the extent that N.P. deserves to be enhanced on estimate basis.

To that aspect I do find that the extent of disallowance made is on excessive side since if the disallowances are taken into account, the resultant N.P. goes up to 13.2% which is not reasonable considering the specific business of the assessee.

Certainly the presumptive rate of 8% prescribed u/s 44AD can be a very good indicator or yardstick for estimating the N.P., even if, the gross receipt of the assessee is much more than the limit of Rs. 40 Lacs. On aspect of estimate, I find that assessee has been consistently showing book results at about 5% , while the recent maximum N.P. was shown at 5.50% in asstt. year 2005-06. I hold it would do justice if assessee is assessed at a rate between 7% to 8%. Since the books have been rejected, in any case; the profit has to be estimated on best judgment basis and in my view, assessing the appellant's income @ 7.5% would be appropriate and reasonable.

The A.O. is directed to assess the income of the assessee at 7.5% N.P. Subject to this, the disallowances made out of various expenses separately, are deleted ."

3 ITA No.5029/Del/2013 Asstt.Year: 2008-09 5. Ld. DR submitted that the CIT(A) upheld the action of the AO rejecting

books of accounts of the assessee u/s 145(3) of the Act as the book results

could not be wholly relied upon since some of the major expenses were not

wholly verifiable. Ld. DR further contended that presumptive NP rate

prescribed u/s 44AD of the Act is 8% but the CIT(A) adopted NP rate of

7.5% to be appropriate and reasonable which is not a proper approach.

However, the ld. DR fairly accepted that when the taxable income of the

assessee is ordered to be estimated under presumptive NP rate prescribed

u/s 44AD of the Act, then other disallowances do not survive.

6. On careful consideration of above submissions of both the sides and

operative part of the impugned order as reproduced hereinabove, at the

outset, we approve the conclusion of the CIT(A) that the AO was justified in

application of section 145(3) of the Act rejecting the book results of the

assessee. Further, we note that the CIT(A) has adopted presumptive NP

rate by taking recourse to section 44AD of the Act and estimated the income

of the assessee at 7.5% which is a reasonable and justified approach. We

may also point out that when revenue authorities proceed to estimate

taxable income of the assessee on presumptive basis u/s 44AD of the Act,

then no further deduction u/s 32 to 38 of the Act is allowable under sub-

section (2) of section 44AD of the Act. Therefore, we are inclined to hold

that the CIT(A) was right in adopting presumptive NP rate of 7.5% and

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consequently other disallowances and additions made thereunder do not

survive and deserve to be deleted. Thus, we are unable to see any

ambiguity, perversity or any other valid reason to interfere with the

impugned order and we uphold the same. Accordingly, ground no. 1, 2 and

3 of the revenue are dismissed.

7. In the result, the appeal of the revenue is dismissed.

Order pronounced in the open court on 27.1.2015.

Sd/- Sd/-

(G.D. AGRAWAL) (CHANDRAMOHAN GARG) VICE PRESIDENT JUDICIAL MEMBER

DT. 27th January, 2015 'GS'

Copy forwarded to:-

1. Appellant 2. Respondent 3. C.I.T.(A) 4. C.I.T. 5. DR By Order

Asstt. Registrar

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