Dy.Commissioner of Income Tax, Circle-1, Ghaziabad. Vs Shri Manoj Kumar Agarwal, KM-140, Kavi Nagar, Ghaziabad.
January, 30th 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES `E' NEW DELHI
BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT
SHRI CHANDRAMOHAN GARG, JUDICIAL MEMBER
ITA NO. 5029/DEL/2013
ASSTT. YEAR: 2008-09
Dy.Commissioner of Income Tax, vs Shri Manoj Kumar Agarwal,
Circle-1, Ghaziabad. KM-140, Kavi Nagar,
Appellant by: Shri Harish Sachdeva, CA
Respondent by: Shri Gunjan Prashad, CIT
O R D E R
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
"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
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
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
4. We have heard arguments of both the sides and carefully perused the
relevant material placed on record, inter alia assessment order and
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 ."
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
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.
(G.D. AGRAWAL) (CHANDRAMOHAN GARG)
VICE PRESIDENT JUDICIAL MEMBER
DT. 27th January, 2015
Copy forwarded to:-
4. C.I.T. 5. DR