IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `D', NEW DELHI
Before Sh. R. S. Syal, AM And Sh. A. T. Varkey, JM
ITA No. 1024/Del/2010 : Asstt. Year : 2006-07
Asstt. Commissioner of Income Tax, Vs M/s Lall Construction Co.,
Circle-19(1), AA-105, Shalimar Bagh,
New Delhi Delhi-110052
Assessee by : Sh. Rajesh Mahna & Manu Giri, Advs.
Revenue by : Dr. B. R. R. Kumar, Sr. DR
Date of Hearing : 03.09.2014 Date of Pronouncement : 4.9.2014
Per R. S. Syal, AM:
This appeal by the Revenue is directed against the order passed by
CIT(A) on 16.12.2009 in relation to the assessment year 2006-07.
2. The only issue raised by the Revenue in its appeal is against the
deletion of addition of Rs. 1,74,68,474/-, which was made by the
Assessing Officer invoking the provision of sec. 145(3) of the Income-
tax Act, 1961 (hereinafter also called `the Act').
3. Briefly stated the facts of case are that the assessee is engaged in
the business of construction on behalf of Indian Railways and IRCON
International Ltd. A return was filed declaring total income of Rs.
2 ITA No. 1024/Del/2010
Lall Construction Co.
24,11,010/-. During the course of assessment proceedings, the Assessing
Officer observed certain discrepancies in the books of accounts, which
have been enumerated on pages 2 to 6 of the assessment order. The sum
and substance of such discrepancies is that no quantitative details were
maintained at site; payment of labour at work sites was not properly
substantiated inasmuch as name and address of the certain persons were
not available to whom the payments were claimed to have been made;
no proof was available in respect of hutment expenses; several expenses
claimed by the assessee were not supported etc. In view of these facts,
the Assessing Officer rejected the books of account u/s 145 of the Act.
Taking assistance from the provisions of sec. 44AD of the Act, it was
held that income from railway contracts was to be estimated at 8% and
the AO also estimated income from contracts with IRCON at 10%. In
this way, he estimated total gross income of Rs. 1,74,68,474/-. After
allowing deductions on account of salary and bonus to partners and
depreciation, the total income was computed at Rs. 1,62,68,640/-. The
ld. CIT(A) got convinced with the assessee's submission and held that
the books of account were properly maintained and also ordered for the
deletion of addition of Rs. 1,74,68,474/- (Rs. 1,08,83,409/- from
Railway contracts and Rs. 65,85,065.- from IRCON contract). The
Revenue is aggrieved against the deletion of addition.
4. After considering the rival submissions and perusing the relevant
material on record, it is observed as a matter of fact that certain
3 ITA No. 1024/Del/2010
Lall Construction Co.
deficiencies pointed out by the Assessing Officer in the books of
account, do exist. For example, the Assessing Officer observed that
payment of labour at work sites amounting of Rs. 12.26 crore was not
properly substantiated. In this regard, the assessee replied that most of
the payments were to casual labour on a fortnightly basis and that was a
common practice of not having name and address of the persons to
whom such wages were paid. It, thus, manifests that the AO was correct
in reporting that details of labour paid were not properly maintained.
Similarly, it can be seen that the observations of the AO about various
expenses not properly supported with evidence, have remained
uncontroverted before us. In view of the foregoing reasons, we are
satisfied that the ld. CIT(A) was not justified in overturning the action of
the Assessing Officer in rejecting the books of account. We, therefore,
hold that the A.O was fully justified in rejecting the books of account in
the given circumstances.
5. It is noticed that the ld. CIT(A), after upholding the maintenance of
proper books of account, has ordered for deletion of addition of Rs. 1.74
crore, which is subject matter of the Revenue's ground of appeal. In
doing so, the ld. CIT(A) failed to realize that the Assessing Officer had
estimated total income only at Rs. 1.62 crore. In fact, Rs.1.74 crore
represents the gross estimate of the assessee's income by the A.O, which
was subjected to further deductions. In other words, the ld. CIT(A) has
ordered for the deletion of addition for a sum more than the total income
4 ITA No. 1024/Del/2010
Lall Construction Co.
computed by the Assessing Officer. It is further significant to note that
the action of the ld. CIT(A) in deleting the addition of Rs. 1.74 has led to
even the waiver of income of Rs. 24,11,010/- which was declared by the
assessee in its return of income. Thus it is apparent that the view taken
by the ld. CIT(A) cannot be sustained.
6. Having held that the books of account were rightly rejected by the
AO, now comes the question of estimation of income. It can be seen
that the Assessing Officer applied 8% profit rate on receipts from
railway contract and 10% on receipts from IRCON. In applying these
rates, the Assessing Officer guided himself by the overall principles of
sec. 44AD which permit estimation of income @ 8% for small
contractors with annual turnover not exceeding Rs. 40,00,000/-. Here
is a case in which the turnover of the assessee is more than Rs. 20 crore.
In such circumstances, there can be no question of taking assistance
from the provisions of sec. 44AD for making any addition.
7. It is a settled legal position that the Assessing Officer, after
rejecting books of account, does not get unfettered powers to estimate
income as per his whims and fancies. The estimation of income should
be made on a rational and legally sustainable manner. Unless the facts
and circumstances are shown to be different, it is advisable to go by the
profit rate of the preceding year for application in the instant year. The
facts for the current year have not been shown to be any different from
5 ITA No. 1024/Del/2010
Lall Construction Co.
the preceding year. The assessee has placed a chart of profit rate on page
41 of the paper book, which was also made available to the Assessing
Officer vide its letter dated 5.12.2007. From this chart of profit rate, it
can be seen that the assessee has shown profit rate of 2.38% for the
instant year as against 2.49% for the assessment year 2005-06 and
5.27% for the assessment year 2004-05. Considering the entirety of facts
and circumstances prevailing in the instant case, we are of the
considered opinion that the ends of justice could meet adequately if the
NP rate of 2.50% is directed to be applied for the purposes of estimation
of income for the current year. We order accordingly. The impugned
order is, therefore, overturned and it is directed to apply the net profit
rate of 2.50% without allowing any further deductions.
8. In the result, the appeal is partly allowed.
Order pronounced in the open Court on 4/9/2014.
(A. T. Varkey) (R. S. Syal)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Copy forwarded to: