M/s. Ferro Concrete Con. India Pvt. Ltd., Indore V. THE DCIT 1(1), Indore

ITA 261/IND/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5263 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 07-05-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 07-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA
• Assessee Lawyers: C P RAWKA
• Keywords: Rejection of books of accounts; Business income; Question of law
• Section: 143(3); 14A; 40(a)(ia); 143(1)

Judgement Text

FERRO CONCRETE CONSTRUCTION (INDIA) PVT. LTD ITA NO.261/IND/2017 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE HON'BLE KUL BHARAT, JUDICIAL MEMBER AND HON'BLE MANISH BORAD, ACCOUNTANT MEMBER ITA NO.261/IND/2017 ASSESSMENT YEAR 2013-14 REVENUE BY S MT. ASHIMA GUPTA, CIT ASSESSEE BY SHRI C.P. RAWKA , ADV DATE OF HEARING 0 9 .05 .2019 DATE OF PRONOUNCEMENT 16 . 0 5 .2019 O R D E R PER MANISH BORAD, AM. THIS APPEAL IS FILED AT THE INSTANCE OF THE ASSESSE E PERTAINING TO ASSESSMENT YEAR 2013-14 AND IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX(APPEALS)-II (IN SHORT C IT(A)), INDORE DATED 31.01.2017 WHICH IS ARISING OUT OF THE ORDER U/S 143(3) OF THE INCOME TAX ACT 1961(IN SHORT THE ACT) DATED 1 8.03.2016 FRAMED BY DCIT-1(1), INDORE. M/S . FERRO CONCRETE CONSTRUCTION(INDIA) PVT.LTD, BIDASARIA MILLS COMPOUND, PLOT NO.5-A, BHAGIRATHPURA INDUSTRIAL ESTATE, INDORE VS. DCIT, 1(1), INDORE ( APPELLANT ) (RESPONDENT ) PAN NO. AAACF2726K FERRO CONCRETE CONSTRUCTION (INDIA) PVT. LTD ITA NO.261/IND/2017 2 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF AP PEAL; 1. THAT THE LD. CIT(A) ERRED AND CONFIRMED THE ACTI ON OF ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNT S WITHOUT POINTING OUT ANY MATERIAL DEFECT IN THE CORRECTNESS AND COMPLETENESS OF BOOKS OF ACCOUNTS. THE ADDITION MADE BY THE A.O AND CONFIRMED BY THE CIT(A ) IS TOTALLY WRONG AND ILLEGAL ON THE FACTS OF THE CASE. 2. THAT THE LD. CIT(A) ERRED AND CONFIRMED THE ADDI TION OF RS.33,37,479/- FOR LOW PROFIT WITHOUT APPRECIATING FULL FACTS AND REASONING. 3. THAT THE LD. CIT(A) ERRED AND CONFIRMED THE ADDI TION OF 1% NET PROFIT RATE, SINCE THE N.P RATE APPLIED BY T HE ASSESSING OFFICER AND SAME AFTER GIVING 1% RELIEF W HICH IS CONFIRMED BY CIT9A) IS UNJUSTIFIED BEING EXCESSI VE. 4. THAT THE LD. CIT(A) ERRED AND CONFIRMED THE ADDI TION OF RS.1,51,642/- ON ACCOUNT OF DISALLOWANCE OF TESTING CHARGES U/S 40(A)(IA) WITHOUT APPRECIATING FULL FAC TS. 5. THAT THE APPELLANT CRAVES TO LEAVE, ADD ALTER OR AMEND ANY OF THE GROUND AT OR BEFORE HEARING. 3. BRIEF FACTS OF THE CASE AS CULLED OUT FROM THE C ORDS ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN CO NSTRUCTION WORK. E-RETURN OF INCOME FOR ASSESSMENT YEAR 2013-1 4 WAS FILED ON 29.09.2013 DECLARING INCOME OF RS.2,43,37,640/-. C ASE PICKED UP FOR SCRUTINY FOLLOWED BY SERVING NOTICES U/S 143(2) AND 143(1) OF FERRO CONCRETE CONSTRUCTION (INDIA) PVT. LTD ITA NO.261/IND/2017 3 THE ACT. VARIOUS DETAILS AS CALLED FOR WERE FILED. FURTHER ON THE BASIS OF FOLLOWING OBSERVATIONS LD. A.O REJECTED TH E BOOK RESULTS U/S 145(3) OF THE ACT AND MADE ADDITION OF 2% OF GROSS RECEIPTS OVER AND ABOVE THE NET PROFIT SHOWN BY THE ASSESSEE THEREBY MAKING ADDITION OF RS.66,74,958/-:- I)THE ASSESSEE COMPANY HAS NOT MAINTAINED SEPARATE BOOKS OF ACCOUNTS FOR CONTRACT RECEIPTS OF MUMBAI AND FOR OT HER BUSINESS RECEIPTS. II)THE ASSESSEE COMPANY HAS SHOWN WORK IN PROGRESS OF ESTIMATION BASIS NO QUANTITATIVE DETAILS FOR WORK I N PROGRESS MAINTAINED. III)IN HAS BEEN NOTICED THAT ASSESSEE COMPANY HAS C ARRIED OUT ITS WORKING ACTIVITIES ON DIFFERENT SITES OF INDORE LIKE KUSHALPURA, MAHAKAL BRIDGE, MHOW, RAJENDRA NAGAR, T EEN IMLI, PAGRA DAM, LAXMI BAI NAGAR AND ETC. FURTHER, IT HAS BEEN NOTICED THAT EXPENSES CLAIMED IN THE P&L ACCOU NT FOR THE RELEVANT PERIOD, IN RESPECT OF ALL SITES HAVE NOT B EEN MAINTAINED PROPERLY. ON CALLED, COMPLETE DETAILS FO R SOME SITE FERRO CONCRETE CONSTRUCTION (INDIA) PVT. LTD ITA NO.261/IND/2017 4 WISE EXPENSES HAVE NOT BEEN PRODUCED. IT IS ALSO FO UND THAT SOME PAYMENTS MADE IN CASH AND SOME VOUCHERS OF PAY MENTS ARE SELF MADE AND EVEN UNSIGNED. IN THIS CONTEXT, G ENUINENESS OF THE EXPENSES CLAIMED BY THE ASSESSEE COMPANY CAN NOT BE PROPERLY VERIFIED. IN IS THEREFORE, ON THE BASIS OF VAGUE AND DUBIOUS NATURE OF VOUCHERS OF EXPENSES, EXPENSES AS CLAIMED BY THE ASSESSEE COMPANY CANNOT BE ALLOWED IN FULL. IV) ON VERIFICATION OF LABOUR EXPENSES, IT HAS BEEN NOTICED THAT ASSESSEE COMPANY HAS MADE PAYMENTS OF LABOUR EXPENS ES IN CASH AND NO LABOUR PAYMENT REGISTERS WERE PRODUCED. V) FURTHER, ON VERIFICATION OF LEDGERS OF SUB-CONTR ACTORS AND CONSTRUCTION-WORK PAYMENTS FILED BY THE AR OF THE A SSESSEE COMPANY ON 05.01.2016. IT HAS BEEN NOTICED THAT THE ASSESSEE COMPANY HAS MADE VARIOUS PAYMENTS IN CASH. WHEN THE AR OF ASSESSEE WAS ASKED TO VERIFY THE SAME WITH SUPPORTI NG DOCUMENTS. IN RESPONSE TO THIS THE AR OF ASSESSEE P RODUCED SOME BILL/VOUCHERS OF PAYMENTS. BUT CASH PAYMENT DE TAILS NOT FOUND ON RECORD. FERRO CONCRETE CONSTRUCTION (INDIA) PVT. LTD ITA NO.261/IND/2017 5 VI) MOST OF THE PAYMENTS MADE IN CASH EVEN PAID MOR E THAN 20,000/- SOME OF THEM ARE PAYMENTS MADE TO MANISH KHODIYAR (KHODIYAR CONST.) OF RS. 16,85,325/- AND GANGARAM OF RS. 15,73,308/- AND OTHERS IN CASH IN FULL. IN A BSENCE OF BANK PAYMENTS CROSS VERIFICATION OF THE SAID PAYMEN TS ARE NOT POSSIBLE. THE AR EXPLAINED DURING VERIFICATION OF B OOKS THAT THESE PAYMENTS ARE PR W (PIECE RATE WORKER PAYMENTS ) AND ALSO CLAIMED TO PAID VARIOUS WORKERS THROUGH ABOVE PERSONS. VII) FURTHER THE ASSESSEE COMPANY HAS ALSO PAID CLU B MEMBERSHIP FEES RS.28,740/- AND THE SAME WAS NOT FO UND RELATED WITH BUSINESS. VIII) DURING THE COURSE OF ASSESSMENT PROCEEDINGS I T HAS BEEN NOTICED FROM P&L ACCOUNT THE ASSESSEE HAS SHOWN PUR CHASE OF STOCK IN TRADE OF RS.157391315/- . FURTHER VERIFICA TION IT IS FOUND THAT THE SAID AMOUNT IS THE PURCHASE OF CONST RUCTION MATERIAL I.E. BITUMEN, BRICKS, CEMENT, DIESEL, STEE L, SAND ETC. FURTHER,ON VERIFICATION OF BILLS/VOUCHERS OF MATERI AL PURCHASED IT HAS 'BEEN FOUND THAT VARIOUS PAYMENTS MADE IN CA SH AND IN SOME CASES BILLS OF VARIOUS PAYMENTS NOT FOUND IN R ECORD. FERRO CONCRETE CONSTRUCTION (INDIA) PVT. LTD ITA NO.261/IND/2017 6 4. LD. A.O ALSO MADE DISALLOWANCE U/S 14A OF THE AC T AT RS.2,43,581/- AND U/S 40(1)(IA) AT RS.1,51,642/-. 5. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE LD. C IT(A) AND PARTLY SUCCEEDED. 6. NOW THE ASSESSEE IS IN APPEAL RAISING FOLLOWING THREE ISSUES; (I) AGAINST REJECTION OF BOOKS U/S 145(3) OF THE A CT AND ESTIMATING PROFITS (II) CONFIRMING THE ADDITION OF 1% AS ADDITIONAL N ET PROFIT AS AGAINST 2% NET PROFIT RATE ADOPTED BY THE LD. A.O. (III) DISALLOWANCE U/S 40(A)(IA) OF THE ACT. 7. LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED S UPPORTING FOLLOWING WRITTEN SUBMISSIONS; THE LEARNED ASSESSING OFFICER APPLIED THE PROVISION S OF SECTION 145(3) AND REJECTED THE BOOKS OF ACCOUNTS. RESULTANTLY NET PROFIT INCREASED BY 2 AS AGAINST DECLARED PROFIT OF 4.93 AFTER DEPRECIATI ON. THEREBY, A TOTAL ADDITION OF RS. 66,74,958/- MADE BY ASSESSING OFFICER. THE NATURE OF BUSINESS OF ASSESSEE REQUIRES CERTAIN ITEMS TO BE PURCHASED READYMADE AND SOME ITEM REQUIRED TO BE FABRICATED O R MANUFACTURED. THEREFORE, IT IS SUBMITTED THAT THE C ONSTRUCTION EXPENSES FERRO CONCRETE CONSTRUCTION (INDIA) PVT. LTD ITA NO.261/IND/2017 7 AND MATERIAL CONSUMED EXPENSES ARE REQUIRED TO BE A GGREGATED TO ARRIVE AT THE ACTUAL EXPENSES AT SITES. IF WE LOOK INTO TH IS ASPECT, YOUR HONOR WILL APPRECIATE THAT THE RECEIPT AND EXPENSES ARE C OMPATIBLE AND REASONABLE. SECONDLY, IT IS SUBMITTED THAT PROJECT OF A CONTRAC T MAY TAKE 3-4 YEARS FOR COMPLETION AGAINST WHICH RUNNING BILLS, RECEIVED FR OM CONTRACTEE ARE CREDITED IN THE PROFIT & LOSS ACCOUNT, ON THE BASIS OF TERM AND CONDITION LAID DOWN IN THE WORK CONTRACT. AS AGAINST WHICH, T HE EXPENSES ARE INCURRED DURING THE CURRENCY OF PROJECT. DURING THE PERIOD, COST OF MATERIAL AS WELL AS LABOUR COST ESCALATES. THUS, IN FACT, THE REVENUE GAINED BY CONTRACTOR IN REAL TERM IS TOTAL RECEIPT FROM A PROJECT LESS TOTAL EXPENDITURE. IN VIEW OF THE FORGOING PARAS IT IS SUBMITTED THAT THE NEITHER AO NOT LD. CIT(A) HAS NOT POINTED OUT ANY SPECIFIC DEFECT IN T HE CORRECTNESS AND COMPLETENESS IN THE BOOKS OF ACCOUNTS AND INVOKED S ECTION 145(3). HE HAS REFERRED TO SOME SELF DRAWN VOUCHERS WHICH ARE NOT DENIED BUT THAT IS NOT A DEFECT CONSIDERING THE LINE OF BUSINESS AN D LOCATION OF SITE AT FAR OFF PLACES. IT WAS SPECIFICALLY POINTED OUT DURING THE ASSESSMENT PROCEEDING THAT IT IS NEITHER PRACTICABLE NOR POSSI BLE TO OBTAIN PAKKA BILLS IN RESPECT OF PURCHASE OF SNACKS, MILK, MENDING OF PUNCTURES, MINOR REPAIRS OF VEHICLE AND MACHINERY BY THE LOCAL MECHA NICS ETC. HOWEVER, IT IS CLEAR BEYOND DOUBT THAT THESE EXPENSES ARE GENUI NE AND QUANTITATIVELY CORRECT. THIS PROCEDURE IS SUBJECTED TO STRICT VIGI LANCE BY THE COMPANY'S DIRECTORS AS ABOVE EXPENSES ARE MET FROM PETTY CASH MAINTAINED AT THE SITE WHERE SUPERVISOR IS THE PERSON ENTRUSTED WITH THE TASK OF INCURRING THE EXPENDITURE TO THE BARE MINIMUM. THERE IS NO LI KELIHOOD OF EXAGGERATION OF THE SAID EXPENSES BECAUSE IT WILL L EAVE SUFFICIENT APERTURES FOR LEAKAGE OF COMPANY'S FUNDS. THE NEXT ISSUE IS ENHANCEMENT IN NET PROFIT BY RS. 66,74,958/- WHICH IS FERRO CONCRETE CONSTRUCTION (INDIA) PVT. LTD ITA NO.261/IND/2017 8 A GIGANTIC AND UNSCIENTIFIC FIGURE. THERE IS NO BAS IS TO ARRIVE AT THE SAID FIGURE. IT IS SUBMITTED THAT EVEN IF THE BOOKS OF A CCOUNTS ARE REJECTED AND BOOK RESULTS ARE DISTURBED, THE ASSESSING OFFICER I S DUTY BOUND TO ADOPT A REASONABLE AND SCIENTIFIC MANNER WHILE MAKING THE ADDITION IN BOOK RESULTS. ARBITRARY AND IMAGINARY FIGURES CANNOT BE PLACED IN THE ASSESSMENT ORDER. RELIANCE IS PLACED ON THE FOLLOWING PRONOUNCEMENTS: 1. CIT VS RAJENDRA PRASAD JAIN, HIGH COURT OF PUNJAB & HARYANA 374 ITR 0545 2. KARNATAKA STATE FOREST INDUSTRIES CORPORATION VS. C IT, HIGH COURT OF KARNATAKA, 201 ITR 674 3. CIT VS RANICHERRA TEA CO. LTD, HIGH COURT OF CALCUT TA, 207 ITR 979 4. DCIT VS VISHWANATH PRASAD GUPTA, ITAT JABALPUR, 137 TTJ 385 PANKAJ DIAMOND VS ACIT, ITAT AHMEDABAD, 32 DTR 462 HOWEVER, LD. AO AS WELL AS LD. CIT(A) IGNORING THE ABOVE FACTUAL POSITION AND WITHOUT POINTING OUT ANY SUCH MAJOR DEFECT IN T HE BOOKS OF ACCOUNT OTHER THAN AS EXPLAINED ABOVE, REJECTED THE BOOKS O F ACCOUNTS ULS 145(3) AND APPLIED NET PROFIT RATE WHICH IS UNJUSTIFIED TH OUGH. LD. CIT(A) SUSTAINED THE NET PROFIT RATE OF 1 ONLY ON THE BASIS OF PREVIOUS YEARS' APPELLATE ORDER WITHOUT IGNORING THE INCREASE OR DE CREASE IN TURNOVER OF ASSESSEE COMPANY EACH YEAR. THE SAID ADDITION WAS W ITHOUT TAKING CARE OF THIS FACT OF CHANGING TURNOVER EACH YEAR. PLEASE FIND THE ENCLOSED CHART WHERE THE NET PROFIT RATE HAS BEEN WORKED OUT FOR LAST THREE YEARS AT EACH STAGE I.E. BEFORE ASSESSMENT, AFTER FERRO CONCRETE CONSTRUCTION (INDIA) PVT. LTD ITA NO.261/IND/2017 9 ASSESSMENT AND AFTER CIT(A)'S ORDER. THEREFORE, IN VIEW OF THE ABOVE THE ADDITION MADE B Y THE LD. ASSESSING OFFICER AND PARTLY SUSTAINED BY CIT(A) DESERVES TO BE DELETED. 8. PER CONTRA LD. DEPARTMENTAL REPRESENTATIVE VEHEM ENTLY ARGUED AND SUPPORTING THE ORDERS OF LOWER AUTHORITI ES. 9. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US AND CAREFULLY GONE THROUGH THE JUD GMENTS REFERRED AND RELIED BY THE LD. COUNSEL FOR THE ASSESSEE. 10. AS REGARDS THE ISSUE RELATING TO REJECTION OF B OOK RESULTS AND ESTIMATION OF NET PROFIT BY ADDING 1% OF GROSS TURN OVER AS ADDITIONAL NET PROFIT OVER AND ABOVE THE NET PROFIT DISCLOSED BY THE ASSESSEE. WE OBSERVE THAT SIMILAR SET OF FACTS AND ISSUES CAM E UP FOR ADJUDICATION IN THE CASE OF ASSESSEE BEFORE THE HON 'BLE INDORE TRIBUNAL FOR ASSESSMENT YEAR 2011-12 IN ITA NO.509/ IND/2016. BOTH THE PARTIES FAILED TO CONTROVERT THAT THE FAC TS AND ISSUES OF THE ASSESSEE UNDER APPEAL FOR ASSESSMENT YEAR 2013-14 A RE SIMILAR TO THE FACTS AND ISSUES ADJUDICATED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12 . FERRO CONCRETE CONSTRUCTION (INDIA) PVT. LTD ITA NO.261/IND/2017 10 11. FROM PERUSAL OF THE DECISION OF THE HON'BLE TRI BUNAL, WE OBSERVE THAT THE ACTION OF THE LD. A.O OF REJECTING THE BOOK RESULTS WAS UPHOLD BY THE TRIBUNAL AND AS REGARDS ESTIMATIO N OF NET PROFIT, TRIBUNAL UPHOLD THE VIEW TAKEN BY LD. CIT(A) OF MAK ING ADDITION OF 1% NET PROFIT AS AGAINST 2% APPLIED BY THE LD. A.O BY OBSERVING AS FOLLOWS; 4. NOW THE DEPARTMENT IS IN APPEAL AGAINST REDUCIN G THE NET PROFIT BY 1% AS AGAINST 2% APPLIED BY THE ASSESSING OFFICER AND {HE ASSESSEE IS IN APPEAL AGAINST 1% RETENTION. 5. DURING THE COURSE OF HEARING, THE -LEARNED COUN SEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IN CONTROVERSY IS COVERED BY THE DECISION OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2008-09 WHEREIN THE TRIBUNAL HAS ACCEPTED THE NET PROFIT @ 5.39%. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE ASSESSMENT YEARS 2006-07, 2607-08, 2008-09, 2009-10 AND 2010-11 6. THE NET PROFIT RATIO COMES TO 4.88%, 4.42%, 5.42%, , 5.39%, 5.28% AND 5.75% AND THE TRIBUNAL HAS APPLIED 4% NET PROFIT RATE FOR THE ASSESSMENT YEAR 2005-06, THEREFORE, IT MAY BE ACCEPTED AND THE LEARNED CIT(A) IS NOT JUSTIFIED IN GIVING RELIEF OF ONLY 1% . ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDER OF THE ASS ESSING OFFICER. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE SIDE S. WE FIND THAT THE NET PROFIT FOR THE A.Y. 09-10 AND A.Y. 10-11 HAS BEEN SHOWN BY THE ASSESSEE AT 5.28% AND 5.75% RESPECTIVELY. THEREFORE, IF 2% FERRO CONCRETE CONSTRUCTION (INDIA) PVT. LTD ITA NO.261/IND/2017 11 INCREASE IS 'CONSIDERED, THE NET PROFIT FOR THE REL EVANT ASSESSMENT YEAR WITH GO UP TO 7.14% WHICH IS MUCH HIGHER THAN THE AVERAGE NET PROFIT IN THE ABOVE MENTIONED ASSESSMENT YEARS. WE ARE, THEREFORE. OF THE OPINION THAT THE ESTIMATION OF PR OFITS BY THE A.O. HAS NOT BEEN FOUND BASED ON SOME COGENT AND RELEVAN T INCREASING THE PROFIT BY 1% WHICH WILL TAKE THE NET PROFIT FOR THE RELEVANT YEA R AT 6.14% WHICH WILL STILL BE MUCH HIGHER THAN 5.50%, THE 'AVERAGE OF TWO PRECEDING ASSESSMENT YEARS. IN VIEW OF THE ABOV E DISCUSSION AND THE FACTS AND CIRCUMSTANCES OF THE CASE, WE HOL D THAT THE LEARNED CIT(A) WAS JUSTIFIED IN DIRECTING THE ASSES SING OFFICER TO RE- COMPUTE THE PROFITS BY INCREASING THE SAME @ 1% AS AGAINST 2% APPLIED BY)HE ASSESSING' OFFICER. WE, THEREFORE, CONFIRM THE ORDER OF THE LEARNED CIT(A) . 8. IN VIEW OF THE ABOVE DISCUSSION, WE FIND NO FLAW IN THE ORDER OF THE LEARNED CIT(A) AND CONFIRM THE SAME. 9. IN THE RESULT, THE APPEAL 'OF THE REVENUE AND THE ASSESSEE STAND DISMISSED. 12. WE FURTHER FIND THAT THE ABOVE DECISION OF THE TRIBUNAL HAS BEEN CONFIRMED BY HON'BLE JURISDICTIONAL HIGH COURT IN ITA NO.84/2017 ORDER DATED 04.01.2018 OBSERVING AS FOLL OWS; ON DUE CONSIDERATION OF THE ARGUMENTS OF THE LEARN ED COUNSEL FOR THE PARTIES, SO ALSO THE LAW LAID DOWN BY THE SUPREME C OURT IN THE CASE OF STATE OF ORISSA V. MAHARAJA SHRI B.P. SINGH DEO REP ORTED IN 1971(3) SCC 52 AND A DIVISION BENCH OF THIS COURT IN THE CASE O F KARAN SINGH V. COMMISSIONER OF WEALTH TAX REPORTED IN MANU/MP/0112 /1980 (1981) 127 ITR 25(MP), WE ARE OF THE VIEW THAT THE ORDER P ASSED BY THE LEARNED FERRO CONCRETE CONSTRUCTION (INDIA) PVT. LTD ITA NO.261/IND/2017 12 APPELLATE TRIBUNAL IS BASED ON BEST JUDGMENT ASSES SMENT. THE POWER TO LEVY ASSESSMENT ON THE BASIS OF BEST JUDGMENT IS NO T AN ARBITRARY POWER; IT IS AN ASSESSMENT ON THE BASIS OF BEST JUDGMENT. TH EREFORE, THE TRIBUNAL WAS IN ERROR IN CONFIRMING THE DECISION OF THE COMM ISSIONER OF INCOME TAX (APPEAL). 6.NO CASE TO INTERFERE WITH IMPUGNED ORDER DATED 15 .12.2016 (ANNEXUREC) PASSED BY THE LEARNED APPELLATE TRIBU NAL, AS PRAYED FOR, IS MADE OUT; NOR ANY SUBSTANTIAL QUESTION OF LAW IS AR ISING IN THIS APPEAL. 7.ACCORDINGLY, INCOME TAX APPEAL NO.84/2017 HAS NO MERIT AND IS HEREBY DISMISSED. 13. WE THEREFORE RESPECTFULLY FOLLOWING THE JUDGME NT OF HON'BLE JURISDICTIONAL HIGH COURT AND IN THE GIVEN FACTS A ND CIRCUMSTANCES OF THE CASE ARE OF THE CONSIDERED VIEW THAT THE ASS ESSEES BOOKS OF ACCOUNTS WERE RIGHTLY REJECTED BY LD. A.O OBSERVING DISCREPANCIES AS MENTIONED HEREIN ABOVE IN PRECEDING PARAS AND LD . CIT(A)HAS RIGHTLY SUSTAINED THE ADDITION OF 1% NET PROFIT RAT E THEREBY CONFIRMING THE ADDITION OF RS.33,37,479/-. WE ACCO RDINGLY DISMISS ASSESSEES GROUND NO. 1,2,& 3. 14. NOW WE TAKE GROUND NO.4 FOR THE DISALLOWANCE MA DE U/S 40(A)(IA) OF THE ACT AT RS.1,51,642/-. THIS DISALL OWANCE WAS MADE FOR NON DEDUCTION OF TAX AT SOURCE AT TESTING CHARG ES PAID BY THE FERRO CONCRETE CONSTRUCTION (INDIA) PVT. LTD ITA NO.261/IND/2017 13 ASSESSEE. WE FIND THAT THE CO-ORDINATE BENCH IN TH E CASE OF ITO VS AKASH DEVELOPERS ITA NO.859/KOL/2012 ORDER DATED 20 .11.15 DEALING WITH THE ISSUE OF DISALLOWANCE U/S 40(A)(IA ) OF THE ACT IN THE CASE OF BOOK RESULTS BEING REJECTED U/S 145(3) OF T HE ACT, HELD AS FOLLOWS; 5. WE HAVE HEARD LD. SR. DR AND GONE THROUGH THE F ACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THERE ARE ERRORS/INCONSISTENCIES IN THE MAINTENANCE OF BOOKS OF ACCOUNTS BECAUSE IN SEV ERAL CASE FOR THE RELEVANT AY BOOKING OF SALES DOES NOT TALLY WITH TH E YEAR OF REGISTRATION. EVEN THE METHOD OF RECOGNITION OF SALE ADOPTED BY T HE ASSESSEE IS INCONSISTENT, DEFECTIVE AND NOT IN ACCORDANCE WITH ANY RECOGNIZED SYSTEM OF ACCOUNTING. EVEN BEFORE THE AO OR BEFORE THE CI T(A), THE ASSESSEE COULD NOT EXPLAIN THE BASIS OF BOOKING OF VARIOUS CONSTRU CTION EXPENSES IN RESPECT OF FLATS KEPT IN STOCK IN TRADE. IN VIEW O F THESE DIFFERENCES, WE FIND THE CIT(A) HAS RIGHTLY REJECTED THE BOOKS OF ACCOUN T BY APPLYING THE PROVISIONS OF SECTION 145(3) OF THE ACT AND WE FIND NO INFIRMITY IN THE ORDER OF CIT9A) IN APPLYING PROFIT RATE OF 8%. 6.IN REPLY TO OTHER ADDITIONS, IT IS CLEAR THAT ONC E NET PROFIT RATE IS APPLIED, THE EXPENSES OR OTHER DISALLOWANCES, SINCE RELATING TO BUSINESS, CANNOT BE MADE SEPARATELY BECAUSE THE PROFIT ELEMENT OF EXPEN SES OR DISALLOWANCES HAVE ALREADY BEEN CONSIDERED WHILE APPLYING PROFIT RATE. ACCORDINGLY, WE CONFIRM THE ORDER OF CIT(A). APPEAL OF REVENUE IS DISMISSED. 15. IN VIEW OF THE ABOVE DECISION OF THE TRIBUNAL THERE REMAINS NO DISPUTE THAT ONCE AFTER REJECTING THE BOOK RESULTS, NET PROFIT IS ESTIMATED BY APPLYING NET PROFIT RATE, NO DISALLOWA NCE COULD BE FERRO CONCRETE CONSTRUCTION (INDIA) PVT. LTD ITA NO.261/IND/2017 14 MADE SEPARATELY FOR OTHER EXPENSES, AS THE PROFIT E LEMENT ALREADY STANDS CONSIDERED DURING THE APPLICATION OF NET PRO FIT RATE. WE ACCORDINGLY DELETE THE DISALLOWANCE MADE U/S 40(A)( IA) OF THE ACT AT RS.1,51,642/- AND ALLOW GROUND NO.4. 16. GROUND NO.5 IS GENERAL IN NATURE WHICH NEEDS NO ADJUDICATION. 17. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 16.05.20 19. SD/- SD/- ( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER / DATED : 16 MAY, 2019 /DEV COPY TO: THE APPELLANT/RESPONDENT/CIT CONCERNED/CIT (A) CONCERNED/ DR, ITAT, INDORE/GUARD FILE. BY ORDER ASSISTANT REGISTRAR, ITAT, INDORE