M/s J.P. Yadav, Sonebhadra V. Jt.CIT, Mirzapur

ITA 31/ALLD/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2139 (ITAT-ALLAHABAD)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-05-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 13-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAGDISH
• Assessee Lawyers: ARVIND SHUKLA; O P SHUKLA S
• Keywords: Depreciation
• Section: 145; 56; 12; 28; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ALLAHABAD BENCH, ALLAHABAD BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO.31/A/2013 ASSESSMENT YEAR: 2009-10 M/S. J.P. YADAV, VS. J.C.I.T., VIP ROAD, OBRA, RANGE 3, MIRZAPUR. SONEBHADRA (U.P.) (PAN: AAHFM 7714 J) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ARVIND SHUKLA & SHRI O.P. SHUKLA, ADVOCATES RESPONDENT BY : SHRI JAGDISH CIT (D.R.) DATE OF HEARING : 17.04.2013 DATE OF PRONOUNCEMENT : 01.05.2013 ORDER PER A.L. GEHLOT, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 31.10.2012 PASSED BY THE LD. CIT(A), ALLAHABAD FOR THE ASSESSM ENT YEAR 2009-10. 2. THE ASSESSEE HAS RAISED AS MANY AS 8 GROUNDS OF APPEAL BUT THE EFFECTIVE GROUND IS IN RESPECT OF APPLICATION OF PROFIT RATE @ 7% ON TOTAL GROSS RECEIPTS. 2 ITA NO.31/A/2013 A.Y. 2009-10 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN CIVIL CONSTRUCTION WORK. DURING THE ASSESSMENT PROCEEDIN GS, THE A.O. OBSERVED THAT ALL EXPENSES ARE NOT VOUCHED AND IN SUCH A SITUATION TH E PROFIT DECLARED IS NOT PRONE TO VERIFICATION AND NOT REALISTIC. THE A.O. AFTER CON SIDERING THE ASSESSEES SUBMISSION REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE INC OME BY APPLYING 7% RATE. THE A.O. REJECTED THE BOOKS OF ACCOUNT WITH FOLLOWING O BSERVATION:- GIVEN THE FACT THAT EXPENSES AND THE PROFIT DERIVA TIVE IS NOT PRONE TO VERIFICATION, I AM CONSTRAINED TO REJECT THE BOOKS OF ACCOUNTS BEING NOT PRONE TO VERIFICATION. THE PERTINENT QUESTION BEFORE ME, THEREFORE, IS NOT ONLY TO MAKE A REASONABLE ASSESSMENT OF INCO ME BUT ALSO TO KEEP IN MIND THE GRAVITY AND NATURE OF EXPENSES THE ASSESSEE NEEDS TO MAKE IN THE INDUSTRY IT OPERATES. LET ME DWELL UPO N THE ONGOING RATE OF INCOME EXPRESSED AS PERCENTAGE OF GROSS RECEIPTS IN THE INDUSTRY THAT THE ASSESSEE OPERATES. 4. THE A.O. ACCORDINGLY COMPUTED THE INCOME FROM CI VIL CONTRACT WORK AS UNDER :- GROSS RECEIPTS FROM CIVIL CONTRACT WORK OF THE ASS ESSEE IS CALCULATED AS UNDER :- RECEIPTS FROM CIVIL CONTRACT WORK : RS.96927264/- LESS: MATERIAL SUPPLIED BY DEPARTMENT : RS.3821862 /- GROSS RECEIPTS FROM CIVIL CONTRACT : RS.94105438/- AT 7% OF GROSS RECEIPTS, THE INCOME FROM CIVIL CONT RACT AMOUNTS TO RS.6587381/-. INCOME FROM CIVIL CONTRACT : RS.6587381/- 3 ITA NO.31/A/2013 A.Y. 2009-10 5. THE CIT(A) CONFIRMED THE ORDER OF THE A.O. 6. WE HAVE HEARD LEARNED REPRESENTATIVES OF PARTIES AND RECORDS PERUSED. THE ASSESSEE RAISED AS MANY AS EIGHT GROUNDS OF APPEAL BUT EFFECTIVELY GROUND IS IN RESPECT OF REJECTION OF BOOKS OF ACCOUNT AND ESTIMA TION OF PROFIT BY APPLYING 7% RATE OF PROFIT. TO EXAMINE THE ISSUE, WE WOULD LIK E TO REFER RELEVANT PROVISIONS OF SECTION 145 AND RELATED SCHEME OF THE ACT WHICH ARE AS UNDER:- 145. (1) INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SOURC ES' SHALL, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE COMPUTED I N ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGU LARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUN TING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGUL ARLY FOLLOWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSM ENT IN THE MANNER PROVIDED IN SECTION 144] 7. IT IS TO NOTE THAT UNDER SECTION 145(1), THE INC OME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR I NCOME FROM OTHER SOURCES HAS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUN TING REGULARLY EMPLOYED BY 4 ITA NO.31/A/2013 A.Y. 2009-10 THE ASSESSEE, UNLESS IN THE OPINION OF THE INCOME-T AX OFFICER, THE INCOME, PROFITS AND GAINS CANNOT PROPERLY BE DEDUCED THEREFROM OR T HE INCOME-TAX OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE. UNDER THE SUB-SECTION (3) OF SECTION 145 IN ANY CAS E WHERE THE ACCOUNTS ARE CORRECT AND COMPLETE TO THE SATISFACTION OF THE INCOME-TAX OFFICER BUT THE METHOD EMPLOYED IS SUCH THAT, IN THE OPINION OF THE INCOME -TAX OFFICER, THE INCOME CANNOT PROPERLY BE DEDUCED THEREFROM, THEN THE COMPUTATION HAS TO BE MADE UPON SUCH BASIS AND IN SUCH MANNER AS THE INCOME-TAX OFFICER MAY DETERMINE. HOWEVER, IF THE INCOME-TAX OFFICER IS NOT SATISFIED ABOUT THE C ORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR WHERE NO METHOD OF ACCO UNTING HAS BEEN REGULARLY EMPLOYED BY THE ASSESSEE, THE INCOME-TAX OFFICER MA Y MAKE THE ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144. SECTION 145 IS MAND ATORY AND THE REVENUE IS BOUND BY THE ASSESSEE'S CHOICE OF A METHOD REGULARL Y EMPLOYED UNLESS BY THAT METHOD THE TRUE INCOME, PROFITS AND GAINS CANNOT BE ARRIVED AT. IN OTHER WORDS, SECTION 145 ENACTS THAT FOR THE PURPOSE OF SECTION 28 (PROFITS AND GAINS OF BUSINESS, PROFESSION OR VOCATION) AND SECTION 56 (INCOME FROM OTHER SOURCES), INCOME, PROFIT AND GAINS MUST BE COMPUTED IN ACCORDANCE WITH THE M ETHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THEREFORE, IF T HE ASSESSEE REGULARLY EMPLOYS A PARTICULAR METHOD OF ACCOUNTING AND IF NO DEFECTS A RE FOUND IN THE METHOD OR MAINTENANCE OF ACCOUNTS, THE TAXING AUTHORITY IS BO UND TO COMPUTE THE PROFITS AND 5 ITA NO.31/A/2013 A.Y. 2009-10 GAINS OF BUSINESS OR PROFESSION OR VOCATION IN ACCO RDANCE WITH THE METHOD EMPLOYED BY THE ASSESSEE. THEREFORE, IN CASE WHERE THE INCOME-TAX OFFICER OR THE TAXING AUTHORITY FINDS THAT IN MAINTAINING ACCOUNTS , THE ASSESSEE HAS REGULARLY EMPLOYED A PARTICULAR METHOD AND DOES NOT MAKE ANY INVESTIGATION TO FIND OR DOES NOT FIND ANY DEFECT IN THE ACCOUNTS AND ACCEPT THE ACCOUNTS AS THEY ARE, HE IS BOUND TO COMPUTE THE INCOME IN ACCORDANCE WITH THE ACCOUN TS MAINTAINED BY THE ASSESSEE. THEREFORE, WHEN THE ASSESSEE REPRESENTS TO THE TAXI NG AUTHORITY THAT ITS ACCOUNTS ARE MAINTAINED BY A METHOD OF ACCOUNTING REGULARLY EMPL OYED, HE EXPECTS THE INCOME- TAX OFFICER TO ACT UPON SUCH METHOD AND COMPUTE THE INCOME ACCORDINGLY. 8. THE BASIC QUESTION FOR CONSIDERATION IS, WHETHER THE ASSESSEE HAS BEEN FOLLOWING AN ACCEPTABLE METHOD OF ACCOUNTING FOR DE CLARING ITS INCOME AND WHETHER THE METHOD EMPLOYED BY THE ASSESSEE IS SUCH THAT CORRECT PROFITS CANNOT BE DEDUCED FROM THE ACCOUNTS OF THE ASSESSEE, SO THAT THE PROVISIONS OF S. 145 OF THE IT. ACT COULD APPLY. IN THE CASE UNDER CONSIDERATIO N THE ASSESSEE HAS FOLLOWED A CONSISTENT SYSTEM OF ACCOUNTING AND REGULARLY EMPLO YING THE SAME SYSTEM OF ACCOUNTING FOR COMPUTING ITS INCOME FROM YEAR TO YE AR. IT IS ALSO NOT IN DISPUTE THAT THIS SYSTEM OF ACCOUNTING WAS NOT FOUND TO BE DEFEC TIVE BY THE ITO. IT MUST BE SAID AT THE OUTSET THAT THE CHOICE TO ACCOUNT FOR INCOME ON AN ACCEPTABLE BASIS IS THAT OF THE ASSESSEE, AND NOT OF THE DEPARTMENT. THIS IS, H OWEVER, NOT AN UNLIMITED CHOICE, 6 ITA NO.31/A/2013 A.Y. 2009-10 BECAUSE THE ITO HAS ALWAYS THE LIBERTY TO EXAMINE T HE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE, TO DETERMINE WH ETHER THE SYSTEM OF ACCOUNTING IS DEFECTIVE, AND WHETHER BY FOLLOWING SUCH SYSTEM OF ACCOUNTING, CORRECT PROFITS CAN BE DEDUCED FROM THE ACCOUNT BOOKS MAINTAINED BY THE ASSESSEE. IF, ON SUCH SCRUTINY, THE ITO COMES TO THE CONCLUSION THAT WITH REFERENCE TO THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE, CORRECT PROFIT S CANNOT BE DEDUCED, IT IS OPEN TO HIM TO APPLY THE PROVISIONS OF S. 145 OF THE I. T. ACT AND MAKE THE ASSESSMENT IN AN APPROPRIATE MANNER. IN THE PRESENT CASE, THERE I S NO MATERIAL TO INDICATE WHY THE ITO CONSIDERS THE SYSTEM OF ACCOUNTING REGULARLY FO LLOWED BY THE ASSESSEE TO BE DEFECTIVE, OR THE SYSTEM OF ACCOUNTING FOLLOWED TO BE SUCH THAT CORRECT PROFITS CANNOT BE DEDUCED THERE FROM. THE ITO'S POWER TO SU BSTITUTE A SYSTEM OF ACCOUNTING FOR THE ONE FOLLOWED BY THE ASSESSEE, FL OWS FROM THE PROVISIONS OF S. 145 OF THE I. T. ACT. IT IS, THEREFORE, IMPERATIVE THAT BEFORE REJECTING THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE, THE ITO MUST R EFER TO THE INHERENT DEFECT IN THE SYSTEM AND RECORD A CLEAR FINDING THAT THE SYST EM OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS SUCH THAT CORRECT PROFITS CANNOT BE DED UCED FROM THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. AS ALREADY OBSERVED ABO VE, THERE IS NO FINDING TO THAT EFFECT IN THIS CASE. THE ITO'S VIEW THAT THERE COUL D BE A BETTER SYSTEM OF ACCOUNTING IS NO REASON TO THE APPLICATION OF THE PROVISIONS O F S. 145 OF THE I. T. ACT, ESPECIALLY IN VIEW OF THE FACT THAT THIS SYSTEM OF ACCOUNTING IS FOLLOWED BY THE ASSESSEE 7 ITA NO.31/A/2013 A.Y. 2009-10 UNIFORMLY AND REGULARLY FOR THE PAST SEVERAL YEARS, AND WAS ACCEPTED BY THE DEPARTMENT WITHOUT QUARREL. IT IS NOT OPEN TO THE I TO TO INTERVENE AND SUBSTITUTE A SYSTEM OF ACCOUNTING DIFFERENT FROM THE ONE WHICH I S FOLLOWED BY THE ASSESSEE, ON THE GROUND THAT THE SYSTEM WHICH COMMENDS TO THE IT O IS BETTER. THERE ARE ANY NUMBER OF COURT PRONOUNCEMENTS WHERE IT HAS BEEN HE LD THAT PROVISIONS OF SECTION 145 ARE MANDATORY AND THE PROPER METHOD OF ACCOUNTI NG REGULARLY FOLLOWED BY AN ASSESSEE IS BINDING ON THE ASSESSING AUTHORITIES. A S EARLY AS IN THE CASE OF CIT V. SARANGPUR COTTON MFG. CO. LTD. [1938] 6 ITR 36 (PC) , THE JUDICIAL COMMITTEE OF THE PRIVY COUNCIL NOTED THAT EVEN IF THE PROFIT BRO UGHT OUT IN THE ACCOUNTS IS NOT THE TRUE FIGURE FOR INCOME-TAX PURPOSE, THE SAME WOULD BE COMPULSORY BASIS OF COMPUTATION OF INCOME IF THE TRUE FIGURE CAN BE ACC URATELY DEDUCED THERE FROM. INCIDENTALLY, THIS JUDGMENT OF THE PRIVY COUNCIL HA S BEEN CITED AND RELIED UPON IN A NUMBER OF JUDGMENTS DELIVERED THEREAFTER BY THE HON 'BLE SUPREME COURT AND VARIOUS HIGH COURTS IN INDIA. 9. IN KESHAV MILLS LTD. V. CIT [1953] 23 ITR 230, T HE HON'BLE SUPREME COURT HELD THAT THE PROVISIONS OF SECTION 13 OF 1922 ACT (CORRESPONDING TO SECTION 145 OF 1961 ACT) WAS COMPULSORY ON THE INCOME-TAX AUTHORIT IES AND IMPOSED UPON THEM AN OBLIGATION TO ACCEPT THE MODE OF ACCOUNTING REGU LARLY ADOPTED BY THE ASSESSEE EXCEPT IN CASES WHEN THE PROVISO TO THAT SECTION CA ME INTO OPERATION. THE PROFITS 8 ITA NO.31/A/2013 A.Y. 2009-10 EARNED AND CREDITED IN THE BOOKS OF ACCOUNT WERE TO BE TAKEN AS THE BASIS FOR COMPUTATION OF INCOME. 10. IN CIT V. A. KRISHNASWAMY MUDALIAR [1964] 53 IT R 122, THE SUPREME COURT REITERATED THAT THE INCOME-TAX OFFICER IS BOU ND TO COMPUTE THE PROFITS BY APPROPRIATE ADJUSTMENTS FROM THE ACCOUNTS MAINTAINE D BY AN ASSESSEE WHERE A SYSTEM OF ACCOUNT IS REGULARLY EMPLOYED. THE COURT HELD: 'THE ONLY DEPARTURE MADE BY SECTION 13 OF THE INDIA N INCOME-TAX ACT FROM THE LEGISLATION IN ENGLAND IS THAT WHEREAS UND ER THE ENGLISH LEGISLATION, THE COMMISSIONER IS NOT OBLIGED TO DET ERMINE THE PROFITS OF A BUSINESS VENTURE, ACCORDING TO THE METHOD OF A CCOUNTING ADOPTED BY THE ASSESSEE, UNDER THE INDIAN INCOME-TAX ACT, P RIMA FACIE, THE INCOME-TAX OFFICER HAS FOR THE PURPOSE OF SECTIONS 10 AND 12 TO COMPUTE THE INCOME, PROFITS AND GAINS IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. I F, THEREFORE, THERE IS A SYSTEM OF ACCOUNTING REGULARLY EMPLOYED AND BY APPROPRIATE ADJUSTMENTS FROM THE ACCOUNTS MAINTAINED TAXABLE PR OFIT MAY PROPERLY BE DEDUCED, THE INCOME-TAX OFFICER IS BOUND TO COMP UTE THE PROFITS IN ACCORDANCE WITH THE METHOD OF ACCOUNTING. BUT WHERE IN THE OPINION OF THE INCOME-TAX OFFICER, THE PROFITS CANNOT PROPE RLY BE DEDUCED FROM THE SYSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE IT IS OPEN TO HIM TO ADOPT A MORE SUITABLE BASIS FOR COMPUTATION OF THE TRUE PROFITS.' 11. IN THE CASE OF MD. UMER V. CIT [1997] 101 ITR 5 25, THE HON'BLE PATNA HIGH COURT HAVE CATEGORICALLY STATED AT PAGE 530, 'ONCE, THEREFORE, THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE HAS BEEN REGULA RLY EMPLOYED AND INCOME, 9 ITA NO.31/A/2013 A.Y. 2009-10 PROFITS AND GAINS CAN PROPERLY BE DEDUCED FROM SUCH REGULARLY EMPLOYED METHOD OF ACCOUNTING, THAT IS THE END OF THE MATTER FOR THE P URPOSE OF PROVISO TO SUB-SECTION (1) OF SECTION 145'. 12. THE PROFIT OR LOSS MADE BY THE BUSINESSMAN FROM THAT BUSINESS, AS APTLY DESCRIBED IN THE CASE OF SUNIL SIDDHARTHBHAI V. CIT [1985] 156 ITR 509/23 TAXMAN 14W (SC) AT PAGE 521 REMAINS IN THE 'WOMB OF FUTURE'. THE MEASUREMENT OF PERIODIC INCOME IS, TO THAT EXTENT, A MATTER OF ESTIMATION ON THE BASIS OF CERTAIN ACCEPTABLE PRINCIPLE OF ACCOUNTING . FOR THIS REASON, ON THE SAME FACTS AND CIRCUMSTANCES, THE COMPUTATION OF BUSINES S INCOME MAY DIFFER DEPENDING UPON THE METHOD OF ACCOUNTING EMPLOYED. IN OTHERWOR DS, IT IS NOT THE LEGAL POSITION THAT ON IDENTICAL FACTS, THE SAME AMOUNT OF INCOME SHOULD BE ASSESSABLE IN THE CASES OF ALL THE ASSESSEES. THIS POSITION HAS BEEN CLEARLY RECOGNISED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. A. KRISHNASWAMY MUDALIAR [1964] 53 ITR 122,(SC) THAT THE QUANTUM OF ALLOWANCE PERMITTED TO BE DEDUCTED FROM THE PROFITS AND GAINS OF BUSINESS WOULD DIFFER ACCORDING TO THE SYSTEM OF ACCOUNTING. IN THE CASE OF CIT V. S.M. CHITNAVIS [1932] 2 COMP. CAS. 4 64 (PC), LORD RUSSEL HELD THAT IF A METHOD OF ACCOUNTING IS REGULARLY EMPLOYE D THEN THE ASSESSEE OUGHT TO GET THE ADVANTAGE AND SUFFER DISADVANTAGE OF THAT SYSTE M OF ACCOUNTING, AND EVEN THOUGH IT MAY HAPPEN THAT IN A PARTICULAR YEAR THE REVENUE MAY GAIN IN ANOTHER YEAR 10 ITA NO.31/A/2013 A.Y. 2009-10 THE ASSESSEE MAY GAIN. THE HON'BLE BOMBAY HIGH COUR T HELD IN THE CASE OF CIT V. TATA IRON & STEEL CO. LTD. [1977] 106 ITR 363 THAT IF THE METHOD OF ACCOUNTING FOLLOWED BY AN ASSESSEE CANNOT BE SAID UNREASONABLE , THE SAME HAS TO BE GIVEN EFFECT TO EVEN IF A BETTER METHOD CAN BE VISUALISED . FOLLOWING JUDGMENTS MAY ALSO REFER ON THE ISSUE:- CIT & EPT V. CHARI AND RANT [1949] 17 ITR I (MAD) ; CIT V. SRIMATI SINGARI BAI [ 1945] 13 ITR 224 (ALL) ; CIT V. K. DODDABASAPPA [1964] 54 ITR 221 (MYS) ; JUGGILAL KAMLAPAT, BANKERS V. CIT [1975] 101 ITR 40 (ALL). (2005) 273 ITR 262 (MAD) CIT V ANANDHA METAL CORPOR ATION JESSARAM FETEHCHAND (R.B.) (SUGAR DEPT.) V. COMMISS IONER OF INCOME-TAX 75 ITR 33 (BOMB) CALCUTTA COMPANY LIMITED.VS COMMISSIONER OF INCOME- TAX, WEST BENGAL 37 ITR 1 (SC) COMMISSIONER OF INCOME-TAX V. MARGADARSI CHIT FUNDS (P.) LTD. 155 ITR 442 (AP) CIT VS. GOTANLIME KHANIJ UDYOG, 256 ITR 243 (RAJ) CIT VS. SMT. POONAM RANI (DELHI) 326 ITR 223 13. THESE ARE ALL DECISIONS WHICH LEND SUPPORT TO T HE PROPOSITION THAT THE DEPARTMENT IS BOUND BY THE ASSESSEE'S CHOICE OF ACC OUNTING REGULARLY EMPLOYED UNLESS IT CAN BE SAID THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE DOES NOT REFLECT THE TRUE INCOME. 14. IN THE LIGHT OF ABOVE DISCUSSION, IF WE CONSIDE R THE FACTS OF THE CASE WE FIND THAT THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.8,82,140/-. 11 ITA NO.31/A/2013 A.Y. 2009-10 THE AO REJECTED THE BOOKS OF ACCOUNT WITHOUT POINTI NG OUT ANY INHERENT DEFECTS IN METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. THE AO REJECTED THE BOOKS OF ACCOUNT ON THE BASIS OF GENERAL REMARKS THAT EXPENS ES ARE NOT VERIFIABLE AND THE ASSESSEE HAS SHOWN LOW G.P. WE FIND THAT THE REJECT ION BOOKS OF ACCOUNT OF THE ASSESSEE IS NOT IN ACCORDANCE WITH PROVISIONS OF SE CTION 145 OF THE ACT. 15. AS REGARDS ESTIMATION OF 7% PROFIT ON THE BASIS OF SECTION 44 AD OF THE ACT, IN THIS REGARD, WE WOULD LIKE TO REFER A JUDGMENT O F RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. GOTANLIME KHANIJ UDYOG, 256 ITR 243 (RAJ.) WHEREIN IT HAS BEEN HELD THAT SECTION 145 DOES NOT DEAL WITH ADDITION O R DELETION IN INCOME. IN THE CASE UNDER CONSIDERATION, THE LD. A.R. DEMONSTRATED BY R EFERRING COMPARABLE POSITION OF CASES IN ITA NOS.310/ALLD/397, 1233/ALL/1961, 2107/ ALL/1995 AND OTHERS AS NOTED FROM PAGE NO.5 OF CIT(A)S ORDER AND BY CONTENTING THAT THE A.O. DID NOT CONSIDER ASSESSEES CLAIM FOR REDUCING DEPRECIATION AND HIGH ER PREMIUM CHARGES FROM THE PROFIT ESTIMATED BY THE A.O., THAT PROFIT DECLARED BY THE ASSESSEE IS MOST REASONABLE. IN ABOVE I.T.A.T. ORDERS 4.50% G.P. HAS BEEN ACCEPTED WHEREAS THE ASSESSEE HAS SHOWN 12.04 % G.P. AFTER CONSIDERING TOTALITY OF THE FACTS OF THE CASE, WE FIND THAT THE A.O. HAS ARBITRARILY ADOPTED 7% RATE OF PROFIT WHICH CANNOT BE SUSTAINED. WE, THEREFORE, SET ASIDE THE ORDERS OF REVENUE AUTHORITIES AND THE 12 ITA NO.31/A/2013 A.Y. 2009-10 A.O. IS DIRECTED TO ACCEPT THE PROFIT DECLARED BY T HE ASSESSEE IN THE RETURN OF INCOME. 16. IN THE RESULT, OF APPEAL THE ASSESSEE IS ALLOWE D. (ORDER PRONOUNCED IN THE OPEN COURT) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, ALLAHABAD BENCH, ALLAHABAD 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE T RIBUNAL, ALLAHABAD TRUE COPY