M/S M/S SANJAY AGRAWAL, RAIPUR (CG) V. THE DY. COMMISSIONER OF INCOME TAX 1(1), RAIPUR (CG)

ITA 339/BIL/2016

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5233 (ITAT-RAIPUR)
• Duration Of Justice: 4 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 30-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K BORAL
• Keywords: Gross profit estimation; Rejection of books of accounts; Business income; Depreciation; TDS; Set aside; FORM 26AS
• Section: 143(3); 44AB; 13; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI N. K. CHOUDHRY, JUDICIAL MEMBER ./ I.T.A. NO. 339/RPR/2016) ( ASSESSMENT YEAR : 2012-13) M/S. SANJAY AGRAWAL 35/36, 1 ST FLOOR, MILLENIUM PLAZA, GE ROAD, RAIPUR (C.G.) PIN: 492001 / VS. DEPUTY COMMISSIONER OF INCOME TAX-1(1) CENTRAL REVENUE BUILDING, CIVIL LINES, RAIPUR (C.G.) PIN: 492001 ./ ./PAN/GIR NO. : AAPFS0532E ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI VEEKAAS S. SHARMA, C.A. / RESPONDENT BY : SHRI R. K. BORAL, D.R. DATE OF HEARING 02/08/2021 !'# / DATE OF PRONOUNCEMENT 24/09/2021 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME TAX (APPEALS)-I, RAIPUR (CIT(A) IN SHORT), DATED 01.0 8.2016 ARISING IN THE ASSESSMENT ORDER DATED 30.03.2015 PASSED BY THE ASSESSING OFFICER (AO) UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING AY 2012-13. 2. THE GROUNDS OF APPEAL RAISED BY ASSESSEE READ HEREUNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED A.O HAS ERRED ON FACTS AND IN LAW IN DETERMINING TH E INCOME ITA NO. 339/RPR/2016 (M/S. SANJAY AGRAWAL VS. DCIT) A.Y. 2012-13 - 2 - FROM CONSTRUCTION ACTIVITIES BY APPLYING 8% TO ENHA NCED GROSS CONTRACT RECEIPTS I.E. RS. 102,71,69,868/-, IGNORIN G THE AUDITED FINANCIAL STATEMENTS, WITHOUT ANY BASIS WHICH IS WH OLLY ARBITRARY AND UNJUSTIFIED AND THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE SAID ARBITRARY ESTIMATION OF INCOME. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED A.O HAS ERRED ON FACTS AND IN LAW IN ENHANCING THE GROSS RECEIPTS OF THE ASSESSEE FROM CONSTRUCTION CONTRACT S BY RS.7,67,46,776/- I.E. FROM RS.95,04,23,092/- TO RS.102,71,69,868/- MERELY ON THE BASIS OF FIGURES A PPEARING IN FORM 26AS WHICH IS WHOLLY ARBITRARY AND UNJUSTIFIED AND THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN CON FIRMING THE SAID ENHANCEMENT OF GROSS RECEIPTS. 3. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED A.O HAS ERRE D ON FACTS AND IN LAW IN MAKING SEPARATE ADDITION OF RS.99,90, 703/- ON ACCOUNT OF INTEREST AND RS.1,46,250/- ON ACCOUNT OF MISCELLANEOUS INCOME ALREADY APPEARING IN PROFIT & LOSS A/C WHICH IS WHOLLY ARBITRARY AND UNJUSTIFIED AND THE L EARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE SAI D ENHANCEMENT TO THE TOTAL INCOME. 4. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED A.O HAS ERRE D ON FACTS AND IN LAW IN NOT ALLOWING DEDUCTION ON ACCOUNT OF DEPRECIATION ALLOWANCE OF RS.94,17,716/- AS PRESCRIBED BY BINDIN G CBDT CIRCULAR NO. 29D(XIX-14), DT. 31 ST AUG., 1965. 5. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED A.O HAS ERRE D ON FACTS AND IN LAW IN NOT ALLOWING DEDUCTION OF RS. 1,27,17 ,564/- ON ACCOUNT OF FINANCE COST WHICH IS WHOLLY ARBITRARY A ND UNJUSTIFIED AND THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LA W IN CONFIRMING THE SAID ENHANCEMENT TO THE TOTAL INCOME . 3. BRIEFLY STATED, THE ASSESSEE IS A PARTNERSHIP FI RM REGISTERED UNDER THE PROVISIONS OF INDIAN PARTNERSHIP ACT, 193 2 AND ITS ACCOUNTS HAVE BEEN AUDITED UNDER THE PROVISIONS OF SECTION 44AB OF THE ACT. THE ASSESSEE IS ENGAGED IN CIVIL AND ROAD CONSTRUCTION WORK AND FILED THE RETURN OF INCOME FOR AY 2012-13 IN QUESTION DECLARING TOTAL INCOME AT RS.3,34,95,914/-. THE CA SE WAS SELECTED FOR SCRUTINY THROUGH CASS. IN RESPONSE TO THE QUER IES RAISED, THE ASSESSEE ATTENDED THE CASE FROM TIME-TO-TIME AND FI LED WRITTEN SUBMISSIONS. BOOKS OF ACCOUNTS WERE ALSO PRODUCED AND WERE TEST CHECKED AS PER PARA 2 OF THE ASSESSMENT ORDER. THE AO INTER ALIA ITA NO. 339/RPR/2016 (M/S. SANJAY AGRAWAL VS. DCIT) A.Y. 2012-13 - 3 - OBSERVED THAT THE GROSS RECEIPTS DECLARED BY THE AS SESSEE STANDS AT RS.95,04,23,092/-, INTEREST ON FDRS. RS.99,90,703/- AND MISCELLANEOUS INCOME OF RS.1,46,250/- TOTALING TO R S. 96,05,60,045/-. ON PERUSAL OF 26AS, IT WAS FOUND B Y THE AO THAT GROSS RECEIPT OF THE ASSESSEE WAS SHOWN TO BE RS.1, 02,87,55,059/-. CONSEQUENTLY, THE ASSESSEE WAS ASKED TO EXPLAIN THE DIFFERENCE AND MIS-MATCH. IN RESPONSE, THE ASSESSEE VIDE WRITTEN SUBMISSIONS STATED THAT THE DIFFERENCE WAS DUE TO DEDUCTION OF TDS BY THE PAYER ON ADVANCES WHICH DID NOT CRYSTALIZE INTO INCOME IN THE RELEVANT FINANCIAL YEAR. THE AO, HOWEVER, DID NOT AGREE WIT H THE EXPLANATION OFFERED BY THE ASSESSEE IN THIS REGARD AND SUBSTITUTED THE TOTAL RECEIPT AT RS.1,02,71,69,868/- AFTER GRAN TING DEDUCTION OF INTEREST INCOME. THE AO FURTHER APPLIED NET PROFIT @8% ON THE AFORESAID FIGURE WITHOUT REBUTTAL OF THE SUBMISSION S OF ASSESSEE AND WITHOUT CITING ANY REASONS WHATSOEVER IN ITS VERY B RIEF AND CRYPTIC ORDER. THE INCOME WAS EVENTUALLY ASSESSED AT RS.8, 10,16,240/-. 4. AGGRIEVED BY THE SUBSTITUTION AND ADOPTION OF RE CEIPTS AS APPEARING IN FORM 26AS IN PLACE OF ENTRIES SHOWN AS PER AUDITED BOOK AND ESTIMATION OF NET PROFIT THEREON @ 8% DISC ARDING THE BOOK RESULTS, THE ASSESSEE PREFERRED THE APPEAL BEFORE T HE CIT(A). 5. THE CIT(A), HOWEVER, WAS NOT PERSUADED BY THE SU BMISSIONS MADE BY THE ASSESSEE AND SUSTAINED THE ADDITION WIT HOUT GRANTING ANY RELIEF BY WAY OF A BRIEF AND LACONIC ORDER. 6. FURTHER AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE TRIBUNAL ON BOTH THE COUNTS I.E. (I) SUBSTITUTION O F GROSS RECEIPTS AS PER ANNUAL STATEMENT IN FORM 26AS GENERATED BY THE DEPARTMENT; & (II) ESTIMATION OF BUSINESS INCOME BY APPLYING @8% AT NET PROFIT RATE. ITA NO. 339/RPR/2016 (M/S. SANJAY AGRAWAL VS. DCIT) A.Y. 2012-13 - 4 - 7. WHEN THE MATTER WAS CALLED FOR HEARING, THE LEAR NED COUNSEL FOR THE ASSESSEE REITERATED THE FACTS SUBMITTED BEF ORE THE LOWER AUTHORITIES AND POINTED OUT THAT THE ASSESSEE FIRM IS ENGAGED IN CIVIL CONTRACT BUSINESS AS A GOVERNMENT CONTRACTOR CARRYI NG OUT CONSTRUCTION WORK ON BEHALF OF THE GOVERNMENT DEPAR TMENT AND PSUS. IN THIS BACKGROUND, THE LEARNED COUNSEL FIRS TLY SUBMITTED THAT THE DIFFERENCE IN THE GROSS RECEIPTS BETWEEN THE BO OKS OF ACCOUNTS AND THE ANNUAL STATEMENT OF THE DEPARTMENT (26AS) I S ON ACCOUNT OF TIMING DIFFERENCE IN RECOGNITION OF INCOME. 7.1 THE LEARNED COUNSEL POINTED OUT THAT THE ASSESS EE HAS RECOGNIZED THE INCOME WHEN THE RIGHT TO RECEIVE T HE INCOME HAS ACCRUED TO THE ASSESSEE AND THE AMOUNT HAS BECOME L EGALLY DUE TO THE ASSESSEE. THE DEDUCTOR/PAYER, ON THE OTHER HAN D, DEDUCTS TDS ON EVERY PAYMENT EITHER BY WAY OF ADVANCE OR BY WAY OF FINAL PAYMENT UNCONCERNED WITH OF ITS ACCRUAL AS INCOME I N THE HANDS OF THE DEDUCTEE (ASSESSEE). IT WAS SUBMITTED THAT MER E RECEIPT BY WAY OF ADVANCE WOULD NATURALLY BE SHOWN AS LIABILITY OF ASSESSEE AND WILL BE RECOGNIZED AS INCOME ONLY AT THE POINT OF T IME WHEN THE INCOME IS ACCRUED AND DUE TO THE ASSESSEE IN REALIT Y. THE ASSESSEE IS LIABLE TO RETURN THE ADVANCE IF THE WORK IS NOT PER FORMED AND THUS CANNOT BE RECOGNIZED AS INCOME MERELY ON THE EVENT OF ITS INWARD RECEIPTS. THE ANNUAL STATEMENT OF THE DEPARTMENT, HOWEVER CAPTURES ALL TRANSACTIONS OF RECEIPTS WHERE TDS HAS BEEN DED UCTED WITHOUT RECOGNISING THE FACTUM OF ACCRUAL OF INCOME. NOTWI THSTANDING RECEIPT OF MONEY, THE TAX LIABILITY WOULD ARISE IN LAW ONLY WHEN THE INCOME HAS ACCRUED IN REAL SENSE IN CONTRAST TO A M ERE RECEIPT BY WAY OF ADVANCE WHICH IS ONLY A CONTINGENT INCOME TI LL THE TIME CORRESPONDING WORK IS PERFORMED TO THE SATISFACTION OF THE CORRESPONDING PARTY. ITA NO. 339/RPR/2016 (M/S. SANJAY AGRAWAL VS. DCIT) A.Y. 2012-13 - 5 - 7.2 IT WAS THUS SUBMITTED THAT SUCH DIFFERENCE WOUL D ALWAYS ARISE IN ALMOST ALL CASES OF THE ASSESSEES OWING TO THE R EASONS OF OUTSTANDING WORK REMAINING AGAINST THE ADVANCES. T O SUPPORT SUCH CONTENTION, THE LEARNED COUNSEL SUBMITTED THAT PAST HISTORY WOULD INDICATE THAT HIGHER AMOUNT HAS BEEN RECOGNIZED IN THE BOOKS ON ACCOUNT OF SUCH CONTRACT RECEIPTS WHEREAS THE ACTUA L RECEIPTS IN THESE YEARS AS PER FORM 26AS WERE COMPARATIVELY LES SER FOLLOWING THE ONGOING ACCOUNTING PRACTICES. THE SITUATION IS DISADVANTAGEOUS TO ASSESSEE. HOWEVER, INCOME HAS BEEN RECOGNIZED A S AND WHEN ADVANCE OF THE EARLIER YEARS MATERIALIZED AS INCOME IN THE SUBSEQUENT YEARS. PAGE NO. 492 OF PAPER BOOK-2 SHO WING YEAR-WISE COMPARISON OF GROSS RECEIPTS AS PER BOOKS QUA TURNOVER AS 26AS WAS REFERRED TO DEMONSTRATE THE POINT IN ISSUE. FURTHE R, ON FACTS, IT WAS SUBMITTED WITH REFERENCE TO PAGE NOS. 496 & 497 OF PAPER BOOK THAT WHEN SEEN CUMULATIVELY FOR A.Y. 2011-12, 2012-13 & 2013-14, THE INCOME REPORTED DUE TO SUCH POLICY HAS EXCEEDED THE INCOME AS PER 26AS BY RS.12,92,345/- AND THUS ACTION OF ASSESSEE IS PREJUDICIAL TO HIM AND NOT TO THE REVENUE OVER A LONGER PERIOD. S IMILARLY REFERENCE WAS MADE TO ELABORATE SUBMISSION MADE BEF ORE CIT(A) IN THIS REGARD. IT WAS THUS SUBMITTED THAT THE AMOUNT RECEIVED BY WAY OF ADVANCE WOULD BE REPORTED IN THE YEAR AS INCOME AS AND WHEN THE INCOME ACCRUES AND BECOMES DUE AS PER ACCOUNTING PO LICY CONSISTENTLY FOLLOWED AND WHICH IS A PERENNIAL EXER CISE. THE ACCOUNTS ARE AUDITED AND THE AMOUNTS HAVE BEEN RECE IVED FROM GOVERNMENT ORGANIZATIONS WHICH OVERRIDING FACT SHOU LD ALSO BE BORNE IN MIND. 7.3 IT WAS NEXT CONTENDED THAT THE ACTION OF THE AO IN SUBSTITUTING THE TURNOVER WOULD RESULT IN DOUBLE TAXATION OF THE SAME INCOME ONCE IN THE YEAR OF ADVANCE RECEIVED AND LATER WHEN THE RECEIPT IS RECOGNIZED AS INCOME ON PERFORMANCE OF WORK. ITA NO. 339/RPR/2016 (M/S. SANJAY AGRAWAL VS. DCIT) A.Y. 2012-13 - 6 - 8. THE LEARNED DR FOR THE REVENUE, ON THE OTHER HAN D, RELIED UPON THE ACTION OF THE LOWER AUTHORITIES. 9. IT MAY BE IN A FITNESS OF THINGS TO ADDRESS THE ISSUE AT THIS STAGE ITSELF. THE ASSESSEE HAS DEMONSTRATED ON FAC TS THAT AS PER THE METHOD OF ACCOUNTING ADOPTED BY HIM ACCRUAL OF INCO ME IS THE KEY FOR IT BE A TAXABLE EVENT. ACCRUAL OF INCOME DEPEN DS ON REALIZATION AND CONVERSION OF ADVANCE TO INCOME AS MAY BE LEGAL LY DUE TO IT ON COMPLETION OF CORRESPONDING WORK. THE MISMATCH IS THUS CONTINUING RIGHT FROM A.Y. 2004-05 ONWARDS AS DEMON STRATED IN THE TABULAR STATEMENT. IN THE LIGHT OF FACTUAL DEMONST RATION OF THE ACCOUNTING PRACTICES ADOPTED BY THE ASSESSEE WHERE ADVANCE RECEIPTS ARE RECOGNIZED AS INCOME ON EXECUTION OF WORK, ACCO UNTS BEING AUDITED, RECEIPTS FROM GOVERNMENT COMPANIES, ETC., WE FIND THE REASONS FOR MISMATCH TO BE QUITE CONVINCING AND IN SYNC WITH THE ACCOUNTING PRACTICES AS WELL AS GROUND REALITIES PR EVAILING IN THIS REGARD. 9.1 WHEN THE DOCTRINE OF REAL INCOME THEORY IS APPL IED, THE INCOME WOULD ACCRUE TO AN ASSESSEE ONLY WHEN THE RI GHT TO RECEIVE THE INCOME GETS CRYSTALLIZED. MERE RECEIPT OF MONE Y BY WAY OF ADVANCE DOES NOT AUTOMATICALLY BECOME THE INCOME OF THE ASSESSEE PER SE WITHOUT DOING THE WORK FOR WHICH THE MONEY WAS RECE IVED. WHAT SHOULD BE CONSIDERED IS WHETHER THE INCOME WAS REALISTICALLY MATERIALIZED OR RESULTED TO THE ASSESSEE OR NOT. I NCOME TAX IS TAX AS REAL INCOME UNLESS THE POSITION STANDS ALTERED BY A DEEMING FICTION IN THE ACT. 9.2 WE THUS SEE FORCE IN THE PLEA OF THE ASSESSEE A ND HENCE SET ASIDE AND CANCEL THE ACTIONS OF THE AO AND CIT(A) O N THIS SCORE. THE RECEIPTS/SALES TAKEN BY THE ASSESSEE AS PER BOO KS OVERRIDES THE ANNUAL STATEMENT (26AS) AND IS THUS RESTORED. ITA NO. 339/RPR/2016 (M/S. SANJAY AGRAWAL VS. DCIT) A.Y. 2012-13 - 7 - 10. SECOND ISSUE RELATES TO ESTIMATION OF NET PROFI T BY APPLYING 8% OF THE CONTRACT RECEIPTS. THE LEARNED COUNSEL F OR THE ASSESSEE, AT THE OUTSET, SUBMITTED THAT THERE IS NO JUSTIFICATIO N WHATSOEVER FOR ESTIMATION OF INCOME BY APPLYING @ 8% AS NET PROFIT ARBITRARILY AND WITHOUT ANY LOGICAL BASIS DISREGARDING ACTUAL BOOK RESULTS. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT T HE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE AUDITED AND PRODUCED B EFORE THE AO. THE AO HIMSELF AVERRED THAT THE BOOKS PRODUCED WERE ALSO TEST CHECKED. HOWEVER, THERE IS NO REFERENCE OF ANY DEF ECT IN THE BOOKS WHATSOEVER. THE AO HAS SIMPLY SUBSTITUTED THE NET PROFIT @ 8% AS AGAINST THE ACTUAL PROFIT DECLARED BY THE ASSESSEE WITHOUT CITING ANY REASON FOR DISLODGING THE ACTUAL BOOK RESULTS. 11. ADVERTING FURTHER, THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT WHILE ESTIMATING THE NET INCOME FROM THE B USINESS, THE AO TOTALLY DISREGARDED THE BOOK RESULTS AND WAS LARGEL Y INFLUENCED BY THE OUTCOME OF SEARCH ASSESSMENT PROCEEDINGS WHICH WERE COMPLETED IN THE CASE OF THE ASSESSEE INVOLVING A.Y S. 2005-06 TO 2011-12. IN REBUTTAL, IT WAS SUBMITTED THAT WHILE NET PROFIT @ 8% WAS OFFERED IN SEARCH ASSESSMENT, THE SAME CANNOT B E APPLIED MECHANICALLY & PERFUNCTORILY. IT WAS CONTENDED THA T EVERY ASSESSMENT YEAR IS INDEPENDENT AND SELF-CONTAINED A ND HENCE BOOK RESULTS OF ONE YEAR CANNOT BE APPLIED TO THE OTHER YEAR WITHOUT SHOWING SPECIFIC DEFECTS. IT WAS CONTENDED THAT IT IS ELEMENTARY THAT DYNAMICS OF BUSINESS GETS INFLUENCED BY VARIETY OF FACTORS PECULIAR TO A BUSINESS AS ALSO DEMAND AND SUPPLY ENVIRONMENT . THE BROAD ARGUMENT RAISED ON BEHALF OF THE ASSESSEE ARE LISTE D HEREUNDER: (I) THE PRINCIPLES OF RES JUDICATA DO NOT APPLY TO THE INCOME TAX PROCEEDINGS AND EACH ASSESSMENT IS A SEPARATE ASSES SMENT AS HELD IN SEVERAL DECISIONS INCLUDING BHARAT SANCHAR NIGAM LTD. AND ANOTHER ITA NO. 339/RPR/2016 (M/S. SANJAY AGRAWAL VS. DCIT) A.Y. 2012-13 - 8 - V. UNION OF INDIA (2006) 282 ITR 273 (SC); ITO V. M URLIDHAR BHAGWAN DAS [1964] 52 ITR 335 (SC). (II) EVEN WHERE THE BEST JUDGMENT ASSESSMENT IS FRA MED, THE SAME IS TO BE DONE ON SOME REASONABLE BASIS AND CANNOT B E DONE IN A VINDICTIVE MANNER. FOR THIS PROPOSITION, FOLLOWING DECISIONS WERE REFERRED AND RELIED UPON: (A) STATE OF KERALA VS. C. VELUKUTY (1966) 60 ITR 2 39 (SC); (B) BRIJ BHUSHAN LAL PARDUMAN KUMAR VS. CIT 1978 CT R (SC) 134; (C) DHAKESWARI COTTON MILLS LTD. VS. CIT (1954) 26 ITR 0775 (SC); (D) STATE OF ORISSA VS. MAHARAJA SHRI B. P. SINGH D EO (1970) 76 ITR 690(SC); (III) THE NET PROFIT RATE DOES NOT REMAIN STATIC WI TH MATHEMATICAL PRECESSION AND FINDINGS REACHED AND CONCLUSIONS DRA WN IN ANY PRECEDING ASSESSMENT CANNOT BE THE SOLE BASIS FOR S UBSEQUENT ASSESSMENT. IN SUPPORT OF THIS PROPOSITION, FOLLOW ING DECISIONS WERE REFERRED AND RELIED UPON: (A) CIT VS. WINNER CONSTRUCTIONS PVT. LTD. (2012) 8 1 CCH 0091 HC DEL.; (B) ITO VS. SHRI SRAWAN KUMAR ARORA ITA NO . 144/BLPR/2011 (RAIPUR TRIBUNAL); (C) ACIT VS. RAMESH STEEL INDUSTRIES ITA NO. 145/BLPR/2011 (RAIPUR TRIBUNAL) (D) M/S SHRI SHAKTI MINERALS INDUSTRIES VS. ACIT IT A NO. 67/BLPR/2011 OF RAIPUR TRIBUNAL; (IV) THE CO-ORDINATE BENCHES HAVE, AT TIMES, ESTIMA TED THE NET INCOME IN CASE OF SIMILARLY PLACED OTHER ASSESSEE E NGAGED IN SIMILAR BUSINESS AT A MUCH LOWER RATE THAN WHAT HAS BEEN AP PLIED BY THE AO IN THE PRESENT CASE, DESPITE INSTANCES OF PALPABLE DEFECTS. FOLLOWING DECISIONS WERE REFERRED AND RELIED UPON: (A) DCIT VS. M/S. A. P. NIRMAN LTD. ITA NO.139/RPR/ 2015 ORDER DATED 08.03.2018 A.Y. 2010-11 NP RATE ESTIMATED AT 1.85% (B) DCIT VS. SHRI RAJESH MAKHIJANI ITA NO.355/RPR/2 014 ORDER DATED 17.01.2018 A.Y. 2010-11 NP RATE ESTIMATED AT 3.50% (C) DCIT VS. SHYAM INFRATECH ITA NO.388/RPR/2014 OR DER DATED 18.01.2018 A.Y. 2010-11 NP RATE ESTIMATED AT 2.75% ITA NO. 339/RPR/2016 (M/S. SANJAY AGRAWAL VS. DCIT) A.Y. 2012-13 - 9 - (D) M/S. G. N. CONSTRUCTION VS. ITO ITA NO.270/RPR/ 2014 ORDER DATED 16.04.2018 A.Y. 2011-12 NP RATE ESTIMATED AT 3.30% (V) THE TURNOVER OF THE ASSESSEE FIRM IS FAR MORE T HAN THE TURNOVER OF THE COMPARABLE CASES CITED ABOVE AND THEREFORE, THE PROFITABILITY IN HIGHER VOLUME ORDINARILY IS LOWER AND THE PROFIT S ORDINARILY DIMINISH WITH THE INCREASE IN THE TURNOVER. (VI) THE OUTCOME OF THE SUBSEQUENT ASSESSMENT PROCE EDINGS IN THE CASE OF ASSESSEE WOULD SHOW THAT THE RETURNED INCOM E OF THE ASSESSE WAS ACCEPTED BY THE AO IN THE SCRUTINY ASSESSMENT C OMPLETED UNDER S.143(3) OF THE ACT FOR A.YS. 2016-17 AND 2017-18 W HEREIN THE NET PROFIT RATE AFTER ALL DEDUCTIONS ON ACCOUNT OF PART NERS REMUNERATION AND INTERESTS, DEPRECIATION AND FINANCE COST HAS BE EN ACCEPTED AT 2.19% IN A.Y. 2016-17 AND 1.10% IN ASSESSMENT OF A. Y. 2017-18. IT WAS THUS STATED IN CONCLUDING REMARKS THAT IN TH E ABSENCE OF ANY DEFECTS IN THE BOOKS DESPITE ITS PRODUCTION BEFORE THE AO, THE BOOK RESULTS COULD NOT HAVE BEEN DISCARDED BY THE AO. T HE ONUS CAST UPON THE REVENUE IN THIS REGARD IS NOT DISCHARGED. THE ACTION OF THE REVENUE IN ADOPTING THE NET PROFIT @ 8% MERELY ON A CCOUNT OF DECLARATIONS MADE IN THE SEARCH ASSESSMENT IN SOME EARLIER YEARS IS WHOLLY UNJUSTIFIABLE AND ARBITRARY. SUCH ACTION IS NEITHER INCONSONANCE WITH LAW NOR IN ACCORD WITH THE VIEW T AKEN BY THE AO IN THE SUBSEQUENT ASSESSMENT YEARS. THE LEARNED CO UNSEL ACCORDINGLY URGED FOR RESTORATION OF BOOK RESULTS A S DECLARED BY THE ASSESSEE. 12. WE HAVE PERUSED THE ASSESSMENT ORDER AND THE FI RST APPELLATE ORDER. BOTH THE ORDERS ARE TOTALLY NON-DESCRIPT AN D HAS NOTHING WORTH TO SAY FOR SUBSTITUTION OF BOOK RESULTS WITH ESTIMATED PROFITS. NOTICEABLY, IN THE ASSESSMENT ORDER, THE AO HAS CAT EGORICALLY MADE AN AVERMENT TO THE EFFECT THAT BOOKS OF ACCOUNTS HA VE BEEN PRODUCED BY THE ASSESSEE AND TEST CHECKED. THE AO HAS NOT M ADE MENTION OF ITA NO. 339/RPR/2016 (M/S. SANJAY AGRAWAL VS. DCIT) A.Y. 2012-13 - 10 - ANY MATERIAL WHICH COULD QUESTIONS THE CORRECTNESS AND BONAFIDE OF THE BOOK RESULTS DECLARED. THE AO IS STOICALLY SIL ENT ON ANY KIND OF DEFICIENCY IN BOOKS OR EXCESSIVE CLAIM OF ANY EXPEN SES ETC. WHICH COULD SUBSTANTIATE HIS ACTION. IT IS INCUMBENT UPO N THE AO TO RECORD THE INCONSISTENCY OR INCORRECTNESS IN THE BOOKS WHI CH PREVENTS THE AO TO ASCERTAIN TRUE INCOME CHARGEABLE TO TAX. THE AO HAS NEITHER REJECTED THE BOOKS NOR A SINGLE VOUCHER WAS ALLEGED TO BE UNVERIFIABLE. IN IDENTICALLY PLACED FACT SITUATION , THE HONBLE CALCUTTA HIGH COURT IN M/S. SWADESHI COMMERCIAL CO. LTD. VS. CIT ITA NO. 219 OF 2001 JUDGMENT DATED 18 TH DECEMBER, 2008 CONCLUDED THAT IN THE ABSENCE OF REJECTION OF BOOKS, THE ESTI MATION OF PROFIT IS ARBITRARY, UNREASONABLE AND PERVERSE. IN CIT VS. ANIL KUMAR & CO. (2016) 386 ITR 702 (KAR.) , THE HONBLE HIGH COURT ONCE AGAIN ECHOED THE SAME VIEW EVEN WHILE FRAMING BEST JUDGME NT ASSESSMENT. IDENTICAL VIEW HAS BEEN TAKEN IN LARGE NUMBER OF CA SES QUOTED ON BEHALF OF THE ASSESSEE AND MANY MORE. THE PRE-COND ITION FOR ESTIMATING BUSINESS INCOME, WHERE THE ASSESSEE MAIN TAINS BOOKS OF ACCOUNT IS THAT THE BOOKS OF ASSESSEE SHOULD BE FOU ND TO BE UNRELIABLE OR OTHERWISE NOT REALISTICALLY CAPABLE F OR DEMONSTRATING THE INCOME OF ASSESSEE. WITHOUT THIS FIRST STEP, T HE FACT THAT THE GROSS PROFIT/NET PROFIT IS LOW CANNOT BY ITSELF BE A GROUND FOR TAKING A VIEW THAT IT IS OPEN TO THE AO TO MAKE GOOD ALLEG ED DEFICIENCY IN PROFITS DECLARED. THUS, THE ACTION OF THE AO REQUI RES TO BE CANCELLED AND SET ASIDE ON THIS SCORE ALONE BEING D EVOID OF ANY LEGITIMACY. 13. ADVERTING FURTHER, WE FIND FORCE IN THE OTHER L INE OF ARGUMENT THAT GROSS PROFIT RATE/NET PROFIT RATE CANNOT BE ES TIMATED CURSORILY AND IN A ROUTINE MANNER WITHOUT SHOWING AS TO HOW T HE BOOK RESULTS ARE SUPERFLUOUS. THE AO HAS NOT BROUGHT ANY MATERI AL WHICH HAS ANY REASONABLE NEXUS TO THE ESTIMATION. AS RIGHTLY STATED ON BEHALF OF THE ASSESSEE, EVEN THE BEST JUDGMENT ASSESSMENT CANNOT BE DONE ITA NO. 339/RPR/2016 (M/S. SANJAY AGRAWAL VS. DCIT) A.Y. 2012-13 - 11 - IN A VINDICTIVE MANNER AND SHOULD BE BASED ON REASO NABLE AND FAIR ESTIMATIONS. NEEDLESS TO SAY, LOW PROFIT IS NEITHE R THE CIRCUMSTANCE NOR THE REASON TO JUSTIFY THE ESTIMATION AT SOME HI GHER PERCENTAGE. A HIGHER PROFIT IN THE EARLIER YEAR OR IN THE SUBSE QUENT YEAR COULD BE DEDUCIBLE BASED ON ITS OWN SET OF FACTS. AN ADOPTI ON OF THE NET PROFIT RATE OF SOME OTHER YEARS IS ONLY FOR THE PUR POSES OF FAIR ESTIMATE FOR WHICH OBJECTIVE REASONS MUST BE AVAILA BLE WITH THE AO. THE AO IN THE INSTANT CASE HAS NOT CROSSED THE BARR IER TO ENABLE IT TO GO INTO ARENA OF ESTIMATION. THE ESTIMATION IS PER MISSIBLE ONLY ON SHOWING THAT THE BOOKS OF ACCOUNTS ARE SO DEFECTIVE THAT IT IS NOT POSSIBLE TO ASCERTAIN THE TRUTHFULNESS OF THE PROFI TS ARISING THEREFROM. 14. THE CO-ORDINATE BENCH IN ITO VS. SHRI SHRAVAN KUMAR ARORA ITA NO. 144/BLPR/2011 HAS MADE INTERESTING OBSERVATION AND RECORDED THAT THERE IS NO RULE THAT THE GROSS PROF IT RATIO SHOULD FOLLOWED AS NOTED HEREUNDER: THERE IS NO RULE THAT THE GROSS PROFIT RATIO SHOUL D FOLLOW A CONSTANT RATIO WITH MATHEMATICAL PRECISION. WE FURTHER NOTE THAT THERE HAS BEEN A HUGE AND OVER 100% INCREASE IN THE TURNOVER AS CO MPARED TO PRECEDING YEAR. HENCE, THE EXPLANATION THAT INCREAS E IN TURNOVER HAS AFFECTED MARGIN CANNOT BE BRUSHED ASIDE. IN THESE C IRCUMSTANCES, WE UPHOLD THE ORDER OF THE LEARNED CIT(A) AND DELETE T HE ADDITION OF 4.77 LAKHS ON ACCOUNT OF LOW GROSS PROFIT. 15. IN ACIT VS. RAMESH INDUSTRIES LTD., THE CO-ORDINATE BENCH HAS OBSERVED AS UNDER: THE GRAPH OF THE BUSINESS PROFIT IS ALWAYS NOT STR AIGHT LINE BUT IT FLUCTUATES YEAR TO YEAR. THE REASONS FOR FLUCTUATIO NS AS GIVEN BY THE ASSESSEE THAT THERE WAS HIGHER EXPENDITURE OF ELECT RICITY, STATED TO BE MAIN INGREDIENT FOR THE MANUFACTURING OF STEEL PROD UCTS & MS INGOTS. IT IS WORTH TO MENTION THAT THE AO HAS NOT GIVEN ANY S PECIFIC REASON FOR REJECTION OF BOOKS OF ACCOUNTS. WHEN THE DAY TO DAY CONSUMPTION REGISTER WAS MAINTAINED AND THE SALE/PURCHASE WERE STATED TO BE VERIFIABLE BY SUPPORTING BILLS/VOUCHERS, HENCE, INV OKING OF THE PROVISIONS OF SEC 145 THAT TOO IN A CURSIVE MANNER WAS NOT APPRECIABLE IN THE EYE OF LAW. ITA NO. 339/RPR/2016 (M/S. SANJAY AGRAWAL VS. DCIT) A.Y. 2012-13 - 12 - 16. TO REITERATE, THERE ARE LARGE NUMBER OF DECISIO NS WHICH SAY IN UNISON THAT AO CANNOT ESTIMATE GROSS PROFIT RATE WI THOUT REJECTION OF BOOKS AND WITHOUT SHOWING DEFECTS. IN CIT V. PARADISE HOLIDAYS [2010] 325 ITR 13 (DELHI) , THE HON'BLE DELHI HIGH COURT HAS HELD THAT IF ACCOUNTS WHICH ARE REGULARLY MAINTAINED IN THE COURSE OF BUSINESS AND ARE DULY AUDITED, FREE FROM ANY QUALIF ICATION BY THE AUDITORS, SHOULD NORMALLY BE TAKEN AS CORRECT UNLES S THERE ARE ADEQUATE REASONS TO INDICATE THAT THEY ARE INCORREC T OR UNRELIABLE. THE ONUS IS UPON THE REVENUE TO SHOW THAT EITHER TH E BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE INCORRECT O R INCOMPLETE OR THAT THE METHOD OF ACCOUNTING ADOPTED BY HIM WAS SU CH THAT TRUE PROFITS OF THE ASSESSEE CANNOT BE DEDUCED THEREFROM . FOR REJECTION OF BOOKS OF ACCOUNTS, THE AO IS REQUIRED TO DEMONST RATE SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS PRODUCED BY THE AS SESSEE AND ALSO AS TO HOW THE BOOKS OF ACCOUNTS PRODUCED BY THE ASS ESSEE IS NOT GIVING CLEAR PICTURE OF THE PROFIT EARNED FROM THE BUSINESS ACTIVITY. IN THE ABSENCE OF SUCH FINDING, THE BOOKS OF ACCOUN TS CANNOT BE REJECTED AND THE ADDITION CANNOT BE SUSTAINED ON TH E BASIS OF SUCH REJECTION OF BOOKS OF ACCOUNTS. EVEN WHERE THE BOO KS ARE REJECTED, THE DISCRETION MUST BE USED BY THE AO JUDICIOUSLY. WE ALSO FIND CONSIDERABLE SUBSTANCE IN THE PLEA OF THE ASSESSEE FOR NOT INDULGING ESTIMATES OF SUCH WHOPPING NATURE PARTICULARLY WHEN LESSER NET PROFIT RATES OF 2.19% AND 1.10% DECLARED IN A.Y. 20 16-17 AND A.Y. 2017-18 HAS BEEN ENDORSED BY THE REVENUE ITSELF IN REGULAR ASSESSMENTS. 17. HENCE, ON GIVING DUE WEIGHTAGE TO THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND MERIT IN THE PLE A OF THE ASSESSEE FOR REVERSAL OF ITS CONSEQUENT SUBSTITUTION BY THE ACTUAL INCOME AS PER BOOKS AS OFFERED. THUS, WE REVERSE THE ACTION OF THE LOWER AUTHORITIES AND RESTORE THE POSITION OF THE ASSESSE E. ITA NO. 339/RPR/2016 (M/S. SANJAY AGRAWAL VS. DCIT) A.Y. 2012-13 - 13 - 18. WHILE ARRIVING AT SUCH CONCLUSION, WE ALSO OBSE RVE THAT INTEREST INCOME EARNED ON FDR BEING INEXTRICABLY LI NKED TO THE BUSINESS OF THE ASSESSEE AND BEARING DIRECT NEXUS W ITH THE BUSINESS WHERE THE FDR IS USED AS SECURITY, THE ACTION OF TH E AO IN MAKING SEPARATE ADDITION ON ACCOUNT OF INTEREST INCOME IS NOT SUSTAINABLE IN LAW. SIMILARLY, SEPARATE ADDITION ON ACCOUNT OF MI SCELLANEOUS INCOME WHICH IS ALREADY FORMING PART OF THE P&L ACC OUNT IS NOT SUSTAINABLE. 19. IN VIEW OF THE ABOVE DISCUSSION, WE FIND SUBSTA NTIAL MERIT IN THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE. THE ADDITIONS MADE IN THE ASSESSMENT ORDER DATED 30.03.2015 UNDER CHALLEN GE ARE THUS QUASHED. 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. SD/- SD/- (N. K. CHOUDHRY) (PRADIP KUMA R KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER RAIPUR TRUE COPY S. K. SINHA / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 / DR, ITAT, RAIPUR 5. 267 8 / GUARD FILE. BY ORDER 4 SR. PRIVATE SECRETARY ITAT 4 RAIPUR (ON TOUR) ORDER PRONOUNCED ON 24 / 09/2021 BY PLACING THE RESULT ON THE NOTICE BOARD AS PER RULE 34(5) OF THE INCOME TAX (A PPELLATE TRIBUNAL) RULE, 1963.