THE DCIT-AKOLA-CIRCLE, Akola V. M/S SHRI Shri Palsidhha Constructions, Buldhana

ITA 465/NAG/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1646 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 27-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Keywords: Rejection of books of accounts
• Section: 44AD; 194C; 145

Judgement Text

1 ITA NO. 465/NAG/2013 . IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO.465//NAG/2013 ASSESSMENT YEAR : 2010 - 11 DY. COMMISSIONER OF INCOME - TAX, M/S SHRI PALSIDHHA CONSTRUCTIONS, AKOLA CIRCLE, AKOLA. VS. DWARKA SHENDURJAN ROAD, AAKHARKHED A, TAL. SINDKHED RAJA., DIST. BULDHANA. PANABLFS 9009H. APPELLANT. RESPONDENT. APPELLANT BY : SHRI NARENDRA KANE. RESPONDENT BY : SHRI MAHAVIR ATAL. DATE OF HEARING : 17 - 08 - 2015 DATE OF PRONOUNCEMENT : 24 09 2015 O R D E R PER SHAMIM YAHYA, A.M. . THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - I, NAGPUR DATED 25 - 09 - 2013 AND PERTAINS TO ASSESSMENT YEAR 2010 - 11. THE GROUNDS OF APPEAL READ AS UNDER : 1 . ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW , THE CLT(A) ERRED IN LAW AND FAC T I N ALLOW I NG THE APPEAL OF THE ASSESSEE BY NOT APPRECIATING THE REASONS GIVEN FOR REJECTING THE BOOKS OF THE ASSESSEE BY THE AO BY POINTING OUT SEVERAL DEFICIENCIES IN THE BOOKS OF ACCOUNTS . 2 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE C IT(A) ERRED IN ALLOWING THEAPPEAL OF THE ASSESSEE BY NOT APPRECIATING THE RATIO LAID DOWN IN THE CASE OF MIS RAMCHANDER SINGH RAMNIKLAL VIS CLT 42 ITR 780 (PATNA) WHICH IS SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE WITH REGARDS TO REJECTION OF BOOKS OF ACCOUNTS ; 2 ITA NO. 465/NAG/2013 . 3 . ON THE FACTS AND A CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN ALLOWING THE A PPEAL OF THE ASSESSEE BY NOT APPRECIATING THE RATIO LAID DOWN IN THE CASE OF MIS ARIHANT BUILDERS DEVELOPERS AND INVESTORS (P) LTD. VS ACIT (ITAT - IN DORE SB) 106 ITD 10 WITH REGARDS TO APPLICATION OF 8% AS NET PROFIT OF THE BUSINESS AFTER REJECTION OF BOOKS OF ACCOUNTS. 2. IN THIS CASE UPON EXAMINING THE BOOKS OF THE ASSESSEE AND SEEKING ASSESSEES RESPONSES AO INFERRED THAT THE ASSESSEE HAS WORKED O UT THE WORK IN PROGRESS ON CASH BASIS AND THE EXPENSES ACTUALLY INCURRED AND SHOWN AS PAYABLE I N RESPECT OF UNBILLED AND INCOMPLETE WORK HAVE NOT BEEN TAKEN INTO ACCOUNT WHILE VALUING THE WORK IN PROGRESS. THE AO THUS OBSERVED THAT CLOSING WORK IN PROGRESS IS NOT REFLECTED IN THE ACCOUNTS ON THE BASIS OF MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE, PROFIT DECLARED BY THE APPELLANT AT RS. 2,41,56,235/ - IS NOT THE TRUE REFLECTION OF ITS BUSINESS AFFAIRS. THE AO ACCORDINGLY PROPOSED TO REJECT THE BOOK RESULTS U /S 1 45 OF THE ACT AND ESTIMATED THE NET PROFIT @ 8% AS AGAINST 6.95% DECLARED BY THE APPELLANT. THE AO ACCORDINGLY ISSUED A SHOW - CAUSE NOTICE TO THE ASSESSEE ASKING THE ASSESSEE TO EXPLAIN WHY THE NET PROFIT SHOULD NOT BE ESTIMATED @ 8% OF TOTAL TURNOVER O F RS. 37,99,00,855/ - WHICH WORKS OUT TO RS. 3, 03, 92, 068/ THE AO IN THIS REGARD PLACED RELIANCE IN THE CASE OF BRITISH PAINTS (I) LIMITED 188 ITR 44 (SC). 2.1 IN RESPONSE TO THE AFORESAID SHOW - CAUSE NOTICE I N HIS SUBMISSIONS THE ASSESSEE REITERATED THAT BECAUSE OF PECULIAR NATURE OF BUSINESS IT IS NOT POSSIBLE TO CALCULATE THE ACTUAL WORK IN PROGRESS AND AS PER THE PROCEDURE BEING FOLLOWED SINCE INCEPTION THE WIP IS VALUED AS PER ACTUAL CLOSING STOCK AT SITE AT COST. AS REGARDS TO THE EXPENSES, THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE SAME HAVE ACTUALLY BEEN INCURRED AND COPIES O F AGREEMENTS 3 ITA NO. 465/NAG/2013 . EXECUTED WITH THE CONTRACTORS ALONG WITH THE CONFIRMATION LETTERS WERE FILED AND SUCH OUTSTANDING EXPENSES HAVE BEEN PAID IN THE NEXT FI NANCIAL YEAR. THE PAYMENT OF OUTSTANDING EXPENSES AS ON 31.03.2010 WERE PAID TO THE SUB CONTRACTORS AS PER THE AGREEMENTS EXECUTED WITH THEM FOR CARR YI NQ OUT THE CONTRACT WORK AND THE TDS AS PER SECTION 194C HAD BEEN DEDUCTED AND DEPOSITED TO GOVERNME NT ACCOUNT. THE ASSESSEE THUS PLEADED THAT LOOKING TO THE NATURE OF BUSINESS OF CIVIL CONTRACTOR, MEASUREMENT OF EACH WORK EXECUTED BY THE SUB CONTRACTOR AND MEASUREMENT OF QUANTUM OF WORK EXECUTED BY WORKERS TO WHOM WAGES WERE PAID LS NOT PRACTICALLY POSSIBLE, THEREFORE, VALUATION OF WIP LS DONE AT SITE FOR CLOSING STOCK AT COST. FINALLY THE ASSESSEE CONTENDED THAT IT HAS MAINTAINED THE REGULAR BOOKS OF ACCOUNT AND PRESERVED THE BILLS AND VOUCHERS AND SUCH BOOKS OF ACCOUNTS HAVE DULY BEEN AUDITED BY THE AUDITOR. 3. THE AO HOWEVER, DECLINED TO AGREE WITH THE CONTENTIONS OF THE APPELLANT, T HE AO REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145(2) OF THE ACT AND ESTIMATED THE NET PROFIT @ 8% OF THE GROSS RECEIPTS OF THE ASSESSEE WHICH RESULTED INTO AN ADDITION OF ` 62,35,833/ - . THE AO IN THIS REGARD HAS RELIED ON THE FOLLOWING JUDICIAL DECISIONS: 1. M/S ARIHANT BUILDERS, DEVELOPERS AND INVESTORS (P) LTD. VS. ACIT 2. RAMCHANDER SINGH RAMNIK LAL VS. CIT 42 ITR 780 (PATNA). 4. UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) OBSERVED THAT THE TOTAL TURNOVER OF THE APPELLANT DURING THE RELEVANT FINANCIAL YEAR IS RS. 37, 4 ITA NO. 465/NAG/2013 . 99, 00,855/ - THE APPELLANT HAS MAINTAINED THE REGULAR BOOKS OF ACCOUNT ALONG WITH VOUCHERS AND SUCH BOOKS OF ACCOUNTS HAVE DULY BEEN AUDITED BY THE AUDITOR.THE APPELLANT SINCE INCEPTION HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING WHICH IS REFLECTED IN THE BOOKS OF ACCOUNT MAINTAINED BY THE APPELLANT FOR THE PURPOSE OF HIS BUSINESS. THE APPELLANT HAS MAINTAINED ALL THE BOOKS OF A CCOUNT REQUIRED FOR HIS BUSINESS AS PER THE ACCOUNTING STANDARDS PRESCRIBED BY ICAI. THE SUBMISSION FILED BY THE AR OF THE APPELLANT SHOWS COMPARATIVE FIGURES OF NET PROFIT DECLARED BY THE APPELLANT IN THE LAST 4 YEARS AS UNDER: COMPARATIVE FIGURES FOR NET PROFIT SHOWN I SR.NO. PARTICULAR 2008 - 09 2009 .... 10 2010 - 11 2011 - 12 ..... L. GROSS RECEIPTS 20.60CR 37.99CR 35.37CR 32.71CR 2. GP RATIO 11.90% 10.64% 11.32% 16.67% 3. NET PROFIT 1.32CR 2.41CR 2.20CR 2.45CR 4. NP RATIO 6.42% 6.35% 6.95% 6.74% THAT I T IS SEEN FROM THE ABOVE THAT THE NET PROFIT RATIO IN THE CASE OF THE APPELLANT IN THE PAST 4 YEARS HAS BEEN R ANGI NG BETWEEN 6.35% TO 6.95%. THAT I N THE YEAR UNDER APPEAL THE NP RATIO DECLARED BY THE APPELLANT IS 6.95% WHICH IS THE HIGHEST ~IN THE PAST 4 YEARS. THAT I T THUS TRANSPIRES FROM THE ABOVE THAT THE PROFITS DECLARED BY THE APPELLANT HAVE BEEN DEDUCED FROM THE AUDITED BOOKS OF ACCOUNT MAINTAINED BY THE APPELLANT WHICH HAVE BEEN ACCEPTED BY THE DEPARTMENT IN THE EARLIER YEARS, THEREFORE, INVOKING THE PROVISION S OF SECTION 145 (3) I N THE YEAR AND THE APPEAL IS NOT JUSTIFIED IN AS MUCH AS THAT THE BOOKS OF THE APPELLANT ARE COMPLETED IN ALL RESPECTS WHICH HAVE DULY BEEN AUDITED AND THE NET 5 ITA NO. 465/NAG/2013 . RESULTS OF PROFIT COULD BE DEDUCED THERE FROM WITHOUT ANY COMPLEXITY. THAT I T IS SIGNIFICANT TO MENTION HERE THAT THE APPELLANT IN THE COURSE OF ASSESSMENT PROCEEDINGS PRODUCED THE AU DITED BOOKS OF ACCOUNT AND VOUCHERS BEFORE THE AO WHICH WERE VERIFIED AND EXAMINED BY THE AO. THAT T HE AO, HOWEVER, HAS ESTIMATED THE NET PROFIT @8% IN THE LINE OF THE PROVISIONS OF SECTION 44AD OF THE ACT. BUT, THE CASE OF THE APPELLANT AS SUCH IS OUTSID E THE AMBIT OF PROVISIONS OF SECTION 44AD AS THE TURNOVER OF THE ASSESSEE IS 37.99 CRS. AND THE BOOKS OF THE APPELLANT ARE LIABLE TO BE AUDITED AND DULY AUDITED ACCORDINGLY WHEREAS, THE SAID PROVISIONS OF SECTION 44AD CAN BE APPLIED ONLY IN CASES WHERE THE GROSS RECEIPTS OR THE TOTAL TURNOVER IS BELOW RS. 40 LAKHS AND THE ASSESSEE IS NOT LIABLE FOR AUDIT U/S44AB OF THE ACT. THEREFORE, LD. CIT(APPEALS) NOTED THAT ADHERING TO THE PROVISI ONS OF THE SECTION 44AD OF THE ACT IN THE CASE OF THE APPELLANT IS NOT JUSTIFIED. LD. CIT(APPEALS) FURTHER OBSERVED THAT A S REGARD TO THE VALUATION OF THE STOCK SHOWN AT 36,67,528/ - I T IS RELEVANT TO REPRODUCE THE SUBMISSIONS OF THE APPELLANT HERE UNDER: 'THERE IS CONFUSION IN UNDERSTANDING THE QUESTION OF WORK - IN - PROGRESS (WIP) OF THE ASSESSEE. THE ASSESSEE PURCHASES MATERIALS AND THEY ARE STRAIGHT AWAY USED WITHOUT ANY PROCESSING OR CONVERSION INTO OTHER I TERNS WHEREIN SAME OVERHEAD EXPENSES ARE INCURRED. HERE THE ITEMS PURCHASES AND REMAIN ED TO BE CONSUMED IN THE CONSTRUCTION OF ROAD ARE TREATED AS STOCK IN TRADE. THE VALUE OF THESE ITEMS ARE EXPENSES INCURRED UP TO THE PLACE WHERE THEY ARE STORED AND THAT IS THE COST OF ITEM. THAT IS TO SAY THE CASH ACTUALLY PAID FOR ACQUIRING' AND INWARD FREIGHT EXPENSES. THESE ARE ITEMS PROCURED FROM THE REMOTE PLACES AND GENERALLY CASH IS PAID TO ACQUIRE IT. WHEN WE S,AID CASH SYSTEM IT IS NOT CASH SYSTEM OF ACCOUNTING BUT THE CASH VALUE OF THE ITEMS. THE AO'S INFERENCE THAT THE VALUATION OF STOCK OF I TEMS ON CASH SYSTEM OF ACCOUNTS IS NOT CORRECT. THE MERCANTILE SYSTEM IS FOLLOWED CONSISTENTLY. THE TOTAL VALUE OF THE ITEMS WHICH CONSTITUTE THE STOCK OF THE END OF THE YEAR IS RS. 36,67,528/ - CONSISTING OF THE FOLLOWING ITEM. A. IRON AND STEEL: 732000/ - B. BITUMEN: 2030627/ - C. L.D. OIL: 360000/ - D. EMENT: 544904/ - 6 ITA NO. 465/NAG/2013 . THESE ITEMS HAVE BEEN VALUED AT COST TO THE ASSESSEE AND IT IS NOT PART OF THE WORK IN PROGRESS OR AS UNDERSTOOD IN THE CASE OF PAINTS REFERRED TO IN THE DECISION OF SUPREME COURT IN C IT V/S. BRITISH PAINTS INDIA LTD. 188 ITR 44 (SC). IN THAT CASE NO OVERHEAD OR OTHER EXPENSES ARE INCLUDABLE IN THE ABOVE STOCK SO AS TO HAVE A DIRECT IMPACT ON THE TRUE PROFITS IN ORDER TO INVOKE SECTION 145(3). THIS HAS NO IMPACT ON THE WORK IN PROGRESS AS STYLED BY THE AO AS AGAINST STOCK OF MATERIAL NOT CONSUMED IN THE ROAD MAKING. FROM THE ABOVE LD. CIT(APPEALS) OBSERVED THAT IT IS QUITE MANIFEST FROM THE ABOVE THAT THE TOTAL VALUE OF ITEMS OF STOCK AT THE END OF THE YEAR AS MENTIONED ABOVE HAVE BE EN VALUED AT COST AND DO NOT FORM PART OF WORK IN PROGRESS. THEREFORE, THE RATIO OF THE DECISION RELIED UPON BY THE LD. AO IS NOT APPLICABLE TO THE FACTS AND THE CIRCUMSTANCES OF THE PRESENT CASE. LD. CIT(APPEALS) FURTHER OBSERVED THAT SO FAR AS THE PAYM ENT OF LABOUR CHARGES IS CONCERNED, IT IS A COMMON PRACTICE THAT LABOUR PAYMENTS AT THE SITE ARE PAID THROUGH MUKADAMS MAINLY IN CASH FOR WHICH DETAILS IN THE FORM OF PAYMENT REGISTERS ARE MAINTAINED BY MUKADAMS ENGAGED BY THE PAYER. THAT IN THE CASE OF AP PELLANT, THE APPELLANT HAS MADE THE PAYMENTS THROUGH THE MUKADAMS IN CASH FOR WHICH ENTRIES ARE MADE IN THE REGISTERS WHICH ARE SUPPORTED BY VOUCHERS. THAT THE APPELLANT IN THE COURSE OF ASSESSMENT PROCEEDINGS HAS PRODUCED THE REGISTERS MAINTAINED BY MUKAD AM IN WHICH THE PAYMENTS MADE TO THE LOCAL LABOURERS IN CASH BELOW ` 20,000/ EACH WERE RECORDED BEFORE THE AO. THAT THE APPELLANT ALSO PRODUCED THE BILLS AND VOUCHERS FOR THE SAME FOR VERIFICATION. CONSIDERING THE PRACTICAL DIFFICULTIES IN PROCURING THE LABOUR AT SITES, THE ASSESSEE MAY NOT HAVE DIRECT ACCESS TO SUCH LABOUR TO WHOM THE PAYMENTS HAVE BEEN MADE THROUGH MUKADAMS. THEREFORE, CIT(APPEALS) HELD THAT HE DID NOT FIND ANY REASON TO DISBELIEVE SUCH EXPENSES SO FAR AS SUCH EXPENSES ARE INCURRED IN T HE COURSE OF 7 ITA NO. 465/NAG/2013 . BUSINESS AND THE SAME ARE NOT PROVED TO BE DISPROPORTIONATE TO THE GROSS RFECEIPTS OF THE ASSESSEE. THEREFORE, LD. CIT(APPEALS) HELD THAT NO ADVERSE INFERENCE CAN BE DRAWN IN THE ABSENCE OF ANY CONTRARY EVIDENCE AS REGARDS TO THE EXPENSES ACTU ALLY INCURRED, BOOKED IN THE BOOKS WHICH ARE DULY AUDITED BY THE AUDITORS. LD. CIT(APPEALS) FURTHER NOTED THAT THE APPELLANT IN SUPPORT OF HIS CONTENTIONS HAS RELIED ON SEVERAL JUDICIAL DECISIONS FOR THE PROPOSITION THAT EVEN IF THE BOOKS ARE REJECTED, THE NET PROFIT SHOULD BE APPLIED ON THE BASIS OF THE RESULTS OF THE EARLIER YEARS OF THE ASSESSEES CASE. ACCORDINGLY THE LEARNED CIT(APPEALS) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND DELETED THE ADDITION. 5 . AGAINST THE ABOVE ORDER REVENUE IS IN A PPEAL BEFORE US. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT AS PER THE ADMITTED FACTS OF THE CASE, THE ASSESSEE HAS MAINTAINED THE BOOKS AND VOUCHERS WHICH ARE DULY AUDITED AND HAVE BEEN EXAMINED BY THE AO ALSO. THERE IS NO ABNOR MAL VARIATION IN THE PROFITABILITY RATIOS. THE PROFITABILITY HAS SHOWN A RATHER MARGINAL INCREASE AS PER FOLLOWING FIGURES REPRODUCED IN THE LEARNED CIT(APPEALS)ORDER: C OMPARATIVE FIGURES FOR NET PROFIT SHOWN I SR.NO. PARTICULAR 2008 - 09 2009 .... 10 2010 - 11 2011 - 12 ..... L. GROSS RECEIPTS 20.60CR 37.99CR 35.37CR 32.71CR 2. GP RATIO 11.90% 10.64% 11.32% 16.67% 3. NET PROFIT 1.32CR 2.41CR 2.20CR 2.45CR 4. NP RATIO 6.42% 6.35% 6.95% 6.74% THUS THE PROFITABILITY DECLARED BY THE ASSESSEE IS QUITE NORMAL AS COMPARED TO 8 ITA NO. 465/NAG/2013 . PRECEDING YEARS. IN THESE CIRCUMSTANCES THERE IS NO CASE OF REJECTION OF BOOKS OF ACCOUNTS ON ACCOUNT OF VARIATION IN PROFITABILITY SHOWN BY THE ASSESSEE. THE PRIME REASON GIVEN BY THE AO IN REJECTING THE BOOKS OF ACCOUNTS IS REGARDING HIS RESERVATION ON VALUATION OF WORK IN PROGRESS AND LARGE OUTSTANDING LIABILITY FOR LABOUR PAYMENTS. AS REGARDS VALUATION OF WORK IN PROGRESS IS CONCERNED AS EXPLAINED BY THE ASSESSEE IN HIS SUBMI SSION TO THE LEARNED CIT(APPEALS), AOS INFERENCE THAT VALUATION OF WORK IN PROGRESS IS ON CASH BASIS IS FLAWED. AS THE ASSESSEE IS A CONTRACTOR, THE PURCHASED MATERIALS AND THEY ARE ST RAIGHT AWAY USED WITHOUT ANY PROCESSING OR CONVERSION INTO OTHER ITEMS W H ERE SOME OVERHEADS EXPENSES ARE INCURRED. THE ITEMS PURCHASED AND REMAINED TO BE CONSUMED IN THE CONSTRUCTION OF ROAD ARE TREATED AS STOCK IN TRADE. THEIR VALUE IS THE CASH ACTUALLY PAID F OR ACQUIRING AN D INWARD FREIGHT EXPENSES. HENCE IT IS NOT THE CASH SYSTEM OF ACCOUNTING BUT THE CASH VALUE OF ITEMS. HENCE THE AO IS NOT CORRECT IN HOLDING THAT THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING. NEVERTHELESS IT IS NOT THE CASE OF THE AO THAT A SYSTEM OF VALUATION OF THE WORK IN PROGRESS IS NOT AS PER THE PRECEDING YEARS. THE CONSISTENT SYSTEM OF ACCOUNTING IS NOT TO BE IN TERFERED UNLESS THERE IS A CHANGE IN THE FACTS OR LAW. THIS PROPOSITION HAS BEEN DULY SUPPORTED BY EXPOSITIONS OF HON BLE APEX COURT. 6. AS REGARDS THE OUTSTANDING PAYMENT OF LABOUR CHARGES, LEARNED CIT(APPEALS) HAS OBSERVED THAT IT IS A COMMON PRACTICE THAT LABOUR PAYMENTS AT THE SITE ARE PAID THROUGH MUKADAMS MAINLY IN CASH FOR WHICH BILLS IN THE FORM OF PAYMENT REGIST ERS ARE MAINTAINED BY MUKADAMS ENGAGED BY THE PAYERS. LEARNED CIT(APPEALS) HAS OBSERVED THAT THE ASSESSEE HAS MADE THE PAYMENTS THROUGH MUKADAMS IN CASH FOR WHICH REGISTER AND SUPPORTING VOUCHERS ARE THERE. THAT THE ASSESSEE IN THE COURSE OF ASSESSMENT PRO CEEDINGS HAS ALSO PRODUCED THE REGISTERS MAINTAINED BY MUKADAMS IN WHICH PAYMENTS MADE TO LOCAL LABOURERS IN CASH BELOW ` .20,000/ - EACH WERE 9 ITA NO. 465/NAG/2013 . PRODUCED. IN SUCH CIRCUMSTANCES WE AGREE WITH THE LEARNED CIT(APPEALS) THAT THERE IS NO REASON TO DISBELIEVE THAT T HE EXPENSES INCURRED ARE BOGUS. THUS FROM THE ABOVE IT IS APPARENT THAT THE REASONS FOUND BY THE AO TO REJECT THE BOOKS OF ACCOUNTS I.E. IMPROPER VALUATION OF WORK IN PROGRESS AND HUGE OUTSTANDING LIABILITY FOR LABOUR CANNOT BE A BASIS FOR REJECTION OF BO OKS OF ACCOUNTS. MOREOVER AS EVIDENT FROM THE ABOVE DISCUSSION THE PROFITABILITY OF THE ASSESSEE IS IN LINE WITH THE PROFITABILITY DECLARED IN PRECEDING YEARS RATHER THERE IS SLIGHT IMPROVEMENT. IN SUCH CIRCUMSTANCES THERE IS NO REASON TO REJECT THE BOOKS OF ACCOUNTS. FURTHER EVEN IF THE BOOKS OF ACCOUNTS ARE REJECTED, THE PROFITABILITY APPLIED SHOULD BE THE PROFIT DECLARED BY THE ASSESSEE AND ACCEPTED BY THE DEPARTMENT IN PRECEDING YEARS. IN THIS CASE THE AO AFTER REJECTING THE BOOKS HAS APPLIED 8% PROFIT WHICH IS AT VARIANCE WITH THE PROFITABILITY DECLARED BY THE ASSESSEE IN PRECEDING YEARS. HENCE ON THIS ACCOUNT ALSO THE AOS ORDER IS NOT SUSTAINABLE AND DELETION OF THE ADDITION BY THE LEARNED CIT(APPEALS) HAS BEEN CORRECTLY DONE. 7 . AS REGARDS THE RELI ANCE BY THE REVENUE ON THE DECISION OF HONBLE PATNA HIGH COURT IN THE CASE OF RAMCHANDRA SINGH RAMNIK LAL VS, CIT 42 ITR 780 WE FIND THAT IN THAT CASE THE HONBLE HIGH COURT HAS EXPOUNDED THAT WHEN BOTH THE AUTHORITIES BELOW HAVE FOUND THAT THE PROFITS AR E NOT COMPUTABLE, NO INTERFERENCE IS CALLED FOR. IN OUR CONSIDERED OPINION IN THE PRESENT CASE IT IS NOT AT ALL THE FINDING OF THE LEARNED CIT(APPEALS) THAT THE ASSESSEES PROFITS ARE NOT COMPUTABLE AND WE HAVE ALSO AGREED WITH THE ABOVE. HENCE IT CANNOT BE SAID THAT THE RATIO FROM THE HONBLE PATNA HIGH COURT DECISION IS APPLICAB LE IN THIS CASE. HENCE THE REVENUES RELIANCE ON THE SAME IS MISPLACED. THE DECISION OF THE SPECIAL BENCH OF ITAT IN THE CASE OF M/S ARIHANT BUILDERS, DEVELOPERS AND INVESTORS (P) LTD. 106 ITD 10 HAS BEEN RELIED UPON BY THE REVENUE IN THE GROUNDS OF APPEAL FOR THE PROPOSITION 10 ITA NO. 465/NAG/2013 . THAT THE APPLICATION OF 8% AS NET PROFIT OF THE BUSINESS AFTER REJECTION OF BOOKS OF ACCOUNTS IS CORRECT. IN THIS REGARD SINCE WE HAVE ALREADY FOUND THAT THE BOOKS OF ACCOUNTS ARE NOT LIABLE TO BE REJECTED, THIS DECISION DOES NOT HELP THE CASE OF THE REVENUE. FURTHER MORE THE HONBLE DELHI HIGH COURT HAS HELD IN THE CASE OF ACTION ELECTRICALS VS. DCIT 258 ITR 188 THAT WHEN BOOKS OF ACCOUNTS ARE REJECTED THE ES TIMATION OF SALES/GROSS PROFIT RATE BASED ON PAST YEARS RESULT CANNOT BE SAID TO BE ARBITRARY. FURTHER MORE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. INALI MARKS LTD. 216 ITR 125 HAS EXPOUNDED THAT IF THE ASSESSEES OWN RESULTS OF THE IMMEDIATEL Y PRECEDING ASSESSMENT YEAR WERE ACCEPTED UPTO THE LEVEL OF THE TRIBUNAL, THE TRIBUNAL WAS JUSTIFIED IN APPLYING THE SAME GP RATIO FOR THE ASSESSMENT YEAR IN QUESTION AS AGAINST THE RATIO APPLIED BY THE AO. FROM THESE CASE LAWS IT IS EVIDENT THAT EVEN WHEN BOOKS ARE REJECTED IF THE PROFITABILITY ESTIMATED IS THAT OF THE SAME ASSESSEE AS IN THE PAST ACCEPTED BY THE REVENUE, THE SAME C OULD NOT BE TINKERED WITH. IN THE PRESENT CASE THE PROFITABILITY SHOWN FOR THE IMPUGNED ASSESSMENT YEAR IS IN ACCORDANCE WITH THE PROFITABILITY RATE OF PRECEDING YEARS WHICH HAS NOT BEEN DISPUTED BY THE REVENUE. HENCE ON THIS ACCOUNT ALSO THE ORDER OF THE LEARNED CIT(APPEALS) CANNOT BE INTERFERED. IN THE BACKGROUND OF AFORESAID DISCUSSION AND PRECEDENT, WE FIND THAT THE ASSESSEE HAS MAINTAINED PROPER BOOKS OF ACCOUNTS AND THE PROFITABILITY DISCLOSED IS CONSISTENT WITH THAT DECLARED IN PRECEDING YEARS. IN SUCH CIRCUMSTANCES, IN OUR CONSIDERED OPINION, THERE IS NO INFIRMITY IN THE ORDER OF LEARNED CIT(APPEALS). ACCORDINGLY WE UPHOLD THE SAME. 8 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 24 TH DAY OF SEPT., 2015. SD/ SD/ (MUKUL K. SHRAWAT) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER. NAGPUR, DATED: 24 TH SEPT., 2015. 11 ITA NO. 465/NAG/2013 . COPY OF ORDER FORWARDED TO : 1. THE ASSESSEE. 2. REVENUE. 3. THE CIT(A) 4. THE CIT, NAGPUR. 5. THE D.R., ITAT, NAGPUR. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGIS TRAR, ITAT, NAGPUR WAKODE