M/s. RAJDEEP CONSTRUCTION CO., Betul V. THE JCIT RANGE-2, Bhopal

ITA 673/IND/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5474 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 16-11-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 03-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Assessee Lawyers: N D PATWA
• Keywords: Bogus purchase; Rejection of books of accounts; Unexplained investment; Unexplained expenditure; Depreciation
• Section: 40A(3); 143(3); 68; 69

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE .., .., % BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER M/S.RAJDEEP CONSTRUCTION COMPANY, BETUL .. ./ PAN: AAFFR6339H VS. JT. CIT, RANGE 2, BHOPAL / APPELLANT / RESPONDENT / APPELLANT BY SHRI ASHISH GOYAL AND SHRI N. D. PATWA,, ADV. / RESPONDENT BY SHRI MOHD. JAVED, SR. DR DATE OF HEARING 16.11.2016 DATE OF PRONOUNCEMENT 23.11.2016 / O R D E R PER O.P. MEENA, ACCOUTANT MEMEBR. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-I, BHOPAL .. . / I.T.A. NO.673/IND/2014 %' ' / ASSESSMENT YEAR: 2010-11 I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 2 OF 34 [HEREINAFTER REFERRED TO AS THE CIT(A)] DATED 08.08 .2014 AND PERTAINS TO ASSESSMENT YEAR 2010-11 AS AGAINST APPE AL DECIDED IN ASSESSMENT ORDER PASSED U/S 143(3) OF T HE ACT DATED 12.03.2013 OF JT. CIT RANGE 2, BHOPAL [HEREIN AFTER REFERRED TO AS THE AO]. 2. THE ASSESSEE HAS TAKEN AS MANY AS EIGHT GROUNDS OF APPEAL. HOWEVER, DURING THE COURSE OF HEARING OF T HE APPEAL BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS NOT PRESSED IN RESPECT OF GROUND NOS. 1, 6, 7 & 8. THEREFORE, THES E GROUNDS ARE TREATED AS DISMISSED AS NOT PRESSED, WHICH LEAVE S, GROUND NOS. 2 TO 5, WHICH ARE BEING DEALT WITH AS UNDER. 3. GROUND NOS. 2 & 3 RELATE TO MAINTAINING THE ADDITIO N OF RS. 2,50,000/- IN THE NAME OF SMT. ARTI SINGH KI LEDAR AND RS. 2,50,000/- IN THE NAME OF MRS. PRITISHA SINGH K ILEDAR U/S 68 OF THE INCOME-TAX ACT, 1961. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE FIRM IS A CIVIL CONTRACTOR. THE ASSESSEE F ILED RETURN OF INCOME ON 09.10.2010 DECLARING TOTAL INCOME AT RS. 71.46.260/-. DURING THE COURSE OF ASSESSMENT PROCEE DINGS, I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 3 OF 34 THE AO NOTICED THAT THE PARTNER OF THE ASSESSEE FIR M VIZ. MRS. ARTI SINGH KILEDAR AND MRS. PRITISHA SINGH KILEDAR HAVE INTRODUCED TOTAL CAPITAL OF RS. 5 LAKHS BY CASH, TH E DATE WISE DETAILS ARE AS UNDER :- S.NO. DATE AMOUNT BY SMT. ARTI KILEDAR (RS.) AMOUNT BY SMT. PRITISHA KILEDAR (RS. ) 1. 01/03/2010 25,000/- 2. 04/03/2010 25,000/- 3. 06/03/2010 25,000/- 4. 08/03/2010 25,000/- 5. 10/03/2010 25,000/- 6. 12/03/2010 25,000/- 7. 16/03/2010 25,000/- 8. 20/03/2010 25,000/- 50,000/- 9. 22/03/2010 10. 24/03/2010 25,000/- 11. 25/03/2010 12. 26/03/2010 25,000/- 13. 27/03/2010 50,000/- TOTAL 2,50,000/- 2,50,000/- 5. THE AO REQUIRED THE ASSESSEE TO EXPLAIN ABOVE MENTIONED CAPITAL OF RS. 5 LAKHS INTRODUCED BY THE TWO LADY PARTNERS OF THE FIRM IN CASH, IN RESPONSE TO WHICH C OPY OF INCOME TAX RETURN, CAPITAL ACCOUNT AND BALANCE SHEE T WAS FILED IN THE CASE OF MRS. ARTI SINGH KILEDAR AND COPY OF BALANCE SHEET ONLY FILED IN THE CASE OF SMT. PRITISHA SING H KILEDAR. ON VERIFICATION, IT WAS NOTICED THAT MRS. ARTI SINGH KI LEDAR HAD I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 4 OF 34 DECLARED HER TOTAL INCOME AT RS. 3,14,200/- WITH AGR ICULTURAL INCOME OF RS. 32,000/- FOR ASSESSMENT YEAR 2010-11 AND SHE HAS CLAIMED INTEREST INCOME OF RS. 3,64,164/- RECE IVED FROM M/S. RAJDEEP CONSTRUCTION. THE AO NOTED THAT SHE HA S INTRODUCED CAPITAL OF RS. 2.50 LAKHS AT THE FAG END OF THE FINANCIAL YEAR 2009-10 DURING THE PERIOD FROM 01.03 .2010 TO 26.03.2010 IN TEN EQUAL INSTALMENTS OF RS. 25,000/- EACH, WHICH IS ABNORMAL TRANSACTION AND SHE HAS ALSO NOT MAINTAINED ANY DAY TO DAY CASH BOOK NOR COPY OF SAV ING BANK ACCOUNT WAS FURNISHED, WHETHER THERE WAS ANY CASH WITHDRAWAL OF RS. 2.50 LAKHS FROM THE SAID ACCOUNT BE FORE MAKING PAYMENT TO THE ASSESSEE FIRM. IN THE EXTRACT OF ACCOUNT OF MRS. ARTI SINGH KILEDAR IN THE BOOKS OF ASSESSEE FIRM FOR ASSESSMENT YEAR 2009-10 ALSO DOES NOT REFLECT ANY C ASH WITHDRAWAL PRIOR TO PAYMENT MADE TO THE FIRM. THE ASS ESSEE DID CLAIM AGRICULTURAL INCOME OF RS. 33,000/- DURIN G FINANCIAL YEAR 2009-10 BUT ALSO CLAIMED WITHDRAWALS OF RS. 56, 975/- ON ACCOUNT HOUSE HOLD EXPENSES AND PAYMENT OF INCOME T AX. IN THE BALANCE SHEET AS ON 31.03.2010, NO OUTSTANDING I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 5 OF 34 LOAN/CREDIT PAYABLE WERE CLAIMED, THEREFORE, THE AO CONCLUDED THAT SOURCE OF CASH DEPOSIT OF RS. 2.50 LAKHS IS NO T OUT OF INCOME/FUND OF FINANCIAL YEAR 2009-10 UNDER CONSIDE RATION. FURTHER, NO CAPITAL ACCOUNT OR BALANCE SHEET FOR EA RLIER FINANCIAL YEAR 2008-09 HAS BEEN FURNISHED. NO DETAI LS AS REGARDS PENDING CASH IN HAND AS ON 01.04.2009 AND S OURCE THEREOF HAS BEEN FURNISHED. ACCORDINGLY, THE ASSESS EE FIRM HAS FAILED TO ESTABLISH THE CREDITWORTHINESS OF MRS. ART I SINGH KILEDAR AND GENUINENESS OF THE TRANSACTION. THEREFO RE, THE SAME WAS ADDED. SIMILARLY, IN THE CASE OF SMT. PRITI SHA SINGH KILEDAR EXCEPT COPY OF BALANCE SHEET AND CAPITAL AC COUNT FOR FINANCIAL YEAR 2009-10, THE ASSESSEE DID NOT FURNIS H ANY OTHER DETAILS SUPPORTED BY DOCUMENTARY EVIDENCE TO EXPLAI N THE SOURCE OF RS. 2.50 LAKHS. IN HER CASE ALSO, THE CAP ITAL OF RS. 2.50 LAKHS WAS INTRODUCED AT THE FAG END OF THE FINA NCIAL YEAR FROM 20.03.2010 TO 27.03.2010 IN FIVE EQUAL INSTALM ENTS OF RS. 50,000/- EACH. NO COPY OF BANK ACCOUNT WAS FURNISHED FOR VERIFICATION TO ASCERTAIN WHETHER THERE IS ANY CASH WITHDRAWAL OF RS. 2.50 LAKHS FROM THE SAID BANK ACCOUNT. FURTH ER, THE I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 6 OF 34 ACCOUNT OF SMT. PRITISHA SINGH KILEDAR IN THE BOOKS OF THE FIRM FOR ASSESSMENT YEAR 2009-10 ALSO DOES NOT REFLECT A NY CASH WITHDRAWAL PRIOR TO THE PAYMENT MADE TO THE FIRM, THO UGH THE ASSESSEE DID CLAIM AGRICULTURAL INCOME OF RS. 25,00 0/-, BUT THERE ARE WITHDRAWALS OF RS. 86,587/- ON ACCOUNT OF H OUSE HOLD EXPENSES AND DEPOSIT IN PPF ACCOUNT. FURTHER, IN THE BALANCE SHEET AS ON 31.03.2010, NO OUTSTANDING LOANS/CREDITORS PAYABLE WERE CLAIMED. NO DETAILS RE GARDING OPENING CASH IN HAND AS ON 01.04.2009 AND THE SAME HAS BEEN FURNISHED NOR THE COPY OF CAPITAL ACCOUNT WAS F URNISHED. IN THE LIGHT OF THESE FACTS, THE AO TREATED THE AMO UNT OF RS. 2.50 LAKHS EACH APPEARED IN THE NAME OF SMT. ARTI S INGH KILEDAR AND SMT. PRITISHA SINGH KILEDAR AS UNEXPLAI NED CASH INTRODUCED IN THE BOOKS OF THE FIRM AND ,ACCORDINGL Y, TAXED THE SAID AMOUNT OF RS. 5 LAKHS AS UNEXPLAINED CASH CRED IT U/S 68 OF THE ACT. 6. BEING AGGRIEVED THE ASSESSEE FILED THE APPEAL BEFOR E THE LD. CIT(A). I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 7 OF 34 7. BEFORE THE CIT(A), THE SAME ARGUMENTS WERE REPEATE D. THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAD NOT F URNISHED PRIOR PERIOD BALANCE SHEET AND CAPITAL ACCOUNTS OF SMT.ARTI SINGH KILEDAR AND SMT. PRITISHA SINGH KILEDAR DURIN G THE ASSESSMENT PROCEEDINGS AND, THEREFORE, THE CONTENTI ON OF THE ASSESSEE AND THAT PRIOR PERIOD BALANCE SHEET AS ON 31.03.2009 WERE FILED BEFORE THE AO DURING THE ASSESSMENT PROCE EDINGS IS NOT FOUND TO BE CORRECT. 8. DURING APPELLATE PROCEEDINGS ALSO, THE ASSESSEE FURNISHED THE FOLLOWING DETAILS IN RESPECT OF MRS. A RTI SINGH KILEDAR :- RECEIVED FROM M/S. RAJDEEP COMPANY: 2,69,433.00 ADD: AGRICULTURE INCOME 32,000.00 SAVING BANK INTEREST : 3 5.00 3,01,468.00 LESS : GIVEN TO BE RAJDEEP CONSTN. CO. 2,50,000.00 SIMILARLY, IN THE CASE OF MRS. PRITISHA SINGH KILED AR ALSO, IT WAS NOTICED THAT THE ASSESSEE, DURING ASSESSMENT I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 8 OF 34 PROCEEDINGS, SIMPLY EXPLAINED THAT SHE HAD INTRODUC ED THE CAPITAL OUT OF HER INCOME DURING THE YEAR. IN A PPELLATE PROCEEDINGS ALSO, THE APPELLANT FURNISHED THE FOLLO WING DETAILS IN THIS REGARD :- RECEIVED FROM M/S. RAJDEEP CO. : 2,27,946.00 ADD: AGRICULTURE INCOME : 25,000.00 SAVING BANK INTEREST : 2,445.00 COMMISSION RECEIVED FROM BAJAJ ALLIANCE : 63,846.00 3,19,237.00 LESS: GVIEN TO BE RAJDEEP COMPANY : 2,50,000.00 9. THE LD. CIT(A) HAS ALSO RELIED IN THE CASE OF BANSH IDHAR AGRAWAL, PANNA VS. CIT, (1984) 148 ITR 523 (MP), WHER EIN IT WAS OBSERVED AS UNDER :- A PERUSAL OF SECTIONS 68 & 69 OF THE INCOME1TAX ACT, 1961, SHOWS THAT SECTION 68 APPLIES WHEN THE SUM IN RESPECT OF WHICH THE EXPLANATION OF THE ASSESSEE IS NOT ACCEPTED IS FOUND CREDITED IN THE BOOKS OF ACCOUNTS IN SUCH A SITUATION, THE SUM SO CREDITED IS CHARGED TO INCOME1TAX AS THE I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 9 OF 34 INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR IN WHICH IT IS FOUND CREDITED IN THE BOOKS OF ACCOUNTS. SECTION 69 APPLIES TO UNEXPLAINED INVESTMENTS WHICH ARE NOT RECORDED IN THE BOOKS OF ACCOUNTS. 10. THE JURISDICTIONAL M.P. HIGH COURT IN ANOTHER CASE OF CIT VS. SHIV SHAKTI TIMBERS, (1998) 229 ITR 505 (MP ) ALSO OBSERVED THAT WHERE THE FIRMS BOOKS ARE SHOWING CASH CREDITS IN THE NAME OF THE PARTNER AND NO SATISFACTORY EXPL ANATION IS FURNISHED, SECTION 68 IS APPLICABLE AND IT WILL BE D EEMED TO BE INCOME OF THE FIRM. IN THIS CASE, THE ASSESSEE-FIRM WAS MAINTAINING BOOKS OF ACCOUNTS. THE AO FOUND CREDITS RECORDED IN THE BOOKS IN THE NAMES OF PARTNERS AND AFTER CON SIDERING THAT THE EXPLANATIONS WERE NOT SATISFACTORY, MADE A N ADDITION IN THE ASSESSMENT OF THE FIRM U/S 68 OF THE INCOME- TAX ACT, 1961. ON APPEAL, THE CIT(A) PARTLY SUSTAINED THE AD DITION. THE TRIBUNAL ALLOWED THE APPEAL FILED BY THE ASSESSEE O N THE GROUND THAT CASH CREDITS WERE IN THE NAMES OF PARTN ERS AND SECTION 69 OF THE ACT WAS APPLICABLE, NOT SECTION 68 OF THE ACT. I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 10 OF 34 ON A REFERENCE, THE HON'BLE JURISDICTIONAL M.P. HIG H COURT HELD AS UNDER :- HELD, THAT A CLOSE READING OF BOTH THE SECTIONS MAKES IT CLEAR THAT IN SECTION 68, THERE SHOULD BE A CREDIT ENTRY IN THE BOOKS OF ACCOUNTS, WHEREAS IN SECTION 69, THERE MAY NOT BE AN ENTRY IN THE BOOKS OF ACCOUNTS. THE PRESENT CASE WAS GOVERNED BY SECTION 68, BECAUSE THERE WERE ENTRIES IN THE BOOKS OF ACCOUNTS. WHERE THERE IS A CREDIT ENTRY IN THE BOOK S OF ACCOUNTS OF THE ASSESSEE AND THERE IS NO SATISFACTORY EXPLANATION, THEN IT WILL BE DEEMED TO BE IN THE INCOME OF THE FIRM. 11. IN VIEW OF THE ABOVE, THE ADDITION OF RS. 5 LAKHS MA DE BY THE AO U/S 68 OF THE ACT IS CONFIRMED. 12. BEING AGGRIEVED, THE ASSESSEE HAS FILED THE APPEAL BEFORE US. 13. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE CASE OF SMT. ARTI SINGH KILEDAR, COPY OF INCOME TAX RETURN, BALANCE SHEET, CASH FLOW STATEMENT, CAPITAL ACCOUNT AND I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 11 OF 34 WORKING OF ACCOUNTS WERE GIVEN, JUSTIFIED THE CAPITAL AND SHE HAS SHOWN CASH IN HAND BALANCE AT RS. 3.20 LAKHS AS ON 31.03.2009. FURTHER, AS PER CASH FLOW STATEMENT RS. 2,69,433/- WAS RECEIVED FROM FIRM BESIDES AGRICULTUR AL INCOME OF RS. 33,000/-. THUS, THERE WAS SUFFICIENT BALANCE AMOUNT TO MAKE CAPITAL CONTRIBUTION IN THE ASSESSEE FIRM. SIM ILARLY, IN THE CASE OF MRS. PRITISHA SINGH KILEDAR, IT WAS SUBM ITTED THAT SHE IS ASSESSED TO INCOME TAX, HERE MAIN SOURCE OF INCOME IS INTEREST AS PARTNER OF THE FIRM AND SHARE OF PROFIT AND AGRICULTURAL INCOME. IN THE BALANCE SHEET, SHE HAS SHOWN CASH IN HAND AT RS. 5.15 LAKHS AND AS PER CASH FLOW STAT EMENT INTEREST INCOME OF RS. 2,27,946/- WAS RECEIVED FROM FIRM, BESIDES AGRICULTURAL INCOME OF RS. 25,000/- AND COM MISSION INCOME OF RS. 63,846/-. THEREFORE, IT WAS CONTENDED THAT THE CAPITAL STANDS PROVED. THE LD. CIT(A) DENIED THE TR ANSACTION HOLDING THAT HER CREDITWORTHINESS WAS DOUBTFUL AND S TATED THAT SHE RECEIVED THE AMOUNT FROM RAJDEEP CONSTRUCTION C OMPANY ON 31.03.2010, WHEREAS SHE GAVE AMOUNT TO RAJDEEP CONSTRUCTION COMPANY ON DIFFERENT DATES IN MARCH. T HUS, IT I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 12 OF 34 WAS IMPOSSIBLE TO HAVE MADE PAYMENT AND THE AVAILABI LITY OF CASH WAS DOUBTFUL. IN HIS FINDING, THE LD. CIT(A) IG NORED THE OPENING BALANCE AVAILABLE WHICH WAS CLEARLY REFLECTED IN THE BALANCE SHEET AND CASH FLOW AS STATED ABOVE. THE LD . COUNSEL FOR THE ASSESSEE ALSO ARGUED THAT ONCE THE PARTNER HAS ACCEPTED THE CREDIT, IF THE AO HAD ANY DOUBT, INQUI RY AS TO THE SOURCE OF THE CREDIT SHOULD HAVE BEEN MADE IN THE H ANDS OF ALL THE PARTNERS. IN THE ALTERNATIVE, THE LD. AUTHORIZE D REPRESENTATIVE OF THE ASSESSEE CONTENDED THAT THE A O HAS REJECTED THE BOOKS OF ACCOUNTS AND HAS APPLIED PROF IT RATE. NO SEPARATE ADDITION CAN BE MADE FROM CASH CREDIT. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUPPORTED HIS VIEW BY PLACING RELIANCE IN THE CASE OF CIT VS. AGRAWAL E NGG. CO., (2006) 156 TAXMAN 40 ( P & H) AND CIT VS. M. VENKAT ESHWAR, (2015), 57 TAXMAN.COMM 373 ( A.P. & TELANGANA ). 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND F ROM THE TABLE AS REPRODUCED IN PARA ABOVE REGARDING INTRODU CTION OF CASH IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE FIRM IN THE NAME I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 13 OF 34 OF SMT. ARTI SINGH KILEDAR AND SMT. PRITISHA SINGH KILEDAR THAT THE SAME HAS BEEN INTRODUCED DURING THE PERIOD FROM 01.03.2010 TO 27.03.2010. WE FURTHER NOTE FROM THE FINDINGS OF THE ASSESSMENT ORDER AS WELL AS APPELLATE ORDER AND AS REPRODUCED THE FINDINGS OF THE CIT(A) ABOVE THAT TH E SOURCE OF THE CASH INTRODUCTION WAS EXPLAINED BY THE ABOVE PA RTNERS FROM THE AMOUNT RECEIVED FROM M/S. RAJDEEP CONSTRUC TION COMPANY AND AGRICULTURAL INCOME. HOWEVER, IT IS A F ACT THAT THE A.O. HAS VERIFIED FROM THE BOOKS OF THE ASSESSE E FIRM THAT THE AMOUNT OF INTEREST OF RS. 2,27,946/- WAS PAID BY THE FIRM TO M/S. PRITISHA SINGH KILEDAR ON 31.03.2010 FROM C .C. ACCOUNT WITH S.B.I.BETUL. THEREFORE, THE AMOUNT OF R S. 2.50 LAKHS SHOWN TO BE INTRODUCED IN FIVE INSTALMENTS OF RS. 50,000/- EACH IN CASH FROM 20.03.2010 TO 27.03.2010 I.E. BEFORE THE DATE OF RECEIPT OF INTEREST INCOME BY MR S. PRITISHA SINGH KILEDAR IN THE BOOKS OF FIRM IS NOT FOUND AS EXPLAINED AS IT IS CLAIMED OUT OF CURRENT INCOME ACCOUNT FROM FIRM. THEREFORE, IT IS IMPOSSIBLE FOR THE PARTNER OF THE FIRM TO UTILIZE THE AMOUNT RECEIVED ON 31.03.2010 FOR MAKING PAYMEN T IN I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 14 OF 34 CASH OF RS. 2.50 LAKHS BEFORE THE DATE. SIMILARLY, NO SUCH CLAIM WAS MADE THAT THE AMOUNT INTRODUCED BY THE AM OUNT OF OPENING CASH BALANCE OF RS. 5.15 LAKHS AS IS CLEARL Y SEEN FROM THE REPLY FURNISHED BY THE ASSESSEE DURING THE COUR SE OF ASSESSMENT PROCEEDINGS. THEREFORE, THE CLAIM OF THE ASSESSEE THAT PAYMENT IS MADE OUT OF OPENING CASH BALANCE AV AILABLE AS PER CASH FLOW STATEMENT IS NOTHING BUT AN AFTER THOU GHT. SIMILARLY, IN THE CASE OF SMT. ARTI SINGH KILEDAR, IT WAS NOTICED THAT THE INTEREST AMOUNT OF RS. 2,69,433/- WAS RECEI VED BY HER FROM THE FIRM BY CHEQUE OF SBI, BETUL. HENCE, IT CA NNOT BE ACCEPTED THAT THIS AMOUNT WAS UTILIZED FOR INTRODUCI NG RS. 2.50 LAKHS IN CASH ON EARLIER DATES FROM 01.03.2010 TO 26.03.2010. FURTHER, THE AMOUNT WAS RECEIVED TEN INS TALMENTS WERE ITSELF ABNORMAL TRANSACTION. THEREFORE, THE CLA IM OF THE ASSESSEE BEFORE US THAT THE AMOUNT WAS PAID OUT OF O PENING CASH BALANCE AS ON 01.04.2009 IS ALSO AN AFTER THOU GHT AND SAME IS NOT SUPPORTED BY THE FINDINGS OF THE LOWER AUTHORITIES, WHEREIN THEY HAVE DENIED TO HAVE RECEIVED ANY SUCH EXPLANATION FROM THE ASSESSEE AND IT IS ALSO SEEN F ROM HER I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 15 OF 34 EXPLANATION GIVEN DURING THE ASSESSMENT PROCEEDINGS THAT SHE HAD CLAIMED THE AMOUNT OF RS. 2.50 LAKHS PAID TO TH E ASSESSEE FIRM FROM THE AMOUNT RECEIVED FROM THE ASSESSEE FIR M AMOUNTING TO RS. 2,27,946/- AND AGRICULTURAL INCOME OF RS. 2.25 LAKHS FROM THE FIRM DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. THEREFORE, THE EXPLANATION OFFERED N OW BY THE LD. COUNSEL FOR THE ASSESSEE IS AN AFTERTHOUGHT AND DOES NOT REQUIRE TO BE CONSIDERED FOR EXPLAINING THE SOURCE OF THE CASH CREDIT AMOUNTING TO RS. 5 LAKHS. THE CASE LAWS RELIE D UPON BY THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE DOES NOT HELP THE ASSESSEE AS IN THE CASE OF AGRAWAL ENGINEER ING COMPANY (SUPRA), THE NET PROFIT RATE WAS APPLIED IN THE CASE OF CONTRACT RECEIPT OF ASSESSEE FOR ESTIMATING INCOME FROM CONTRACT WORK AND, THEREFORE, IT WAS HELD THAT IN RES PECT OF PURCHASES AND INTRODUCTION OF CASH IS NOT JUSTIFIED AND, THEREFORE, IT WAS HELD THAT THE ADDITION IN RESPECT OF PURCHASES AND INTRODUCTION OF CASH WAS NOT JUSTIFIED, WHEREAS I N THE CASE OF ASSESSEE FIRM, THERE ARE NO SUCH BOGUS PURCHASES AND INTRODUCTION OF CASH IN THE BOOKS OF THE ASSESSEE. THEREFORE, I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 16 OF 34 THE FACTS OF THE CASE ARE DISTINGUISHABLE. MOREOVER , THE INTRODUCTION OF CASH IN THE CASE OF ASSESSEE FIRM I S IN THE NAME OF PARTNERS WHEREAS CASH INTRODUCED IN THE SAID CASE WAS IN THE BOOKS OF THE SAID FIRM OF ASSESSEE ONLY. THEREFORE, FACTS ARE DISTINGUISHABLE. SIMILARLY, IN THE CASE O F VENKATESHWAR RAO (SUPRA), THE FACTS WERE ENTIRELY DIF FERENT AS THERE WAS AN INTRODUCTION OF CAPITAL BY THE PARTNER S IN THE FIRM OF CONTRIBUTION MADE BY THEM. THEREFORE, THE C ASE LAWS ARE DISTINGUISHABLE. FURTHER, THE HON'BLE JURISDICT IONAL HIGH COURT IN THE CASE OF CIT VS. SHIV SHAKTI, (1998) 22 9 ITR 505 (MP) HAS HELD THAT WHERE THE FIRM BOOKS ARE SHOWING A CASH CREDIT IN THE NAME OF PARTNER AND NO SATISFACTORY E XPLANATION IS FURNISHED, SECTION 68 IS APPLICABLE AND IT WILL B E DEEMED TO BE INCOME OF THE FIRM. THUS, THIS DECISION IS SQUAR ELY APPLICABLE IN THE CASE OF THE ASSESSEE FIRM. ACCORDINGLY, WE ARE OF THE CONSIDERED OPINION THAT THERE IS NO INFIRMIT Y IN THE ORDERS OF THE LOWER AUTHORITIES. THEREFORE, GROUND NOS. 2 & 3 OF THE APPEAL ARE DISMISSED. I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 17 OF 34 15. GROUND NOS. 4 & 5 RELATE TO MAINTAINING ADDITION OF RS. 36,14,649/- ON ACCOUNT OF UNEXPLAINED EXPENDITU RE/SHORT STOCK INCLUDING NET PROFIT OF RS. 68,735/-. 16. BRIEFLY STATED, THE FACTS ARE THAT THE AO NOTICED T HAT THE ASSESSEE HAS CLAIMED/ACCOUNTED FOR RECEIPTS FRO M VARIOUS PARTIES AGAINST THE WORKING DONE FOR THEM. HOWEVER, NO CORRESPONDING EXPENSES RELATED TO CERTAIN GROSS REC EIPTS WERE FOUND TO BE DEBITED IN THE BOOKS OF ACCOUNTS. THE B OOK AMOUNT OF SUCH EXPENSES BEING NEGATIVE STOCK WAS WORK ED OUT TO RS. 1,07,19,928/-. THEREFORE, THE ASSESSEE WAS A SKED TO EXPLAIN AS TO WHY THE SAME SHOULD NOT BE TREATED AS UNEXPLAINED EXPENDITURE NO RECORDED IN THE BOOKS OF ACCOUNTS. 17. IN RESPONSE TO WHICH, THE ASSESSEE FURNISHED ITS REP LY VIDE LETTER DATED 11.01.2013 WHICH IS REPRODUCED BY THE AO IN THE ASSESSMENT ORDER AS UNDER :- IN RESPONSE TO YOUR POINT NO.3, WE SHOULD LIKE TO S UBMIT THAT ASSESSEE IS BASICALLY A ROAD CONTRACTOR. IN RO AD CONSTRUCTION THE RAW MATERIAL USED ARE STONE, BLACK I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 18 OF 34 STONE, STONE ZEERA, BITUMEN, CEMENT, STEEL SAND ETC . EXCEPT THE STEEL AND CEMENT WHICH IS KEPT IN STORE REST ALL ITEMS ARE DUMPED AT ROAD SIDE. THESE ALL ITEMS ARE ACQUIRED FOR VARIOUS SITES, DUMPED AT THE SITE ITSE LF AND THEREAFTER CONSUMED AT THE SITE ONLY AND THIS PROCE SS BECOMES SO FAST THAT IT IS ALMOST IMPOSSIBLE TO KEE P ANY RECORD RELATED TO QUANTITY OF STOCK. ALL THE DETAIL S AS REGARDS CLOSING STOCK IN SUCH CASES IS BEING DONE SIMPLY ON THE BASIS OF PHYSICAL VERIFICATION BY SIT E ENGINEER AT THE YEAR END. SINCE THE WORK IS BEING CARRIED ON AT SO MANY PLACES AND THE ACCOUNTING IS CENTRALIZED ALL THE ACCOUNT IS BEING MAINTAINED AT ONE PLACE. SINCE THE MATERIAL USED ARE STONE, BLACK STONE, STONE ZEERA, BITUMEN ETC. AND ARE DUMPED AT THE SITES WHERE WORK IS CONTINUE, NO QUANTITATIVE DETAILS AS SUCH CAN BE MAINTAINED WORK WISE. ASSESSEE HAS MAINTAINED BOOKS OF ACCOUNTS I. E CASH BOOK, LEDGER, JOURNAL ETC. AND THE SAME IS BEI NG PRODUCED TO YOU FOR YOUR VERIFICATION. INFACT THE C HART I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 19 OF 34 OF TOTAL EXPENDITURE, SALES ETC. HAS BEEN WORKED OU T BY YOU ON THE BASIS OF BOOKS OF ACCOUNTS PRODUCED ONLY. SALES IN THIS CASE HAS BEEN 100% VERIFIED BY YOU AND EVEN GOT IT TALLIED ALSO PARTY WISE WITH FO RM 26AS ALONG WITH BOOKS. YOU HAVE VERIFIED BANK RECONCILIATIONS, ADDITION. IN FIXED ASSETS, LOAN CREDITORS, CREDITORS AND DEBTORS AND EXPENSES AND FOUND THEM TALLIED WITH BOOKS HENCE IT IS NOT FAIR TO CONCLUDE THAT BOOKS RESULTS SHOWN ARE NOT VERIFIABL E AND CANNOT BE ACCEPTED. YOU HAVE SOUQHT FOR OUR COMMENTS AS TO WHY NOT RS 10719928/1 SHOULD BE TREATED AS UNEXPLAINED EXPENDITURE ? IF YOU LOOK AT YOUR CHART YOU WILL FI ND THAT THOUGH THERE ARE SOME NEGATIVE FIGURES AT THE LAST COLUMN BUT ON THE OTHER HAND THERE ARE SOME POSITIVE FIGURES ALSO WHICH HAS FINALLY REACHED TO A POSITIVE FIGURE' AND VERY MUCH TALLIES WITH THE STO CK TAKEN BY THE ASSESSEE IN HIS BOOKS. HERE WE WOULD LIKE TO STATE THAT OURS IS A ROAD CONSTRUCTION I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 20 OF 34 BUSINESS AND IN ROAD CONTRACTS, THE CONTRACT AMOUNT OF ENTIRE WORK IS BEING DETERMINED THEREAFTER, RUNNING BILLS ARE BEING RAISED WHICH REPRESENT CERTAIN % OF WORK COMPLETED AT SOME REGULAR INTERVALS WITHOUT WAITING FOR THE COMPLETIO N OF WORK AND THIS PROCESS GETS CONTINUE ROUND THE YEAR TILL WORK GETS COMPLETED. HENCE, IN SUCH TYPE OF CONTRACT WORK NO SUCH MECHANISM MAY BE APPLIED SO AS TO MATCH TOTAL EXPENDITURE/SALES AND PROFIT THEREUPON AT POINT OF TIME IN MID OF THE YEAR OR MONTH WISE. TOTAL EXPENDITURE WHICH YOU HAVE TAKEN MONTH WISE IN DETAILS OF MONTH WISE WORK IN PROGRESS CHART IS INFACT EXPENDITURE INCURRED FOR THE ENTIRE PROJECT TAKEN ALL THE SITES TOGETHER WHERE AS THE SALES REPRESENTS RUNNING BILLS SUBMITTED .IT IS NOT NECESSARY THAT THE BILLS SUBMITTED ARE AGAINST THAT SITE ONLY AGAINST WHICH EXPENSES ARE BEING INCURRED. SO NO INFERENCES CAN BE MADE BY I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 21 OF 34 LOOKING AT THE CHART ON MONTHLY BASIS. THIS TYPE OF CALCULATION MAY BE FIT FOR TRADING ACTIVITY OR SOME MANUFACTURING ACTIVITY WHERE COUNTING AND MATCHING OF EXPENDITURE VS SALES ARE POSSIBLE. SEC. 145(1) LAYS DOWN THAT PROFITS AND GAINS OF BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE AND S. 145(3) EMPOWERS THE AO TO REJECT THE BOOK RESULTS ONLY WHEN HE IS NOT SATISFIED ABOUT THE CORRECTNESS OR THE COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE S OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN S. 145(1) OR ACCOUNTING STANDARDS AS NOTIFIED U/S 145(2) HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE. IF THESE REASONS DO NOT EXIST, THE AO IS NOT JUSTIFIED IN ESTIMATING THE PROFIT. HENCE IN LIGHT OF OUR ABOVE, WE DO NOT AGREE WITH YOUR CONTENTION THAT IT IS ASSESSEE UNEXPLAINED I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 22 OF 34 EXPENDITURE. 7.3 FURTHER, THE ASSESSEE HAS MADE ADDITIONAL SUBMISSION VIDE LETTER DATED 08/03/2013, THE RELEVANT PORTION OF WHICH IS REPRODUCED BELOW :1 'YOU HAVE CONSIDERED THE EXPENDITURE PURELY ON THE CUTOFF DATE OF 10 TH OF SEPTEMBER AND ACCORDINGLY TAKEN RS. 18,20,538/1 EXPENDITURE TILL 10 TH OF SEPTEMBER. HERE WE WOULD LIKE TO SUBMIT THAT YOU HAVE NOT CONSIDERED ONE LABOUR PAYMENT OF RS. 11.80,620/1.AND ONE PETTY CONTRACTOR PAYMENT OF RS. 55,08,400/1 MADE ON 12.09.2009 WHEREAS OUT OF THESE BOTH PAYMENTS EXPENSES UP TO 10 TH OF SEPTEMBER WERE INCURRED FAT THE SALES WHAT YOU HAVE CONSIDERED WHILE MAKING THE DETAILS OF MONTH1. WISE WORK IN, PROGRESS. SINCE LABOUR PAYMENT IS BEING MADE EVERY WEEK IT IS QUITE REASONABLE TO ADD, FIVE DAYS LABOUR CHARGES WHICH COMES TO RS. 111,80,620/1 / 7 X 5 = 843300/1 AND SINCE PETTY CONTRACTOR MR. INDRAPAL DANGI WHO HAD PROVIDED HIS I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 23 OF 34 SERVICES FOR DATIA WORK AND FOR WHICH YOU HAVE CONSIDERED SALES ALSO TILL THE DATE OF YOUR CALCULA TION IT IS QUITE OBLIVIOUS THAT EXPENDITURE ON THE PETTY CONTRACTOR FOR RS. 55,08,400/1 TOO HAS TO BE CONSIDERED.' 18. THE AO ANALYZED THE EXPLANATION OFFERED BY THE ASSESSEE AND OBSERVED THAT IT IS EXPECTED THAT THE CONTRACTOR SHOULD RECORD THE SALES/CONTRACT RECEIPTS ON THE DA TE OF PREPARATION OF RUNNING BILLS AND AT THE MOST ON THE DATES ON WHICH IT IS APPROVED BY THE CONTRACTEE. IN THE CASE OF THE ASSESSEE, THE ASSESSEE RECORDED CONTRACT RECEIPTS O N THE DATE ON WHICH THE CHEQUE WAS CREDITED IN ITS BANK ACCOUNT I.E. MUCH AFTER THE DATE OF PREPARATION/SANCTION OF RUNN ING BILLS. THEREFORE, THE AO CONCLUDED THAT THE SAID EXPENSES NOT INCURRED OTHERWISE THE CORRESPONDING RUNNING BILLS WO ULD NOT HAVE BEEN ISSUED FOR WHICH THE PAYMENTS ARE RECEIVED . ACCORDINGLY, THE AO MADE THE ADDITION OF RS. 1,07,1 9,928/- ON ACCOUNT OF EXPENSES INCURRED WHICH WERE NOT RECORDED IN THE BOOKS OF ACCOUNTS. THE AO FURTHER NOTED THAT THERE ARE VARIOUS I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 24 OF 34 DEFECTS IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. T HEREFORE, SPECIFIC COMMENTS WERE CALLED FOR WHICH WERE ANALYZED BY THE AO. THE AO NOTED THAT THE REPLY FURNISHED BY THE AS SESSEE IS VAGUE AND GENERAL IN NATURE. THE CLAIM OF THE ASSES SEE THAT NO QUANTITATIVE RECORDED CAN BE MAINTAINED AND WORKINGS IS NOT AT ALL TENABLE AS THE ASSESSEE IS GUIDED BY SUFFICI ENT TECHNICAL STAFF, PROFESSIONALLY ETC. IN MAINTAINING DETAILS O F QUANTITATIVE RECORDED OF VARIOUS MATERIALS RECEIVED/CONSUMED IS NOT AT ALL DIFFICULT. THE AO FURTHER NOTED THAT THE ASSESSEE F IRM HAS UNDERTAKEN CONTRACT WORK FROM VARIOUS GOVERNMENTS/SE MI- GOVERNMENTS/PRIVATE PERSONS AND RECEIVED RECEIPTS O F RS. 17.93 CRORES FROM FIFTEEN DIFFERENT PERSONS. HOWEVE R, IT IS NOT MAINTAINED SEPARATE SET OFF BOOKS OF ACCOUNTS FOR E ACH CONTRACT. THE AO FURTHER NOTED THAT NO CONTRACT WISE DETAILS WERE MAINTAINED NOR DAY TO DAY STOCK REGISTER WAS MAI NTAINED NOR CLOSING STOCK/WORK IN PROGRESS WAS CLAIMED. THE C LOSING STOCK AND WORK IN PROGRESS WAS CLAIMED AT RS. 10 LAK HS AS ON 31.03.2010, BUT NO SPECIFIC DETAILS THEREOF SUPPORT ED BY DOCUMENTARY EVIDENCE WAS MAINTAINED NOR ANY CERTIFIC ATE FROM I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 25 OF 34 APPROVED ENGINEER REGARDING VALUATION OF STOCK/WORK IN PROGRESS WAS FURNISHED. THE AO FURTHER FOUND THAT TH E AUDITOR HAS NOT GIVEN ANY INFORMATION AGAINST PARA 28(A) OR 28(B) REGARDING QUANTITATIVE DETAILS AND ONLY MADE THE RE MARKS NOT APPLICABLE. THE AO FURTHER FOUND THAT OUT OF TOTAL EXPENDITURE OF RS. 15.08 CRORES A MAJOR PORTION OF RS. 6.95 CRO RES I.E. 46.03 % IS ON ACCOUNT OF LABOUR CHARGES, WHICH ARE I NCURRED IN CASH AND NOT SUPPORTED BY BILLS. IT WAS ALSO NOTI CED THAT CERTAIN EXPENSES EXCEEDING RS. 20 LAKHS WERE INCURR ED IN CASH IN VIOLATION OF PROVISIONS OF SECTION 40A(3) OF THE ACT. ACCORDINGLY, THE AO REJECTED THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. WHILE DOING SO, THE AO HAS ALSO PLACED RELIANCE ON VARIOUS CASE LAWS ,V IZ., RAM CHANDRA SINGH RAMNIK LAL VS. CIT, 42 ITR 780 (PAT), BHAI SUNDAR DASS SARDAR SINGH (P) LTD. VS. CIT, 84 ITR 1 06 (DEL) AND ARIHANT BUILDERS, DEVELOPERS & INVESTOR P.LTD. VS. ACIT, (I.T.A.T. INDORE SB),106 ITD 10. CONSIDERING THE DE FECTS NOTICED IN THE BOOKS OF ACCOUNTS, THE AO APPLIED 10 % PROFIT RATE ON THE CONTRACT RECEIPT OF RS. 17,93,49,239/- AND WORKED I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 26 OF 34 OUT THE NET INCOME OF RS. 1,79,34,924/- AS AGAINST NET PROFIT OF RS. 71,46,260/- CLAIMED BY THE ASSESSEE. ACCORDINGL Y, THIS AMOUNT WAS CONSIDERED FOR ADDITION. HOWEVER, SINCE THE AO HAS ALREADY MADE ADDITION OF RS. 1,07,19,928/- ON A CCOUNT OF UNEXPLAINED EXPENDITURE (NEGATIVE STOCK), THEREFORE , NET ADDITION OF RS. 68,735/-WAS MADE TO THE TOTAL INCOME DECLARED BY THE ASSESSEE. 19. BEING AGGRIEVED, THE ASSESSEE HAS FILED THE APPEAL BEFORE THE CIT(A). 20. THE LD. CIT(A) NOTED THAT THE AO ON VERIFICATION OF MONTH-WISE DETAILS OF GROSS RECEIPT AND GROSS EXPENS ES CLAIMED BY THE ASSESSEE HAS WORKED OUT THE PEAK AMOU NT OF SUCH UNEXPLAINED EXPENDITURE AT RS. 1,07,19,928/- A S ON 10.09.2009, WHICH WERE ADDED BY THE AO, BESIDES THE A O HAS FOUND VARIOUS DEFECTS IN THE BOOKS OF ACCOUNTS AND ,ACCORDINGLY, REJECTED THE BOOKS OF ACCOUNTS AS PER THE PROVISIONS OF SECTION 145(3) OF THE ACT. THE LD. CI T(A) NOTED THAT THE AO HAS CALCULATED UNEXPLAINED INVESTMENT/N EGATIVE STOCK OF WORK IN PROGRESS BY MATCHING THE SALES ACC OUNTED FOR I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 27 OF 34 REDUCING THE GROSS PROFIT AT A CONSTANT RATE OF 13. 5314 % WITH THE EXPENSES DEBITED IN THE BOOKS OF ACCOUNTS. THE LD. CIT(A) NOTED THAT THE ARGUMENT OF THE ASSESSEE HAS FORCE A S IN THE MOST OF THE CASES, RAW MATERIALS SUPPLIERS KEEP ON S UPPLYING THE GOODS AND BILLS ARE RAISED AFTER A PARTICULAR I NTERVAL OF TIME MAINLY ITEMS LIKE STONE, BLACK STONE AND SAND. IT I S THE GENERAL PRACTICE IN THIS TYPE OF BUSINESS. THEREFORE, THE L D. CIT(A) WAS OF THE VIEW THAT IT IS NOT PRACTICAL TO WORK OUT SUCH AN UNEXPLAINED EXPENDITURE BY MAKING A MATHEMATICAL CALCULATION OF SALES/GROSS PROFIT VIS--VIS THE EXP ENDITURE DEBITED IN THE BOOKS OF ACCOUNTS. IN THE CASE OF TH E CONTRACTOR, THERE IS A NORMAL TENDENCY TO DEBIT MORE EXPENSES T HAN ACTUAL EXPENSES INCURRED. THEREFORE, IN THE ABSENCE OF ANY IOTA OF EVIDENCE IN REGARD TO INCURRING UNACCOUNTED EXPENDI TURE, THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION ON ACCOU NT OF UNEXPLAINED EXPENDITURE OF RS. 1,07,19,928/- IN THE TOTAL INCOME DECLARED BY THE ASSESSEE. HOWEVER, AS REGAR DS INVOKING THE PROVISIONS OF SECTION 145(3), THE LD. CIT(A) CONFIRMED THE REJECTION OF BOOKS OF ACCOUNTS, CONSI DERING THE I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 28 OF 34 FACTS THAT THE ASSESSEE HAS SHOWN THE CLOSING STOCK ON ESTIMATE BASIS AT RS. 10 LAKHS ONLY AND NO SPECIFIC DETAILS SUPPORTED BY ANY DOCUMENTARY EVIDENCE WAS FURNISHED AND OTHER DEFECTS POINTED OUT BY THE AO. THE LD. CIT(A) HAS ALSO PLACED RELIANCE IN THE CASE OF CIT VS. BRITISH PAIN TS INDIA LIMITED, (1991) 188 ITR 44 ( S.C.). THE LD. CIT(A) FURTHER NOTED THAT IN ASSESSMENT YEAR 2008-09 AND ASSESSMENT YEAR 2009- 10, ADDITIONS OF RS. 3,70,922/- AND RS. 2,93,000/- WERE MADE IN THE RETURNED INCOME IN ASSESSMENT ORDER PASSED U /S 143 OF THE ACT. THEREFORE, INVOCATION OF PROVISIONS OF SEC TION 145(3) WAS UPHELD. WITH REGARD TO NET PROFIT RATE OF 10%, T HE LD. CIT(A) FOUND THE SAME AS ON VERY HIGHER SIDE CONSID ERING THE PAST HISTORY, TOTAL TURNOVER OF THE ASSESSEE AND AL SO ASSESSEE HAS GIVEN SOME WORK TO THE SUB-CONTRACTORS WHEREIN TH E PROFIT EARNED WOULD BE LESS THAN THE PROFIT EARNED IN THE WORK UNDERTAKEN BY THE ASSESSEE ITSELF. ACCORDING TO TH E LD. CIT(A), THERE WOULD BE FAIR AND REASONABLE IF NET PROFIT RA TE OF 6% OF THE TOTAL RECEIPT OF THE ASSESSEE IS APPLIED TO COM PUTE THE NET INCOME CHARGEABLE TO TAX. ACCORDINGLY, THE LD. CIT( A) HAS I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 29 OF 34 WORKED OUT 6% OF THE TOTAL TURNOVER AT RS. 1,07,60,9 54/- AND AFTER REDUCING THE NET PROFIT OF RS. 71,46,260/- AS SHOWN BY THE ASSESSEE, AN ADDITION OF BALANCE OF RS. 36,14,6 94/- WAS CONFIRMED. THE LD. CIT(A) FURTHER NOTED THAT AS AGA INST THE ADDITION MADE ON ACCOUNT OF UNEXPLAINED EXPENDITURE/NEGATIVE STOCK OF RS 1,07,19,928/-, THE NET ADDITION ON ESTIMATION OF NET PROFIT WORKS OUT TO RS . 68,735/- I.E. RS. 1,07,60,954 (-) RS. 1,07,19,928). ACCORDIN GLY, THE LD. CIT(A) HAS MAINTAINED THE ADDITION OF NET PROFIT OF RS. 68,835/- + RS. 34,14,694/- ON THIS ACCOUNT. 21. BEING AGGRIEVED, THE ASSESSEE HAS FILED THE APPEAL BEFORE THE TRIBUNAL. 22. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO REJECTED THE BOOKS OF ACCOUNTS AND APPLIED PROFI T RATE OF 10% . THE LD. CIT(A) SUSTAINED IT TO 6%. THE ASSESS EE IS CHALLENGING THE ADDITION AS THE NET PROFIT DECLARED BY THE ASSESSEE MAY BE ACCEPTED. THE LD. COUNSEL FOR THE A SSESSEE SUBMITTED A CHART GIVING THE COMPARATIVE GROSS RECE IPTS AS WELL I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 30 OF 34 AS NET PROFIT RATE DECLARED FROM THE ASSESSMENT YEA R 2007-08 TO 2010-11, WHICH READS AS UNDER :- PARTICULAR A.Y.2007-08 A.Y.2008-09 A.Y.2009-10 YEA R UNDER APPEAL GROSS RECEIPT 55367036 124968803 159908451 179349239 GROSS PROFIT 7883640 17530088.41 20905089.81 24268511.48 GROSS PROFIT % ON TURNOVER 14.23 % 14.02 % 13.07% 13.53 % NET PROFIT BEFORE DEPRECIATION 4714700 11242289.71 14151236.39 19503705.55 DEPRECIATION 2386454 5063253.69 6188982.81 5053046.20 NET PROFIT BEFORE INTEREST AND SALARY TO PARTNERS 2328246.47 6179036.02 7962253,58 14450659.35 INTEREST AND SALARY TO PARTNERS 1255325 3257145.55 42904512.24 7304398.66 NET PROFIT 1072919.74 2921890.47 3671841.34 7146260.49 NET PROFIT % ON TURNOVER BEFORE INTEREST AND SALARY TO PARTNERS 4.20% 4.94% 4.97% 8.05 % NET PROFIT % ON TURNOVER AFTER INTEREST AND SALARY TO PARTNERS 1.93% 2.33% 2.29% 3.98% THEREFORE, THE ASSESSEE CLAIMED THAT FOR MAKING THE ESTIMATE OF PROFIT, THE PAST DATA WITH THE PAST ESTIMATE OF P ROFIT ARE TO BE CONSIDERED, AS HELD IN THE CASE OF BRIJ LAL MANI LA L & COMPANY, 92 ITR 287 (MP). THE LD. AUTHORIZED REPRES ENTATIVE OF THE ASSESSEE SUBMITTED THAT MAIN BASIS OF REJECT ION OF BOOKS IS THE CLOSING STOCK, WHICH WAS VALUED AT RS.10 LAKHS ON I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 31 OF 34 ESTIMATED BASIS, IF THE CLOSING STOCK IS SHOWN EXCES S WOULD RESULT IN INCREASE OF PROFIT IN CURRENT YEAR BUT CO RRESPONDINGLY DECREASED THE PROFIT IN THE SUBSEQUENT YEAR. THEREF ORE, IT WAS URGED TO CONSIDER THE ADOPTION OF NET PROFIT RATE O N REASONABLE BASIS. 23. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT THE AO HAS NOTICED VARIOUS DEFECTS WHICH WERE SPECIFIC IN NA TURE LIKE NON-MAINTENANCE OF QUANTITATIVE DETAILS OF STOCK. C LOSING STOCK WAS MADE ON ESTIMATED BASIS. EXPENDITURE WERE INCREA SED AS COMPARED TO EARLIER YEAR. FURTHER IN THE PAST ALSO, THE BOOKS OF ACCOUNTS OF THE ASSESSEE WAS REJECTED AND NET PROFIT WAS ESTIMATED. THEREFORE, CONSIDERING THE PAST HISTORY AND DEFECTS AS POINTED OUT BY THE AO AND LD. CIT(A), THE REJECT ION OF BOOKS OF ACCOUNTS IS JUSTIFIED. WE ARE ALSO AWARE OF THE F ACT THAT THE ASSESSEE HAS NOT CHALLENGED THE REJECTION OF BOOKS OF ACCOUNTS BEFORE US, WHICH SHOWS THAT THE REJECTION OF BOOKS OF ACCOUNTS UPHELD BY THE LOWER AUTHORITIES WAS ACCEPTABLE TO T HE I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 32 OF 34 ASSESSEE. NOW THE ISSUE REMAINS WITH US TO ADJUDICAT E THE ISSUE REGARDING APPLICATION OF NET PROFIT ON THE GR OSS RECEIPTS. 24. WE FIND THAT THE ASSESSEE HAS SHOWN PROFIT RATE AT 1 .93 % IN ASSESSMENT YEAR 2007-08, 2.33 % IN ASSESSMENT YEAR 2008-09, 2.29 % IN ASSESSMENT YEAR 2009-10 AND 3.9 % DURING YEAR UNDER CONSIDERATION . THUS, THE PROFIT RATE DISCLOSED BY THE ASSESSEE SHOWS A GROWTH OVER THE PA ST YEAR. HOWEVER, WE ALSO FIND THAT DURING YEAR UNDER CONSID ERATION, THE AO HAS FOUND SPECIFIC DEFECTS IN THE BOOKS OF A CCOUNTS AND ALSO WORKED OUT PEAK NEGATIVE EXPENSES AMOUNTING TO RS. 1.07 CRORES. THIS FACT WAS NOT IN THE EARLIER YEARS. WE A LSO NOTE THAT THE PROFIT RATE DISCLOSED AT 2.33 % IN ASSESSMENT Y EAR 2008-09 WAS ALSO NOT FOUND ACCEPTABLE BY THE DEPARTMENT, HE NCE, THE GROSS PROFIT ADDITION WAS MADE AND AFTER WHICH THE GR OSS PROFIT RATE WAS WORKED OUT TO 2.63%. SIMILARLY, IN ASSESSME NT YEAR 2009-10, THE PROFIT RATE DISCLOSED WAS AT 2.29%, WHIC H WAS INCREASED BY THE AO AT 2.47% AFTER MAKING GROSS PRO FIT ADDITION. IN THE PRESENT CASE, THE LD. CIT(A) HAS U PHELD THE GROSS PROFIT RATE AT 6% AS AGAINST 10% ESTIMATED BY THE AO I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 33 OF 34 AND LD. CIT(A) HAS ALSO ALLOWED SET OFF OF RS. 1.07 CRORES EXPENDITURE AS AGAINST THE ESTIMATION OF GROSS PROF IT. IT IS ALSO NOT IN DISPUTE THAT THE BOOKS OF ACCOUNTS ARE NOT C ORRECTLY MAINTAINED FROM WHICH THE PROFIT CAN BE ADDUCED PROP ERLY. THEREFORE, CONSIDERING THE PAST HISTORY OF THIS CAS E AND THE FACTS NOTICED BY THE LOWER AUTHORITIES IN MAINTENA NCE OF BOOKS OF ACCOUNTS, PARTICULARLY THE UNEXPLAINED EXPENDITU RE OF RS. 1.07 CRORES, IN OUR VIEW, IT WOULD BE REASONABLE AND FAIR TO ADOPT A GROSS PROFIT RATE AT 5% ON TOTAL GROSS RECE IPTS OF RS. 17,93,49,239/-, WHICH WORKS OUT TO RS. 89,67,461/- AS AGAINST THE PROFIT DECLARED AT RS. 71,46,260/-. ACC ORDINGLY, THE ADDITION OF RS. 18,21,201/-( 89,67,461 (-) 71,46,26 0 ) IS CONFIRMED AS AGAINST 36,14,694/- UPHELD BY THE LD. CIT(A) . ACCORDINGLY, THE ASSESSEE WILL GET RELIEF OF RS. 17, 93,493/- (36,14,694 (-) 18,21,201) BESIDES WE ALSO FIND THAT THE LD. CIT(A) HAS MAINTAINED AN ADDITION ON NET PROFIT AT RS. 68,735/-, WHICH IN OUR CONSIDERED OPINION WOULD BE IN CLUDIBLE IN THE TOTAL GROSS PROFIT RATE OF 5% AS ESTIMATED B Y US. ACCORDINGLY, THE SAID ADDITION IS ALSO DELETED. I.T.A.NO. 673/IND/2014 A.Y.2010-11 M/S.RAJDEEP CONSTRUTION,BHOPAL PAGE 34 OF 34 25. THUS, GROUND NOS. 4 & 5 ARE PARTLY ALLOWED. 26. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER HAS BEEN PRONOUNCED IN OPEN COURT ON THE 23 RD NOVEMBER, 2016. SD/- (..) (D.T.GARASIA) JUDICIAL MEMBER SD/- (..) (O.P.MEENA) ACCOUNTANT MEMBER * / DATED : 23 RD NOVEMBER, 2016. CPU* 1722