When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay.

The cross appeals filed by the revenue and assessee are directed against the order of the CIT(A)-II, Bhubaneswar dated 11.4.2014 for the assessment year 2009-2010.

2. The assessee, in the present case, is engaged in civil and mechanical construction work and filed its return of income showing total income of Rs.1,01,35,295/-. During the assessment proceedings, the Assessing Officer noticed that the total turnover of the assessee from contract business, as reflected in the audited profit and loss account, stands at Rs.35,54,89,496/- and the net profit before depreciation and provision for taxation was shown at Rs.60,46,199, which is around 1.98% of the gross contract turnover. Since the assessee has not maintained proper books of account, the Assessing Officer rejected the book results and completed the assessment u/s.143(3) r.w.s 144 of the Act, determining total income at Rs.14,13,90,320/-, inter alia, disallowing Rs.9,32,70,290/- on account of sundry creditors. The AO also estimated the net profit at Rs.3,91,03,845/- before depreciation, provision for taxation and other statutory disallowacnes. Being aggrieved, the assessee carried the matter in appeal before the first appellate authority, who deleted the addition of Rs.9,32,70,290/- but confirmed the assessment made u/s.144 of the Act. Hence, both the sides are in appeal before the Tribunal.

ASSESSEE’S APPEAL IN ITA No.42/CTK/2015

3. The revised grounds of appeal filed by the assessee are as under:

“1. For that the order of assessment dated 30.12.2011 as well as the order of the Ld. CIT (A)-II, Bhubaneswar dated 11.04.2014 are void abinitio, against the natural justice, unjustified, erroneous, arbitrary, contrary to facts, bad in law, without jurisdiction and/or in excess of jurisdiction and legally untenable.

2. For that the Learned Assessing Officer has acted either assuming proper jurisdiction and/or in excess of his jurisdiction, to complete the assessment U/s. 144 read with Section 143(3), when all the material facts as asked by him were furnished to him in pursuance to his notice U/s. 142(1) & as such the assessment as framed are liable to be quashed & the demand be annulled.

3. For that the assessment as well as the 1st appeal order as framed/passed are perverse on fact as well as erroneous in law. Both the forums have failed to show any cogent reason in rejecting the books of accounts of the assessee appellant as well as the explanations/ submissions offered in course of assessment/ appeal proceeding, thereby resorting to estimate the income. Thus the order of the Ld. A.O. as well as Ld. CIT (A)-II are liable to be quashed/ set aside.

4. For that the Learned Assessing Officer has failed to acquire the jurisdiction U/s. 144 in the absence of a definite finding that the case of the assessee falls within the 1st proviso to 145(1) and/or 145(2) and therefore the rejection of books of accounts on the facts and particular circumstances of the case are arbitrary, unwarranted and uncalled for.

5. For that when the accounts of the assessee appellant are maintained in course of its regular business activities and there is no deviation from the system/method of accounting followed from year to year and the same having been accepted by the department in the past years are to be taken as correct unless there are strong and sufficient reason to indicate that they are unreliable and profit cannot be deduced thereform correctly (the burden lies with the Assessing Officer.) The Learned Assessing Officer, having failed to do so with a clear finding, the rejection of the accounts is arbitrary, unjustified, illegal and not sustainable in the eyes of law.

6. For that scrutiny assessment for the period 1983-84 to 2012-13 (except for the Asst. Year 2005-06& 2009-10) having been completed based on the books of accounts maintained by the assessee appellant for the respective years, there is no reason^ to, reject the accounts for the present year, while accepting the accounts of the past / subsequent years & therefore the rejection of accounts and estimation of income for the impugned year is improper, illegal and smacks malafide.

7. For that even if assuming but not admitting that the Learned Assessing Officer is correct in rejecting the accounts and estimate the income, but however, estimating the income @ 11% adopted on the facts and particular circumstances of the case without looking into the assessee's past record, when the net profit for various years, preceding and succeeding assessment years have been accepted by the department on year to year basis are without jurisdiction, arbitrary, illegal and not sustainable on fact and law.

8. That the Ld. A.O. as well as the Ld. CIT (A) has erred on fact and law in utilizing two comparable cases i.e. M/s. D.D. Pati & others AND ARSS Infrastructure Projects Ltd, behind the back of the assessee while applying the rate of profit at 11% to estimate the profit from gross contract receipt without confronting the same to the appellant, thereby depriving the assessee from reasonable opportunity of being heard and benefit of natural justice. Hence, the adoption of rate of profit @ 11% in the comparable case are not sustainable on fact & law.

9. For that while estimating the contract income, the Ld. A.O. has failed to give due deduction to the materials supplied by the department, interest paid to financial institutions, sales tax etc, and therefore the estimated income is excessive, illegal and due deductions are to be allowed on these accounts as above.

10. For that even if assuming but not admitting that the Ld. A.O. is correct to estimate the income, but however, the Ld. A.O. has erred on fact and law in further making an addition of Rs. 9,32,70,920/- disallowing sundry creditors as well as Rs. 90,16,186/- reported as other revenue to the estimated income, which is contrary to the provisions of the I.T. Act, 1961 and in the assessee's own case - relating to the Asst. Year 2005-06 and the judgement of the Hon'ble Andhra Pradesh High Court in the case of Indwell Constructions Vs. CIT (1998) 232 ITR -P-776-779. No other additions are possible 8B permissible 8& as such are liable to be deleted.

11. For that the Ld. A.O. has committed an error on fact and law in adding a sum of Rs. 9,32,70,920/- on account of Sundry Creditors to the estimated income, which is otherwise not possible or permissible when income are estimated. Hence, the same is nothing but arbitrary, exercise of power, ex facie illegal and not sustainable on fact and law.

12. For that alternatively when the opening balance of the previous year and the closing balance of the succeeding year has not been disturbed in the assessment of previous and subsequent years, the entire addition of Sundry Creditors at Rs. 9.32,70.920/- is illegal, arbitrary and not permissible since it includes the opening balance of Rs. 7,54,51,082/-of the previous year. Hence, liable to be deleted.

13. For that the Ld. A.O. has further committed an arrear of law while adding the other revenue at Rs. 90,16,186/- such as: income from fixed deposits, income from sale of assets, income from NSC, Insurance claim & other receipts etc., in spite of the fact that the assessee's own case, the I.T.A.T has allowed them as business income holding that they cannot be excluded from the normal profit and in furtherance to that dismissing the departmental appeal against such deletion.

14. For that in absence of any notice U/s. 129 of the I.T. Act, by the succeeding Assessing Officer, there being a change in the Assessing Officer, the present proceeding continued thereafter is bad in law and consequently the assessment order passed on 30.12.2011 is liable to be set aside.

15. For that the ld CIT(A) has erred on fact and law while confirming the estimation on profit relying upon the low profit which are again are not permissible to invoke the powers for rejecting the account. Hence, the order of the ld CIT(A) are liable to be set aside,..”

APPLICATION DT.23.1.2015 FOR CONDONATION OF DELAY OF 206 DAYS

4. Ld counsel for the assessee referring to the affidavit of Shri Tushar Mishra, Managing Director of the assessee company, medical certificate dated 17.1.2015 and 28.6.2014 submitted that the Managing Director of the assessee company had gone with replacement of kidney few years back and all of a sudden fell ill and continued with the prolonged illness from 28.6.2014 to 16.1.2015. Therefore, the appeal could not be filed within the prescribed time limit and it was filed belatedly after 206 days. Ld counsel further drew our attention to medical certificate and affidavit of the MD and submitted that since the appeal memo, statements of facts, grounds of appeal and vakalatanama were to be signed by the MD but the assessee could not obtain the same and in absence of which, the assessee could not be prepared and filed within the prescribed time. Ld counsel further submitted that after being recovered from the illness as certified by the attending physicians to resume the duty from the isolation, MD of the assessee company in consultation with ld A.R. and Advocate of the company prepared the appeal memo, statement of facts & grounds of appeal and thereafter the appeal was filed on 23.1.2015. Ld counsel submitted that the appeal could not filed within the time prescribed by the Statute due to illness of the MD, and, therefore, the delay was neither deliberate and intentional. Ld counsel submitted that delay was due to bonafide reasons and the assessee has shown sufficient cause of delay therefore, the delay of 206 days in filing the appeal may kindly be condoned.

5. Replying to above, ld CIT DR strongly objected to application seeking condonation of delay. Ld CIT DR placing reliance on the decision of Hon’ble Bombay High Court in the case of Ornate Traders Pvt Ltd. vs ITO (2009) 312 ITR 193 (Bom) and another decision of Hon’ble Supreme Court in the case of Commissioner of Customs and Central Excise vs Hongo India Pvt Ltd., and another, (2009) 315 ITR 449 (SC).

6. Placing rejoinder to above submission of ld CIT DR., ld counsel for the assessee placed reliance on the decision of Hon’ble Supreme Court in the case of Collector, Land Acquisition vs Mst. Katiji (1987) 167 ITR 471 (SC), wherein, it has been held that there can be no presumption of deliberateness or negligence or mala fides in case of delay, because litigants run a serious risk without any benefit by the delay. The judiciary is respected not for legalizing injustice on technical grounds but for removing injustice. Ld counsel submitted that the facts and circumstances of the case relied upon by ld CIT DR are quite dissimilar and distinct to the facts and circumstances of the present case, wherein, the assessee has given sufficient cause for filing the appeal delay by 206 days. Therefore, the contention application be allowed.

7. On careful consideration of the rival submissions, first of all, we note that admittedly, the assessee has filed the appeal beyond the prescribed time limit and the assessee has filed petition seeking condonation of delay of 206 days before this Bench.

8. In the case of vs Hongo India Pvt Ltd.,(supra), as relied by the ld CIT DR, Hon’ble Supreme Court held that the High Court has no power to condone the delay in filing a reference application beyond the period of 180 days under section 35H(1) of the Central Excise Act, 1944, prior to its omission by Act No.49 of 2005 with effect from December 28,2005. The present case is not related to the Central Excise Act,. 1944 and relate to Direct Tax case covered under the Income tax Act, 1961 and Income tax Rules, 1962 made thereunder. In this judgment, Hon’ble Supreme Court noted that Section 35H(1) of Central Excise Act, 1944 was omitted by the Act, No.49 of 2005 w.e.f. 28.12.2005 and prior to that, Hon’ble High Court had no power to condone the delay but there is no power in the Statute in considering the application for condoning the delay filed by the assessee based on sufficient ground. Therefore, we respectfully hold that the facts and circumstances of the present case are dissimilar to the facts before the Hon’ble Supreme Court in the case of Hongo India Pvt Ltd (supra). Therefore, we respectfully observe that the benefit of the said decision relied by ld CIT DR is not available for the revenue in the case at hand.

9. Further, from respectfully vigilant and careful reading of the decision of Hon’ble Bombay High Court in the case of (supra), as also relied by ld CIT DR, we observe that in that case, application for condonation of delay in filing the appeals by the revenue, a collective excuse was given that the time was taken on the table of one officer or the other in drafting appeals, approval of the Chief Commissioner and in some cases, the files were not attended/dealt with for a considerable time. An additional ground was also taken that non-availability of the court fee stamps for some duration. Their Lordships after considering the rival submissions and facts of that case, held that the expression “sufficient cause” will always have relevancy to reasonableness. The actions which could be condoned by the Court shall fall within the realm of normal human conduct or normal conduct of a litigant. The Hon’ble High Court found that where the appeals have been filed by inordinate delay and no plausible explanation for delay has been given, the appeals could not be condoned. Thus, in our humble understanding, Their Lordships declined to accept the contention of the revenue department that as noted above, dismissed the condonation petition of the department by holding that the time taken for preparation of appeals by the Officers of the Department is not acceptable. With regard to additional ground for condonation of delay, their Lordships clearly held that what is meant by “readily available” cannot be equated to that court fee stamps were “not available”. On respectfully reading of this judgment, we clearly observe that Their Lordships emphasized that all the application for condonation of delay in filing the appeals should be based on a sufficient cause which is always have relevance to the reasonableness.

10. When we consider the facts and circumstances of the present case, then we clearly find that the Managing Director of the assessee company has filed affidavit and medical certificates showing a sufficient cause that due to replacement of kidney, he fell ill and Dr. advised complete rest and isolation for proper cure and care. After recovering from the said illness, MD took all endeavor to file appeals before the Tribunal but the same was delayed by 206 days. There is no affidavit or documentary evidence from the Department controverting the said affidavit and medical evidence in support of application. Thus, in our humble understanding, this is a sufficient cause based on medical ground. Therefore, the facts of present case are quite dissimilar and distinct from the case relied upon by ld CIT DR. Therefore, the benefit of the judgments of Hon’ble Supreme Court (Supra) and Hon’ble Bombay High Court (supra) is not available to the revenue in the present case. From the judgment of Hon’ble Supreme Court in the case of Collector, Land Acquisition vs Mst. Katiji (supra), as strongly relied by the ld counsel of the assessee, wherein, it has been held as under:

“4. When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay.

5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk.

6. It must be grasped that the judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.”

11. Respectfully following the ratio of the decision in the case of Collector, Land Acquisition vs Mst. Katiji (supra), and satisfying with the sufficient cause based on medical ground supported by an unrebutted affidavit of medical certificates, shown by the assessee in filing the appeals for condonation of 206 days, we have no hesitation to hold that the assessee has shown and established a sufficient cause for condoning the delay of 206 days in filing the appeals. Hence, we condone the delay of 206 days and admit the appeal for adjudication.

GROUND Nos.1 to 6 of Assessee’s appeal.

12. Apropos Ground Nos.1 to 6, ld counsel for the assessee drew our attention towards paragraph 2.1.2 and 2.1.3 of the assessment order and submitted that the copies of note sheets clearly show that the assessee through its authorised representative appeared on 10.2.2011 and filed computation of income, audited books of account, original TDS certificate and other required documents such as bank details etc and thereafter, the date of hearing was fixed to 15.3.2011 and on the very subsequent date i.e. 3.8.2011, the Assessing Officer was changed. Ld counsel submitted that the ld CIT(A) has noted this fact at pages 11 & 12 of the first appellate order and admitted that the AO was changed during assessment proceedings. Ld counsel pointed out that on 10.8.2011, the assessee filed all required seven documents and the AO noted that the assessee has produced details in the format prescribed alongwith details test check and found to be correct and then fixed the next date of hearing to 26.8.2011. Ld counsel submitted that the AO has not pointed out or show caused the assessee regarding non-filing of any documentary evidence/explanation which was called by the AO and on the next very date i.e. 12.9.2011, the assessee also submitted documents called for by the AO and, thereafter, the AO himself gave next date i.e. 30.11.2011 and there is no deliberate act or malafide on the part of the assessee to delay the proceedings and non- filing the required documents. Ld counsel submitted that the allegation levelled by the AO against the assessee in para 2.1.2 and 2.1.3 of the assessment order are baseless and unreasonable as no defects or deficiencies have been pointed out by the AO in the books of account of the assessee and no show cause notice was issued to the assessee before resorting to section 145(3) of the Act while proceeding to take action for rejecting books of account by the AO. Ld counsel submitted that the rejection of books of account may kindly be set aside and book results of the assessee reflecting the audited books of account should be accepted and considered for calculating the estimated income of the assessee. Ld counsel submitted that the AO has rejected the books of account of the assessee in violation of principles of natural justice. He also pointed out that right from AYs 1983- to 1984 to 2012-13, the case of the assessee were under scrutiny proceedings and no doubts have been raised by the AO during assessment proceedings of any of the these years and, therefore, the baseless allegation levelled by the AO against the assessee in rejection of books of account may kindly be dismissed.

13. Replying to above, ld CIT DR submitted that the assessee has shown 1.98% of average profit from 2008-09 to 2010-2011, including present assessment year 2009-10, on total turnover during work contract business and the AO in para 2.1.2 at page 2 of the assessment order has categorically stated about the defects and doubts regarding correctness of the books of account of the assessee. Ld CIT DR submitted that complete books of account were not submitted by the assessee as called for by the AO despite several opportunities were given by the AO. Therefore, the AO was right in resorting to provisions of section 145(3) of the Act. Ld CIT DR further submitted that even during first appellate proceedings before the ld CIT(A), the books of account of the assessee were called for but the assessee did not submit the same for verification. Ld CIT DR also drew our attention to page 14 of the ld CIT(A) order and submitted that since the profit percentage shown by the assessee was very low i.e. 1.66%, which was lowest ever declared by the assessee during preceding and succeeding assessment years and assessee did not satisfy the AO regarding such low profit, therefore, the AO was right in rejecting the books of account of the assessee and ld CIT(A) was correct in upholding the same. Ld CIT DR also drew our attention towards copies of note sheet submitted by the assessee and order sheet clearly shows that the assessee did not file complete books of account as called by the AO and filed part of books of account, and the AO was correct in doubting the correctness and completeness of the books of account by rejecting the same on several grounds mentioned in para 2.1.2 of the assessment order. Ld CIT DR relied on the order of the Assessing officer and also placed reliance on the decision ITAT Guwahati Bench in the case of Sudip Paul vs ACIT (2015) 59 taxmann.com 268 (Guwahati), wherein, it was held that where assessee’s books of account were found non-reliable, books of account were rightly rejected.

14. On careful consideration of the rival submissions, we are of the considered opinion that the AO has rejected the books of accounts and in para 2.1.2, the AO has given 11 reasons supporting his action for rejection of books of account by invoking the provisions of section 145(3) of the Act.

On careful and vigilant reading of the orders of lower authorities, we find that the AO before resorting to take any action under section 145(3) of the Act has properly analysed the facts and circumstances of the case and found 11 defects and deficiencies citing the correct and completeness of books of account and ld counsel of assessee could not controvert these defects barring a few. Therefore, same were not reliable and the AO was right in rejecting the same by following the decision of Hon’ble Supreme Court in the case of CIT vs. British Paints India Ltd., 188 ITR 44 (SC).

15. In this judgement, Their Lordships speaking for the Hon’ble Supreme Court clearly held that it is not only the right but the duty of the AO to consider whether or not the books of account disclose the true state of affairs and whether the correct income can be deducted therefrom. It was also observed that it is incorrect to say that the AO is bound to accept the system of accounting regularly employed by the assessee, the correctness of which had not been questioned in the past. There is no estoppel in these matters and the AO is not bound by the method followed by the assessee in the earlier years in the present case. We are satisfied that the AO has given sufficient reasons regarding defects & deficiencies of completeness and correctness of books of account, which could not reflect and disclose the true state of affairs and correct income of assessee for the period under consideration. The assessee failed to do and thus, in our considered opinion, the AO was right in rejecting the books of account of the assessee. From the relevant part of the first appellate order at pages 12,13 & 14, we are also in agreement with the conclusion drawn and recorded by ld CIT(A) that since neither before the AO nor before the CIT(A), the assessee has not filed complete books of account and, therefore, the AO was right in rejecting books of account u/s.145(3) of the Act and to proceed to estimate profit on the basis of best judgment principles. In the present case also, the AO has categorically noted in para 2.1.2 of the assessment order found many glaring discrepancies and defects in the books of account of the assessee as well as conduct of the assessee during assessment proceedings, therefore, keeping in view the order of ITAT Guwahati in the case of Sudip Paul (supra), we are of the considered view that the assessee’s purchase and expenditures shown were not verifiable from books of account and same should be rejected and income has to be estimated. Accordingly, Ground nos.1 to 6 being devoid of merits and are dismissed.

Ground Nos.7 to 9 & 15 of assessee

16. Apropos Ground Nos.7 to 9 and 15, ld counsel for the assessee submitted that while estimating the income of the assessee @ 11% on gross turnover, the AO has relied on two case laws viz; D.D.Pati & Others (supra) and ARSS Infrastructure Projects Ltd (supra) behind the back of the assessee without confronting the same to the assessee, thereby depriving the assessee from reasonable opportunity of being heard and benefit of natural justice. Ld counsel submitted that while estimating the contract income, the AO has failed to give due attention to the materials supplied by the department, interest paid to financial institutions, sales tax, etc and, therefore, the estimated income is very excessive and illegal, which is against the principles of natural justice, hence not sustainable. He also submitted that an opportunity of being heard before estimation of income was to be given to the assessee and due deductions are to be allowed pertaining to the expenditures incurred by the assessee on various heads. Ld counsel vehemently pointed out that comparable cases adopted by the AO are not the actual comparable with the business of the assessee and the AO has ignored the percentage of profit consistently declared by the assessee and accepted by the department during immediately preceding and subsequent assessment years. He drew our attention towards statement showing percentage of the assessee during preceding assessment years 2006-07 to 2008-09 and subsequent assessment years 2009-10 to 2011-12 including profit percentage declared by the assessee during present assessment year 2009-2010 and submitted that in the immediately preceding, succeeding assessment year present assessment year, the assessee has shown average profit at 1.98%, which was higher than the succeeding assessment year 2010-2011, wherein, the assessee has shown net profit at 1.86%. Therefore, the book results of the assessee cannot be doubted in any manner. Ld counsel lastly submitted that the AO has estimated the income @ 11% of the gross turnover of the assessee without any reasonable and justified basis, which is very wild excessive, high and unreasonable. Therefore, same should be reduced to the declared percentage of profit as shown by the assessee or some reasonable percentage of 2.5% may be adopted keeping in view the entire facts and circumstances of the case and profit declared by the assessee during preceding and succeeding assessment years.

17. Pressing into service the preposition render by Hon’ble M.P. High Court in the case of Vrajlal Manilal and Co vs CIT, (1973) 92 ITR 297(MP), ld counsel for the assessee submitted that the Hon’ble High Court held that “ Income Tax Appellate Tribunal could certainly act on the basis of previous orders of assessment and acting on that the Tribunal could certainly justifiably hold that margin of profits for assessment year would be 17%, which is also basis adopted for previous year constituted good material or good evidence for Tribunal to arrive at conclusion that there was not only evidence, but good evidence before the Tribunal for computing gross profits in manner that it did”. Ld counsel further contended that ITAT Cuttack in the case of Malaya Kumar Mundra vs ACIT in ITA No.256/CTK/2015 assessment year 2010-11 order dated 14.8.2018 has categorically held that after rejecting of book results of the assessee, the income of the assessee has to be estimated by the AO but while doing so, he cannot make a wild guess of the same and the past accepted results are a well founded guide to the estimation of the income of the assessee.

18. Ld counsel further placing reliance on the order of ITAT Agra in the case of Raj Kumar Mittal vs JCIT, reported in MANU/1A/0049/2018 and submitted that the past history of the assessee regarding profitability is the best guide to estimate when book profit is unreliable. Ld counsel also placed on the decision in the case of Bhambra Service Centre vs ITO, reported in MANU/IF/0029/2018 and submitted that the net profit shown by the assessee and accepted by the department in the preceding five assessment years is relevant after rejection of book results of the assessee.

He also submitted that the AO cannot make a wild guess but has to estimate the income of the assessee on the basis of past accepted results. Ld counsel submitted that the net profit shown by the assessee on contract receipts in the impugned assessment year 2009-10 is 1.66%. The rate of net profit on contract receipts accepted by the department in the immediately preceding assessment year 2008-09 was 2.10% and the net profit of immediately succeeding assessment year is 1.86%. Therefore, the total average of immediately preceding year, present assessment year and immediately succeeding assessment year comes to 1.98% of contract receipts and in view of profit declared by the assessee and accepted by the department, estimation of net profit @ 11% is very excessive and unreasonable, which is not sustainable. Therefore, same may kindly be reduced to 2.50% of total contract receipts granting justice to the assessee.

19. Replying to above, ld CIT DR placing reliance on the judgment placing reliance on the judgment of Hon’ble A.P. High Court in the case of Maddi Sudarsanam Oil Mills Co vs CIT reported in MANU/AP/0334/1059 submitted that addition on the flat rate of 9.5% adopted by the Tribunal in estimating the gross profit is proper. Ld CIT DR further placed reliance on the decision of Hon’ble P& H High Court in the case of S.P.Construction vs ITO (2018) 68 taxmann.com 334 (P&H) and submitted that the adoption of net profit of gross profit was justified when the AO could not verify the various details. Further placing reliance on the decision of Hon’ble Calcutta High Court in the case of Amiya Kumar Roy &Bros vs CIT (1994) 206 ITR 306 (Cal), ld CIT DR submitted that the disclosure of low rate of profit combined with further circumstances, after rejection of book results of the assessee, the gross profit at 6-7% is justified.

20. Further placing reliance on the order of ITAT Cuttack bench in the case of B.Banamber & Co vs ITO (2017) 82 taxmann.com 69 (Cuttack), Ld CIT DR submitted that where the assessee firm derived income from work contracts, net profit of the assessee should be estimated at 8 per cent as against 10% adopted by the AO.

21. Further drawing our attention towards orders of lower authorities, ld CIT DR submitted that the Assessing Officer has rightly relied on the decisions in the case of D.D.Pati & Others (supra) and ARSS Infrastructure Projects Ltd (supra) for estimating the net profit @ 11% of total contract receipts of the assessee from works contract. Therefore, the orders of lower authorities may kindly be upheld.

22. Placing rejoinder to above, ld counsel for the assessee again drew our attention towards assessment order and submitted that the AO has not show caused the assessee regarding the orders relied on in the assessment order viz: D.D.Pati & Others (supra) and ARSS Infrastructure Projects Ltd (supra) by way of issuing notice or note sheet entry showing that he is going to rely on both the judgments for estimating the net profit in the hands of the assessee. Therefore, this action of the AO is against principles of natural justice. Ld counsel submitted that the AO never allowed the assessee to explain his case regarding the estimation adopted in the immediately preceding and succeeding assessment years by the assessee and accepted by the department, which is a clear-cut violation of principles rendered by various High Courts and the Tribunal as mentioned during the main contentions and submissions.

23. Ld counsel submitted that the case laws relied by ld CIT DR are not applicable in the facts of the present case having dissimilar and distinct facts and circumstances.

24. On careful consideration of the rival submissions, first of all, we may point out that in the earlier part of this order, we have upheld and confirmed the action of the Assessing Officer in invoking section 145(3) of the Act, wherein, he has rejected the books of account and book results of the assessee. After rejection of books of account, the AO is entitled to estimate the net profit of the assessee keeping in view all relevant facts and circumstances but the first and foremost relevant facts and evidence has to be gathered from the book results declared by the assessee and accepted by the department for immediately preceding and succeeding assessment years.

25. We may also point out that after respectful and vigilant perusal of the assessment order, we observe that the Assessing Officer has given two comparable cases viz: D.D.Pati & Others (supra) and ARSS Infrastructure Projects Ltd (supra) and estimate the net profit @11% without considering the book results of the assessee for immediately preceding and succeeding assessment years, which has been declared by the assessee and accepted by the department at the back of the assessee because the assessee was not given opportunity to give his comments how the two cases are comparable in the present case. In the case of the assessee at hand, the appellant is a limited company, whereas in comparable cases, one of them is individual or partnership firm. The volume of work is much higher than these two comparable cases and the appellant is working over 35 different site Projects, whereas the comparable cases are working on one or two sites located at a particular place. Therefore, the profit percentage on civil contract depends on various factors i.e. the period of execution of work, cost of materials, availability of land and funds, wages estimated at the time of tender and such expenses at the time of execution, use of further funds,scattered nature of establishment and nature of work involving technical aspects including drawing and designing.

26. On careful perusal of the decisions relied by the Ld. CIT D.R. we are of the view that the facts of the present case are clearly distinguishable to the facts relied by ld CIT DR.

27. In the case of Maddi Sudarsanam Oil Mills Co (supra), the assessment year involved is 1947-48 and governed under the Income tax Act, 1922 and in this case the Hon’ble A.P. High Court held that flat rate of 9.5% adopted by the Tribunal in estimating the gross profit is proper, whereas in the case of the present assessee, the AO has estimated the net profit @ 11% and keeping in view the passage of time of approximately 60 years, this preposition cannot be applied blindly in the case of the assessee in support of estimation of net profit @ 11%.

28. In the case of S.P. Construction (supra), the Hon’ble P&H High Court held that adoption of net profit rate of 9% on gross receipt was justified where the assessee did not produce supporting vouchers for expenses, details of purchases and stocks and copies of partners’ bank account. But in the case at hand, the situation and financial position of works contract of Orissa State, which is a financially deprived and weak state, cannot be compared to a rich State such as Punjab and Haryana in view of profit declared by the assessee during immediately preceding and succeeding assessment years, which are also accepted by the department. In that case of S.P. Construction (supra), the assessee was doing construction work of a private house involved superior quality of work leading to a higher profit which cannot be compared to the works undertaken by Government authorities. In the present case, assessee is doing works contract works in Odisha State at 35 locations for Government and Government Undertakings entities which cannot be compared with contract of a private house/bunglows in Chandigarh. Therefore, the facts and circumstances of the S.P.Construction (supra) are not applicable to the present case.

29. In the case of Amiya Kumar Roy & Bros (supra), the facts before the Hon’ble High Court was that the assessee was a wholesale dealer in solid spices for the relevant assessment year and the gross profit declared by the assessee was 6-7%. The Assessing Officer noticed that although the books of accounts were maintained but no day to day stock analysis was found. He also cited comparable cases of a dealer in solid spices and shown gross profit @ 22.2%. Hence, the AO rejected the book version and applied a flat rate of 10%. The matter travelled upto the level of Hon’ble High Court and the adoption of profit rate was confirmed. But in the present case, the assessee is doing contract works not dealing in solid spices. Therefore, the preposition of Hon’ble Calcutta High Court is not applicable to the present case.

30. In the case of B.Banamber & Co. (supra), the assessee himself computed net profit @ 6.30% of gross contract receipts and taking into consideration that profit, the Tribunal held that the net profit @ 8% is reasonable. On the other hand, in the present case, the average net profit declared by the assessee is 1.77% for five years and for three years i.e. during immediately preceding, present year under consideration and immediately succeeding year was 1.98% and department has accepted net profit declared by the assessee for immediately preceding and succeeding assessment year without any dispute. Thus, facts and circumstances of the present case are quite dissimilar and distinct from the facts of the present case. Therefore, we respectfully hold that the orders/judgments relied by the ld CIT DR are not applicable in the present case.

31. When we analyse the case laws cited by ld Counsel for the assessee, we observe as under:

32. In the case of Vrajlal Manilal and Co (supra), the Hon’ble M.P. High Court held thus:

“ Income Tax Appellate Tribunal could certainly act on the basis of previous orders of assessment and acting on that the Tribunal could certainly justifiably hold that margin of profits for assessment year would be 17%, which is also basis adopted for previous year constituted good material or good evidence for Tribunal to arrive at conclusion that there was not only evidence, but good evidence before the Tribunal for computing gross profits in manner that it did.”

33. The Agra Bench in the case of Bhambra Service Centre (supra) has held as under:

“ From the perusal of net profit shown and accepted by the department in the preceding five assessment years, we find that the highest net profit shown was 0.25%. it is an established position of law that after rejection of book results of the assessee, the AO cannot make a wild guess but has to estimate the income of the assessee on the basis of past accepted results. We find that in assessment year 2007-08, the assessee had shown the highest net profit at 0.25%. Therefore, we modify the order of the ld CIT(A) and direct the AO to compute the income of the assessee for the year under consideration by applying net profit rate of 0.25% and partly allow the ground of appeal of the assessee. “

34. We also find that in the case of Raj Kumar Mittal (supra), the ITAT Agra Bench has followed the judgement of Hon’ble M.P. High Court in the case of Vrajlal Manilal & Co. (supra), and held that for arriving at the view that past history is the best guide to estimate profit where book profit is unbelievable. It was also held that previous orders of assessment, although they may even be best judgment assessments, would form good material or good evidence for purpose of computing income of assessment year in question.

35. From the detailed table of net profit declared by the assessee and accepted by the department, we observe that the average net profit of the assessee from 2007-08 to 2011-12 i.e. immediately preceding two assessment years to succeeding two assessment years including the present assessment year i.e. 2009-10 comes to 1.77% of gross contract receipts after depreciation. The rate of net profit of contract receipts accepted by the department in the immediately preceding assessment year 2008-09 was 2.10%, net profit shown in the immediately succeeding assessment year 2010-11 is 1.86%, whereas the net profit shown by the assessee in the present assessment year is 1.66%, which is very low. However, the average of net profit for three years including immediately preceding and succeeding assessment year alongwith present assessment year comes to 1.98%. The assessee has submitted copies of assessment years of preceding and succeeding assessment years and these facts and figures have not been controverted by the department in any manner.

36. The contention of ld counsel for the assessee is that keeping in view the net profit declared by the assessee and accepted by the department during preceding and succeeding assessment year, the net profit @ 2.5% of total contract receipts may kindly be adopted. We are in agreement with this contention of ld counsel for the assessee that as the profit declared by the assessee during present assessment year is 1.66%, which is very low and when the AO was not satisfied with the correctness and completeness of the books of account of the assessee raising serious doubts on the book results of the assessee, then the AO has to estimate the net profit keeping in view the entire facts and circumstances of the case to cover all the possible leakage of revenue. At the same time, we are also of the considered opinion that estimation of 11% of net profit by the AO and confirmed by the ld CIT(A) is also not reasonable, wild and very excessive, which is also not sustainable.

37. In view of foregoing discussion and taking into consideration of the relevant evidence and facts and circumstances of the case, especially the net profit declared by the assessee and accepted by the department during immediately preceding assessment and succeeding assessment year, we are of the view that the average of three years is 1.98% as against the net profit declared by the assessee for present assessment year @ 1.66%.

Therefore, in our considered opinion, to meet the ends of justice and to cover all possible leakage of revenue, we find it proper to estimate the net profit making the profit double of 1.98% (APPROX) which comes to 4% of contract receipts. The assessee get partial relief and the AO is directed to compute the net profit @ 4% of the gross contract receipts. Accordingly, Ground Nos.7 to 9 & 15 are partly allowed.

Ground Nos.10 to 13 of assessee.

38. Apropos Ground Nos.10 to 13, ld counsel for the assessee submitted that at last page of the assessment order, the AO has added Rs.90,16,186/- as other revenue as per P&L account, whereas there is no discussion regarding this addition in the main body ofassessment order. Ld counsel also drew our attention towards page 26 of the paper book-1 of the assessee para 25 and submitted that ITAT, Cuttack in the case of the assessee vide order dated 23.9.2011 passed in ITA No.195/CTK/.2011 and C.O.No.15/CTK/2011 dismissed the appeal of the revenue by observing that “ the Assessing Officer in his order himself made the addition twice by accepting the net profit from contract business which included the said income as income from business and therefore, the addition of Rs.57,14,131/- was considered fit for deletion by the ld CIT(A) on the factual finding that as the AO has already accepted the same as forming part of the business income, there was no occasion for the AO to disallow the same. He deleted the addition of Rs.57,14,131/- which was considered as other revenue income only taxed against by the AO.”

39. On careful consideration of the rival submissions, first of all, we may point out that from the careful and vigilant reading of the assessment order,we find that after rejection of books of account, the AO proceeded to estimate the business income of the assessee from gross revenue accrued to him from woks contract and estimated the profit. We also find that at the last page of the assessment order, the AO has made addition of Rs.90,16,186/- reported as other revenue as per profit and loss account but no details have been given either in the assessment order or in the computation of total income at last page of the order. In our humble understanding, since the AO after rejection of books of account u/s.145(3) of the Act, has estimated the business income of the assessee accrued to it from the business activities of works contract, therefore, it is not permissible to make another addition pertaining to the entries in the profit and loss account without specifying the same in the assessment order and without bringing out any adverse materials on record that the assessee has earned some other income which was not related to its business activities of works contract.

40. We are in agreement with the contention of ld counsel for the assessee that the AO has committed an error while adding the amount of other revenue of Rs.90,16,186/- viz; income from NSC and insurance claim and other receipts despite the fact that in assessee’s own case, ITAT has allowed miscellaneous income as business income by holding that they cannot be excluded from the normal profit and in furtherance to that dismissing the departmental appeal against such deletion. Accordingly, we hold that the AO was not correct in making addition of Rs.90,16,186/- pertaining to other income shown in the P&L account when he has estimated business income after taking action of rejection of books of account. Thus, the AO is directed to delete the same.

41. Ld counsel submitted that the assessee has submitted statement of sundry creditors before the AO on 30.11.2011 and same sundry creditors have been accepted by the AO in the subsequent assessment year 2010- 2011 without any dispute. copy of which has been placed at pages 149 to 155 of APB-1. Ld counsel pointed out that out of sundry creditors of Rs.9,32,70,920/-, there was opening balance at the beginning of financial year 2008-09 at Rs.7,54,51,082/-, which cannot be added in the hands of the assessee as unexplained cash credit in the year under consideration as this amount is brought forward from the previous financial year as opening balance in the sundry creditors. Therefore, the action of the AO is not only illegal but also bad in law.

42. Replying to above, ld CIT DR submitted that the assessee has not filed any cross objection against the appeal filed by the revenue. Therefore,the contention of the assessee in this regard being baseless may kindly be rejected.

43. Placing rejoinder to above, ld A.R. submitted that this face has neither been controverted by the AO nor by the ld CIT(A) that there was opening balance of Rs.7,54,51,082/- from the previous year which was brought forward to the present financial year and the amount of sundry creditors is pertaining to expenditure incurred by the assessee towards purchase and expenditure incurred towards business activities of works contract undertaken and completed by the assessee during relevant financial period. He also submitted that the closing balance of sundry creditors as on 31.3.2009 i.e. at the end of present financial year 2008-09 was brought forward as opening balance as on 1.4.2009 and the same had been accepted by the AO without any disturbance for succeeding assessment year 2010-2011. Therefore, this amount cannot be disturbed in A.Y. 2009-10.

44. So far as the contention of the assessee regarding addition made by the AO on account of sundry creditors are concerned, this contention would be considered and adjudicated alongwith appeal of revenue and Grounds of revenue therein, challenging the deletion of addition of sundry creditors by ld CIT(A) in the subsequent part of this order.

45. Ground No.14 of the assessee is not pressed, hence dismissed.

Now, we take up appeal filed by the revenue in ITA No.293/CTK/2014

46. The revenue has taken the following grounds:

“1. On the facts and in the circumstances of the case, the ld CIT(A) was not justified in law as well as on fact in deleting the addition of Rs.9,32,70,920/- made by the AO on account of unexplained liability claimed by the assessee towards sundry creditors.

2. On the facts and in the circumstances of the case, the ld CIT(A) was not justified in holding that since book result of the assessee was rejected by the AO, further addition on account of bogus liability was not permissible.”

47. Facts of the case are that during the course of assessment proceedings, the Assessing Officer noticed that the assessee has disclosed sundry creditors of Rs.9,32,70,920/- in the balance sheet. The AO required the assessee to furnish the complete postal address of the creditors alongwith copies of their ledger accounts. The AO further noted that the assessee furnished only copies of computer-generated lists relating to creditors of various sites but no details have been filed creditor-wise and their complete postal address. Therefore, the Assessing Officer added Rs.9,32,70,290/- to the total income of the assessee.

48. On appeal, Ld CIT(A) called for a remand report from the Assessing Officer, which was complied with. The Assessing Officer in the remand report submitted that the assessee did not furnish the complete details of sundry creditors and also no confirmations were filed by the creditors. Even the complete postal address of the sundry creditors was furnished by the assessee. The remand report of the AO was furnished to the assessee to give the rejoinder, to which, the assessee submitted that the observation of the AO was wrong because the statement of sundry creditors was filed alongwith the details of address and PAN which were available in the notice u/s.142(1) of the Act dated 2.3.2011.

49. Ld CIT(A), on perusal of the details filed by the assessee, observed that the assessee has furnished details of sundry creditors amounting to rs.9,32,70,920.74 along with statement of sundry creditors and most of the cases of sundry creditors, no addresses were provided or incomplete addresses were provided. Out of 619 numbers of sundry creditors, in 55 cases, only PAN have been provided by the assessee, therefore, the AO was unable to verify the same. At the same time, the AO has rejected the book results of the assessee and estimated the net profit to the best of his judgment. He noted that where the income is estimated after rejecting books of account, it is not permissible to the AO to rely on the rejected books of account for making an addition of an exact item depicted in the profit and loss account. For this, the ld CIT(A) relied on the judgment of Hon’ble A.P. High Court in the case of Indwell Construction vs CIT (1998) 232 ITR 776 (AP). Ld CIT(A) further observed that though sundry creditor is an item of the balance sheet, it is an off-shoot of the purchases or expenditure claimed by the assessee in its profit and loss account.

Therefore, ld CIT(A) deleted the addition of Rs.9,32,70,920/- made on account of sundry creditors.

50. Hence, the revenue is in appeal before the Tribunal.

51. Ld CIT DR placing reliance on the decision of Hon’ble Allahabad High Court in the case of CIT vs G.S.Tiwari & Co., (2014) 41 taxmann.com 17 (All) submitted that in an appropriate case, the Assessing Officer can make addition in respect of both cash credits under section 68 of the Act as well as business income estimated by him under section 44AD after rejecting books of account maintained by assessee finding those books as unreliable. Supporting the orders of lower authorities, ld CIT DR submitted that the AO has recorded detailed 11 reasons in para 2.1.2 of assessment order for rejection of books of account of assessee establishing that the assessee has not maintained proper books of account based on which profit from business could be deduced correctly as per the provisions of the Act. Therefore, he rejected books of account of the assessee and estimated the profit. Ld CIT DR further submitted that despite request of the AO, the assessee furnished list of creditors belatedly during December, 2011, which was also not complete. Therefore, the assessee prolonged the assessment deliberately and the AO could not make any enquiry about identity, genuineness and creditworthiness of the creditors. Hence, he was right in making addition of the amount shown as sundry creditors in the balance sheet of the assessee.

52. Ld CIT DR submitted that the ld CIT(A) has granted relief to the assessee without any reasonable, reliable and justifiable basis. Therefore, the impugned addition may kindly be restored by confirming the order of the Assessing Officer and dismissing the findings recorded by the ld CIT(A). 53. Replying to above, ld A.R. drew our attention towards relevant operating part of the assessment order as well as the first appellate order and submitted that the assessee has furnished all required details under his command before the AO but the AO without making any enquiry dismissed at the threshold and made unjustified, unreliable and invalid addition, which has rightly been deleted by the ld CIT(A). Further, drawing our attention towards relevant part of the ld CIT(A) and submitted that regarding documents and explanations submitted by the assessee, ld CIT(A) called a remand report from the Assessing Officer and after allowing due opportunity to the assessee for placing rejoinder to the remand report, ld CIT(A) has granted relief to the assessee by way of a detailed and well reasoned order after considering entire materials before him including documentary evidence and explanation of the assessee as well as remand report filed by the AO and rejoinder of the same filed by the assessee. Ld counsel drew our attention to pages 11, 12 & 13 of the CIT(A)’s order and submitted that on the very first date, the assessee submitted audited balance sheet and profit and loss account, tax audit report, computation of income, original TDS certificate on 10.2.2011 and again submission copies of bank accounts on 17.2.2011 and, thereafter, the AO changed and a new incumbent took charge and issued notice u/s.142(1) on 3.8.2011 asking for compliance on 10.8.2011. ld counsel further explained that on the fixed date i.e. 10.8.2011, the assessee submitted all required documents called by the AO pertaining to the contract work undertaken and completed by the assessee during the relevant period.

54. Further, ld counsel submitted that the AO himself asked the assessee details at a very belated stage, which was submitted by the assessee on 30.11.2011 that was site-wise details of sundry creditors alongwith statement of sundry creditors. Ld counsel further submitted that after rejection of books of account, the amount shown in the balance sheet as sundry creditors cannot be a basis for making further addition because it is an off-shoot of the purchases or expenditures claimed by the assessee in its profit and loss account as per the decision of Hon’ble A.P. High Court in the case of Indwell Constructions vs CIT (1998) 232 ITR 776 (AP), which is not permissible to the AO to rely on the rejections of books of account for making for an exact item depicted in the profit and loss account. Ld counsel submitted that in the present case, the AO has rejected books of account and income of the assessee has been estimated as a whole basing on the best judgment, therefore, no addition was called for in respect of sundry creditors and, therefore, the ld CIT(A) was right in deleting the impugned addition without any justified and reasonable basis.

55. Ld counsel submitted that the facts and circumstances of the present case are quite dissimilar and distinct with the facts and circumstances found by Hon’ble Allahabad High Court in the case of G.S.Tiwari & Co(supra), therefore, no benefit can be given to the department. Ld counsel drew our attention to para 10 of the said judgment and submitted that Their Lordships clearly held that where the unexplained sundry creditors are not referable to the business income of the assessee which was estimated, the AO is not precluded from treating the unexplained sundry creditors as income from other sources but in the present case, the AO has not brought any material on record to show that sundry creditors shown by the assessee in its audited balance sheet and profit and loss account are not referable to the business income whereas the assessee is consistently stating and explaining that the amount of sundry creditors is an off-shoot for purchases and expenditures claimed by the assessee in its profit and loss account and this contention was not dealt and adjudicated by the AO and ld CIT(A) has properly considered and verified, from audited books of account, balance sheet and profit and loss account of the assessee and found them correct and thereafter, he granted relief to the assessee. 56. Placing rejoinder to above, ld CIT DR reiterated the earlier arguments precisely and submitted that even in a case where income is estimated on the best judgment, the AO can make addition in respect to the cash credit/sundry creditors. Therefore, the order of the AO may kindly be restored.

57. On careful consideration of the rival submissions, we observe that the assessee has not maintained proper books of account and, therefore, the Assessing Officer rejected the book results and estimated the income relying on the decision of Hon’ble Supreme Court in the case of CIT vs. British Paints India Ltd., 188 ITR 44 (SC), which was confirmed by the ld CIT(A). After perusing the detailed reasons stated by the AO, we observe that the action of the Assessing Officer for rejection of books of account was correct. Once the books of account was rejected, profit is to be estimated after taking into account the facts and circumstances of the case, which has been done in the present case. Hence have we upheld the rejection of books of account of the assessee by the Assessing Officer in the earlier part of this order.

58. On careful consideration of the rival submissions, first of all, we may point out that in the earlier part of this order, we have upheld the action of the AO and findings recorded by the ld CIT(A) regarding rejection of books of account after being satisfied from the reasons recorded by the AO in para 2.1.2 of the assessment order, wherein, 11 grounds have been given by the AO in doubting the correctness of the books of account of the assessee and rejected the same. We have also confirmed the findings of the ld CIT(A),wherein, he has upheld the action of the AO in rejection of books of account and proceeded to estimate the profit on the basis of materials available before the AO by using bast judgment principles.

59. In this scenario, it is ample clear that the books of account of the assessee have been rightly rejected by the AO. Now the controversy remains as to whether as per the decision of Hon’ble Allahabad High Court in the case of G.S.Tiwari & Co (supra), the AO can make simultaneous addition in respect of both cash credit/sundry creditors as well as business income by way of estimation u/s 44 AD of the Act after rejecting books of account maintained by the assessee found them as unreasonable. On vigilant, respectful and careful reading of this judgment, we find that Their Lordships in para 10 of the judgment, firstly refer to the decision of Hon’ble A.P. High Court in the case of CIT vs Maduri Rajaiahgari Kistaiah, 120 ITR 294 (AP), wherein, it was observed that where a particular business income of the assessee has been estimated and determined and in such a case certain sundry creditors are found, the AO may be precluded from adding the said unexplained sundry creditors as undisclosed income from the business, the income of which was determined on estimate basis. Thereafter in later part of this para, Their Lordships keeping in view the peculiar facts and circumstances of that case, further noted that where the unexplained sundry creditors are not referable to the business income of the assessee which was estimated, the AO is not precluded from treating the unexplained sundry creditors as income from other sources such as salaries securities or any other income from a business, the source of which was not disclosed by the assessee. In para 11, Their Lordships noted that the assessee must be held to have failed to establish that the unexplained sundry creditors were referable to the business income, then the addition of unexplained sundry creditors as income from other sources by the AO is valid.

60. In the present case, there is no allegation of the AO that the assessee has failed to establish that the unexplained sundry creditors was not referable to the business income. We are in agreement with the contention of ld counsel for the assessee that facts and circumstances of that case are quite distinct and dissimilar from the facts and circumstances of the present case. As in the present case, there is no such allegation by the AO that the impugned sundry creditors are not referable to the business income of the assessee, which was estimated. On the other hand, from the orders of lower authorities, we clearly observe that the assessee is consistently submitting and explaining that amount of sundry creditors pertain to the amount of purchases and expenditures claimed by the assessee in its profit and loss account. Therefore, in view of foregoing discussion, we respectfully observe that since the facts and circumstances of the present case are distinct and dissimilar from the facts of the case in the case of G.S.Tiwari & Co (supra),, therefore, the benefit of the ratio of judgment of Hon’ble Allahabad High Court in the case G.S.Tiwari & Co.(supra) cannot be extended to the revenue in the present case.

61. From the relevant part of the ld CIT(A)’s order, at page 17, we observe that the ld CIT(A) has followed the subsequent decision of Hon’ble A.P. High Court in the case of Indwell Construction (supra), wherein, Their Lordships held thus:

“The pattern of assessment under the IT Act is given by s. 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in ss. 30 to 43D. Sec. 40 provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under s. 29 is to be made under s. 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the ITO may reject those books and estimate the income to the best of his judgment. When such an estimate is made it is in substitution of the income that is to be computed under s. 29. In other words, all the deductions which are referred to under s. 29 are deemed to have been taken into account while making such an estimate. This will also mean that the embargo placed in s. 40 is also taken into account. Thus, where the income is estimated after rejecting books of account, it is not permissible to the AO to rely on the rejected books of account for making an addition of an exact item (of expenditure) depicted in the profit and loss account.”

62. On the facts of foregoing discussion, we are compelled to hold that after rejection of books of account of the assessee, the AO made an addition of entire amount of sundry creditors shown by the assessee in its balance sheet though the impugned sundry creditors were shown in the balance sheet but undisputedly, these were pertain to the purchase and expenditure claimed by the assessee in its profit and loss account pertaining to its main business of works contract. As from the documentary evidence and copies of the assessment orders submitted by the assessee, we clearly observe that the impugned amount of Rs.9.32,70,920/- as on 31.3.2009 also includes closing balance brought forward from preceding financial period of Rs.7,54,51,082/- and it becomes opening balance as on 1.4.2009 from present financial year 2009-10 and in our humble understanding, this amount cannot be taken into consideration for making addition in present assessment year 2009-10 on account of sundry creditors. From the copy of the scrutiny assessment order for A.Y. 2009-10, we also observe that the AO has accepted the closing balance of impugned amount of sundry creditors as on 31.3.2009, which has brought forward from present assessment year to succeeding assessment year 2010-2011 as opening balance has been accepted by the AO without any dispute. These glaring facts have not been controverted by ld CIT DR in any manner. Therefore, action of the AO in making addition of impugned amount of sundry creditors was not correct and valid. Thus, it cannot be held as sustainable.

Therefore, the ld CIT(A) was quite correct and justified in deleting the addition by observing that after rejection of books of account and estimation of income, there is no valid reason to disallow the sundry creditors. Accordingly, Ground Nos.1 & 2 of the revenue being devoid of merits are dismissed.

63. In the result, appeal of the assessee is partly allowed and that of the revenue is dismissed.

Order pronounced on 2 /3/2021.

sd/- sd/-

(Laxmi Prasad Sahu) (Chandra Mohan Garg)

ACCOUNTANT MEMBER JUDICIAL MEMBER

Cuttack; Dated 2 /3/2021

B.K.Parida, SPS