| SooperKanoon Citation | sooperkanoon.com/74844 |
| Court | Income Tax Appellate Tribunal ITAT Hyderabad |
| Decided On | Mar-29-2006 |
| Judge | D Manmohan, J S Reddy |
| Reported in | (2007)104ITD537(Hyd.) |
| Appellant | Vishal Infrastructure Ltd. |
| Respondent | Assistant Commissioner of |
(2) Learned Assistant Commissioner of Income-tax ought to have accepted income returned by the appellant as there is no case to prove that accounts of the appellant are not correct and complete in a situation where appellant is a limited company and got its accounts audited under the company law.
(3) Learned Assistant Commissioner of Income-tax is erroneous in not appreciating the accepted accounting practice of maintaining overhead accounts in the head office and registered office and maintaining direct expense accounts in various contract sites.
(4) Learned Assistant Commissioner of Income-tax is unrealistic in observing that different contract works have not produced uniform gross profit margins. It is impractical to expect uniform gross profit margins in two different works when such works are different in nature, place of execution and other specifications, besides being in different phases and stages of completion.
(5) Learned Assistant Commissioner of Income-tax is erroneous in law in concluding that book results of the appellant are unreliable simply on account of some vouchers being not supported by evidence.
(6) Learned Assistant Commissioner of Income-tax was not appreciative in not accepting system of assigning job works on the basis of prevailing market rates based on proper negotiations by the appellant.
(7) Learned Assistant Commissioner of Income-tax has not properly appreciated the system of sub-contracting and ignored the legal purport of various sub-contracts entered into by the appellant during the year under appeal. Accordingly Assistant Commissioner of Income-tax erred in finding fault with accepted accounting practice in respect of accounting of sub-contracts in the books of appellant.
(8) Learned Assistant Commissioner of Income-tax wrongly inferred that closing work-in-progress was not properly stated by overlooking nature of contracts being carried out with Government agencies, average monthly turnover of the appellant etc.
(9) Learned Assistant Commissioner of Income-tax erred in wrongly treating commission received from subcontractors and miscellaneous receipts as income and not receipts.
(10) Learned Assistant Commissioner of Income-tax erred in not deducting material recoveries from the gross bills in arriving at the contract receipts be used as abase for estimating the profits.
(11) Learned Commissioner of Income-tax (Appeals) is not justified in law in concurring with the findings of learned Assistant Commissioner of Income-tax.
(12) Learned Commissioner of Income-tax (Appeals) erred in law in not appreciating that the facts of the case did not warrant for application of provisions of Section 145 and estimating the income of the appellant.
(13) Appellant prays the Hon'ble Tribunal to quash the order passed by learned Assistant Commissioner of Income-tax as bad in law and may direct the Assessing Officer to accept the income returned.
2. Brief facts arc as under. The assessee, a Public Limited Company, is engaged in the business of engineering and construction activities. It has clients in Government sector and public sector. The works undertaken by the assessee includes construction of bridges, airport runways, road laying, jungle clearance and electrification, construction of buildings etc. The assessee carried the works by itself and in few cases sub-contracted the works. The assessee filed its return of income declaring an income of Rs. 99.16 lakhs while the assessment was completed on a total income of Rs. 2.79 crores. In the course of assessment proceedings the Assessing Officer noticed that the accounts maintained by the assessee suffered from certain infirmities and, therefore, cannot be completely relied upon for arriving at the correct taxable income. In view of these deficiencies, he rejected the books and applying the provisions of Section 145 he estimated the profits of the assessee at 12.5 per cent of the gross bills before depreciation while considering the commission earned by the assessee on the sub-contract works separately. The assessment was thus completed on a total income of Rs. 2.79 crores. Not satisfied, the assessee went in appeal to the Commissioner of Income-tax (Appeals) who upheld the action of the Assessing Officer. Aggrieved, the assessee is in appeal before us.
3. The learned Counsel for the assessee submitted as follows: The reasons listed out by the Assessing Officer in his assessment order for rejecting the book results of the assessee are not legally sustainable and do not in any way warrant for rejection of the book results by invoking provisions of Section 145(3). The assessee is a Public Limited Company complying with the provisions of Company Law and the provisions of Income-tax Act with respect to maintenance of accounts and audit of such accounts. Accounting standards prescribed by the Institute of Chartered Accountants of India have been complied with as per Section 211 of the Companies Act, 1956. Similarly, accounting standards prescribed under Section 145 of the Income-tax Act have been complied with. Its accounts are duly audited both under the provisions of Company Law and under the Income-tax Law for the year under consideration. There were no qualifications by the auditors in respect of our accounts for the year under consideration. The rejection of book results is therefore, legally unjustified.
3.1 As per the provision of Section 145(3), an Assessing Officer can reject the books of account in the following three possible situations: (b) Non-compliance with accounting standards prescribed under Section 145 of the Income-tax Act.
(c) Accounts were maintained by an assessee, which were incomplete and incorrect.
He referred to the Bangalore Bench of the Tribunal in the case of V.Pinto & Co. v. Dy. CIT [2005] 3 SOT 634 wherein the following propositions were decided: Section 145 gives the power to reject the book results and estimate the income in certain circumstances. As the Assessing Officer examines the accounts of an assessee, he has to consider the following questions: 1. Whether the assessee has regularly employed a method of accounting; 2. Even if regular adoption of a method of accounting is there, whether the annual profits can properly be deduced from method employed; 4. Whether the accounts maintained are complete in the sense that there is no significant omission therein.
If the answers to all the above four questions are in affirmative, then assessec's profits are to be computed on the basis of his accounts. In such case, neither the first proviso to Section 145(1) nor Section 145(2) can be invoked.
If the finding on question Nos. 1, 3 and 4 are in affirmative, but finding in question No. 2 is negative, first proviso to Section 145(1) comes in and computation has to be made on such basis and in such manner as Assessing Officer, may determine.
If the findings on question No. 1, 3 or 4 is in negative, Section 145(2) applies and Assessing Officer, may make a best judgment in manner provided for in Section 144.
It is evident from the assessment order that the Assessing Officer was not in dispute with the method of accounting followed by the assessee or compliance with the accounting standards prescribed under the Income-tax Act. The only dispute, which made him invoke Section 145(3) was the assumption that the assessee's accounts were incomplete and incorrect. However, he could not substantiate anything to prove that its accounts were incomplete and incorrect for the following reasons: (1) Learned Assessing Officer called for separate Profit & Loss Accounts in respect of each work site of our company. The assessee produced the same for his verification, which by itself amply substantiates the comprehensive and methodical system of accounting followed by the assessee. On verifying such site-wise Profit & Loss Accounts, the learned Assessing Officer came to a wrong conclusion that such working results were not reliable on the basis that administrative overheads incurred at the Head Office, were not debited to the concerned work site accounts.
(2) It is very strange that the learned Assessing Officer overlooked the accepted accounting practice of computing only one direct revenue and direct expenditure results at any work site. In other words, no administrative overheads would be considered while examining working results of various contract sites and only direct expenditure would be considered. This basic accounting approach for evaluation of any contract work site result which is part of Management Information System (MIS) was wrongly projected by the Learned Assessing Officer as unreliable workings.
(3) It was also observed that profit rates at different work sites were either too high or too low. This observation has no legal sanctity to project it as a reason for rejection of books. It is a commercially accepted fact that no two civil contract works can produce the same profit results. This is on account of nature of contract work, location, price difference in materials at different locations, difference in labour cost in different locations etc. It is also to be noted that no two contract works will be at the same level of completion in spite of both being exactly identical in the nature and volume of the work. In the first place, there cannot be any two civil works with 100 per cent similarity in terms of nature and volume of the work. In other words even in spite of most identical contracts, different phases of completion in respect of each work will change the profitability.
(4) It is very strange on the part of the learned Assessing Officer to expect a standard profit to be earned by us in each work we undertake. At the outset, such expectation is unrealistic, impractical and against all the tenets of commercial reality. Any business is circumscribed with opportunities, threats and challenges, which result in risk and reward to a businessman. It is impossible to expect same ratio of profit in every civil work that is undertaken by us. It is quite possible that in some contract works, we may really loose out and still we have to bear with it in the overall interest of our business activity.
(5) Site-wise Profit & Loss Accounts will never form part of prescribed financial statements of the law as per Schedule VI of the Companies Act, 1956 or the prescribed books of account. MIS related information cannot be misinterpreted by the Assessing Officer to draft undue adverse inferences. On the other hand, the Assessing Officer while examining separate Profit & Loss Account is expected to make comprehensive analysis and draw appropriate and correct inferences.
(6) Learned Assessing Officer is not legally permitted to sit in judgment as to what is a low profit and what is a high profit in respect of particular activity. Judicial precedence have frowned upon by the Assessing Officer making such attempts. It was held by the Hon'ble Pune Bench of the Tribunal that an Assessing Officer is not required to examine separate trading account for each commercial contract. It was held that only the consolidated Profit & Loss Account needs to be examined as to its authenticity and completeness from the provisions of Section 145.
(7) Any consistent accounting methodology accepted by the Assessing Officer in the past cannot be found fault for making a ground to reject the books of account of an assessee.
3.2 The attempt of learned Assessing Officer to project this issue as one of the reasons for rejection of books, clearly demonstrates that there was no proper appreciation of the facts of the case and simultaneously, the learned Assessing Officer could not quantify any particular item of deduction as disallowable item for the tax purposes.
In other words, learned Assessing Officer could not pinpoint any specific item in the working results of different contract sites for a specific addition in the assessment as disallowable item of expenditure etc. This clearly supports our argument that a very convenient approach of rejecting the book results was resorted to by the Assessing Officer by making an empty comment that profits in respect of different sites are either too low or too high and are not reliable. In this context, Hon'ble Tribunal held in clear terms that issue of low gross profit ratio, cannot be a reason to reject the books of account.
3.3 In support of the above submissions, the assessee placed before us a detailed statement of various contract works carried out by the appellant-company during the year under consideration. The said statement indicates information in respect of nature of contract, location of contract, phase of completion etc. This would clearly demonstrate that no two contracts can be compared at a particular point of time in view of many vital differences. The learned Assessing Officer made a very casual comment that the expenditure debited to the Profit & Loss Accounts prepared in respect of various sites, is not completely verifiable in the absence of vouchers with supporting evidence.
3.4 It was brought to our notice that the learned Assessing Officer conducted as many as seven hearings and what all information that was called for, was promptly produced by us for verification. In our line of business activity of civil construction, certain items of expenditure to a small and reasonable extent may not be supported with proper external evidence i.e., certain labour payments and purchase of materials such as bricks, sand etc. Undoubtedly, such items would be well within the acceptable limits of reasonableness. Anyhow, such items of expenditure would be well supported by our own vouchers duly authenticated by responsible work site managers. It may kindly be appreciated that such type of expenditure would be acceptable at the threshold on the basis of reasonableness. It is imperative to incur such expenditure and the same cannot be disputed by the Assessing Authorities. In such a scenario, test of reasonableness has been widely accepted in various judicial pronouncements for allowability of such expenditure in the hands of assessee, 3.5 The learned Assessing Officer ignoring this basic approach of judicious evaluation projected the same issue as a warranting reason for rejection of our book results. In such a scenario, if the learned Assessing Officer is in dispute with any particular item of expenditure as unverifiable, the same item should have been considered as specific addition in our assessment. The general comment of the Assessing Officer clearly demonstrates that he could not quantify any specific expenditure as unverifiable which warrants for an addition in the assessment. Inaction on the part of Assessing Officer to specifically quantify unverifiable expenditure for a specific addition in the assessment cannot empower such an Assessing Officer to resort to rejection of book results by invoking Section 145. This particular reason relied upon by the Assessing Officer for rejecting the book results is legally unsustainable as the same is not establishing any incompleteness or incorrectness in our accounts.
3.6 Judicial precedence is categorically in favour of an assessee in this context by holding that such actions of Assessing Officers were held to be legally untenable.
3.7 Absence of vouchers or the supporting evidence in respect of a particular item of expenditure cannot by itself empower an Assessing Officer to invoke provision of Section 145(3) in rejecting the books of account. Amritsar Bench of the Hon'ble Tribunal in Ashok Kumar & Co. v.ITO [2004] 2 SOT 518 (Asr.) (SMC) held that rejection of books cannot be restored to simply on the basis of absence of some vouchers and failure to produce the same by the assessee. In other words, any such situation should only warrant a specific addition by the Assessing Officer if he comes to a conclusion that such expenditure had not been incurred or not verifiable. Instead of adopting this accepted approach if an Assessing Officer resorts to a convenient approach of rejecting the books in total such action would be illegal against the tenets of law. The same was held in the case of Ashok Kumar & Co. v. 77-O[2004] 2 SOT 518 (Asr.) (SMC). In an identical case Kerala High Court in the case of CM. Francis & Co. (P.) Ltd. v. CIT held that where purchase vouchers for agricultural produce purchased from agriculturists could not be produced, books of account cannot be rejected in total on the basis of such finding. Allahabad High Court in another case of Imran Ahmed v. CIT 1982 Tax LR (NOC) 111 (All.) held that on account of mere absence of vouchers to substantiate entries for the accounts, account in total cannot be rejected. In this scenario a very general finding made by the Assessing Officer without any specific focus on any particular item of expenditure, entire accounts cannot be rejected under Section 145(3). Action of the Assessing Officer clearly demonstrates that he could not gather any details or find any irregularity in maintenance of the books so as to justify rejection of books in toto. It was also established beyond doubt that Assessing Officer could not quantify any specific amount of expenditure for disallowance. Absence of some of the vouchers was projected as a reason for rejection of books. If at all there was any lapse on the part of the assessee in respect of maintaining vouchers of a particular item of expenditure, the same may warrant, at the most a specific addition and nothing beyond that. A minor irregularity cannot be blown out of proportion to resort a convenient approach of the rejection of the book results. In view of the same, he prayed the Hon'ble Bench to quash the reasoning offered by the Assessing Officer for rejecting the books as legally unsustainable proposition.
3.8 Coming to job work charges, he submitted that learned Assessing Officer observed that job work charges paid for some of the jobs assigned by the assessee was not convincingly supported by a proper working out of the job work rates. The same was projected as a reason to reject our book results. It was submitted by us during the assessment proceedings that in such a petty and labour oriented job works, there cannot be any standardization of job work charges. Such petty job works cannot be organized through any quotations, tenders etc. It is very common and practically accepted that all contractors like us avail the services of job workers on the basis the then requirements at our work site. Practically there will not be any time or opportunity to bargain with many job workers or conduct screening of various rates that may be quoted by the job workers before finalizing any work to be assigned to such job worker. It is impractical to expect such a situation in respect of job works that would be assigned by any civil contractor.
Undoubtedly, we bargain before finalizing the rate and assign the job to such job workers.
3.9 No prudent businessman will ever lose out by not making a proper bargaining in a commercial transaction. If we delay the process of getting the job works done on time by waiting to get better rates from job workers, we will be put to a bigger loss in completion of the overall contract, which will accumulate other costs for everyday of delay. There cannot be any standards of job work charges to be paid as it would differ from place to place and work to work and more so that same is quoted by the job workers and the same would be accepted only after proper negotiations. Ignoring this practical aspect, Assessing Officer's comment that job work charges have not been conveniently worked out is more of a general nature without any proper appreciation of the facts of our case.
3.10 Even on this issue, the learned Assessing Officer would have resorted to a more specific approach of identifying such job work charges, which are not acceptable and are on the higher side for disallowance instead of rejecting book results in toto.
3.11 Courts have repeatedly held that reasonableness of the expenditure should be judged from the view point of the business carried on by the assessee and not from the view point of the revenue authorities. In such a scenario entire quantity of expenditure was held to be deductible once the same is incurred satisfying the provisions laid down under Section 37(1) of the Income-tax Act. It was further held that an assessee is not under obligation to satisfy the Assessing Officer as to the legitimacy and necessity of expenditure.
3.12 In view of the above he requested the Hon'ble Bench to quash this reasoning of the Assessing Officer as legally unsustainable proposition to warrant rejection of the books.
On the observation of the Assessing Officer on Sub-contract Works in his assessment order that the assessee could not produce evidence against amounts debited as payment to subcontractors it was submitted that the system of sub-contracting is common, popular and frequently encountered in many civil construction cases. A main contractor, who is not in a position to render a particular work on his own either on account of financial hardship or on account of lack of labour and other manpower, may assign the same on sub-contract basis to another contractor. In such a scenario, the main contractor accepts only a fixed commission from the sub-contractor. It is the sub-contractor, who will execute the work as per the specifications given by the main contractor. Anyhow, the main contractor will still be accountable to the contractee authorities for proper execution of the work. All payments would be made only in the name of the main contractor, who in turn will release such payment after deducting his commission to the sub-contractor. To this effect, a valid sub-contract agreement would be in place. It is the subcontractor, who maintains the accounts for the entire work taken by him on sub-contract basis. The same would become his turnover and he would be liable for tax against income on such contract work. The commission paid to the main contractor would be claimed by such sub-contractor as his business expenditure. The main contractor's role is simply collecting the payments from the contractee department and passing on the same to the sub-contractor after deducting his commission as per the terms of sub-contract agreement.
Thus the main contractor is in no way responsible for maintenance of accounts with respect to such work. He will only make simple entries of receipts from the contactee department and the payment to be made to subcontractor in his account. This popular and acceptable method of accounting was not appreciated at all by the Assessing Officer and it was strangely observed by the learned Assessing Officer that the assessee did not produce evidence against payment made to sub-contractors as per the sub-contract agreement. The very sub-contract agreement itself is the basic document legally drawn bringing a contractual relationship between the assessee and the sub-contractors. Such agreements produced before the Assessing Officer were not properly examined and appreciated and a very impractical and vague comment was made by Assessing Officer that evidence against payments made to sub-contractors was not produced before him. The one and the only one evidence is the legally drafted sub-contract agreement between sub-contractor and assessee. Such agreements were not properly appreciated and a comment of general nature as explained above was made by the Assessing Officer. This issue was projected as a reason warranting rejection of book results. By no stretch of imagination can an Assessing Officer conclude his findings in this manner. There was no irregularity, illegality or impropriety in entering into valid sub-contract agreements. Such validly entered agreements cannot be brushed aside and the Assessing Officer is not legally empowered to make a comment of the nature explained above for rejecting our books.
This is gross injustice meted out by the Assessing Officer which is against all tenets of natural justice. He pleaded for quashing the reasoning of the Assessing Officer as legally unsustainable at the very threshold.3.13 Coming to the issue of work-in-progress, on the observation of the Assessing Officer that a closing work-in-progress declared by the assessee-company at Rs. 5,49,777 is unreliable it was submitted that this inference was mainly drawn on the basis of bills raised to the tune of Rs. 1,45,39,926 in April, 2001 by the assessee. It was clearly explained by the assessee that turnover in the year under consideration was around 30 crores and in the year under consideration exact turnover was Rs. 32,03,64,188 which meant that the assessee had an average monthly turnover of more than Rs. 2.5 crores. On this size of activity, execution of a work and realizing proceeds from the contractee department to the tune of Rs. 1,45,30,926 is absolutely possible and realistic. From this the Assessing Officer cannot draw an adverse inference.
3.14 As regards the building work at Jagdalpur and the crane storage building at Pune, it was clarified that the position in respect of these two major works which were carried out during April, 2001, it was submitted that the Assessing Officer drew his conclusion without going into details of the work billed. A conclusion based on value is totally wrong. The assessee gave details of the work carried out in the written submissions submitted before us. With regard to the running bill for Rs. 32,98,242 pertaining to Building at Jagdalpur, it was submitted that the works involved were plastering, surface treatment involving application of oil based distemper (6275 Sq.ms.), application of cement based paint (2150 Sq. ms), supplying and fixing of ceramic and glazed tiles (508 Sq. ms), supply and laying of Kota stone flooring (365 Sq.ms) and skirting (423RMs), supply and fixing of Udaipur stone in steps skirting etc. (60 Sq. ms), supply and fixing of sanitary items, supply and fixing of water supply items, supply and fixing of internal electrical items, cables, earthing wires, supplying and fixing of wires for UPS, etc. In all the above the work consisted of both supply of items and laying fixing etc., i.e., labour work. A major part of the billing is towards the cost of materials supplied. The items are procured as and when required and were not stocked. The labour involved is normally less. Hence the time taken to do the work is less. The whole work explained above was easily carried out in a span of 5 to 10 days. Further these works were done out independently and simultaneously at different places, by different work teams.
3.15 On the second work i.e. provision for train storage building at Pune, it was submitted that the major part of the billing consisted of providing and laying pre-stressed concrete sleepers of 877 Nos. - Rs. 19.75 lakhs and laying and fixing of rails - Rs. 6.88 lakhs. The other significant items are supply and laying of PCC (2500 cum) - Rs. 1.46 lakhs, cement plastering (2618 Sq. ms) -Rs. 2.09 lakhs, providing granolithic flooring (700 Sq. ms) -Rs. 4.20 lakhs, providing and fixing Shahabad stones (774 Sq. ms) - Rs. 2.05 lakhs, providing cables (2485 rmts) - Rs. 4.75 lakhs, supply and installation of 125 W lamps (182 Nos.) - Rs. 5.57 lakhs, supply of earthing strips (1430 rmts) - Rs. 3.58 lakhs, supply and erection etc. Meters 4 Nos. - Rs. 6.00 lakhs, supply of hum pipes 667 Nos. Rs. 2.00 lakhs, supply of cables (2995 rmts.) - Rs. 4.04 lakhs. The assessee had installed a concrete batching plant which gave a cement output of 30 cum per hour, which is more than sufficient for the quantum of work done. Company was well equipped to handle such works within shortest time. Thus it is clear that major part of the billing during the month of April, 2001 pertains to cost of material and the related works that could be completed within a short period. The assessee furnished details of gross billing done during the previous three months are as under: (a) Billing amount around one to two crores per month is not unusual. And, this huge billing indicates the company's capacity to complete the work within short span of time.
(b) Closing work-in-progress as at 31-3-2001, is bound to be at a lesser figure, because the works were expedited and completed to the maximum possible extent and billed immediately so that the budget of the Government departments for whom works are done, are exhausted to the fullest extent. This argument is substantiated with the huge billing in the month of March, 2001 as compared to earlier two months.
Thus the works undertaken during the year 2000-01 are completed to the maximum possible extent and billed in the same year, resulting in lesser amount of closing work-in-progress as at 31-3-2001.
3.16 It was also explained that the contractee departments mostly being a Governmental agency will have specific budget allocations and such departments are expected to exhaust their budgets before 31st March of each year which has also been explained to the Assessing Officer. This was the reason why the assessee's closing work-in-progress has come down to a Rs. 5,49,777. It may be noted that, the work-in-progress as at 31-3-2000 was also Rs. 21,50,539, supporting its earlier explanation in this regard. The observation of the Assessing Officer that work-in-progress in respect of works sub-contracted are supposed to be accounted in assessee's books. This observation by the Assessing Officer is basically incorrect and is against accepted accounting policies. No main contractor like the assessee, would account for the expenditure from the work-in-progress of a work that is sub-contracted, in assessee's accounts. This wrong observation by the Assessing Officer was projected as a justifying reason to treat closing work-in-progress value as unreliable and reject the book results. The assessee requested to quash this reason also for rejecting the book results and making a high pitch assessment by the Assessing Officer as there was no valid reason, which is legally sustainable for the Assessing Officer to reject the book results. The learned Commissioner of Income-tax (Appeals) without appreciating the facts of our case has simply endorsed Assessing Officer's action in a very routine manner. All the submissions made before the learned Commissioner of Income-tax (Appeals) were not appreciated by him properly. It has also been submitted that case law relied upon by the learned Commissioner of Income-tax (Appeals) are not relevant to the facts of the present case and are distinguishable at the threshold as the case law relied upon by the CIT (Appeals) are in respect of cases where stock records were not maintained, or books of account were maintained in an incorrect and incomplete manner. More so, all the cases referred to were in respect of individuals and partnership firms where the system of accounting was found to be highly defective. On this basis, the case law relied by the CIT (Appeals) was not at all relevant to the facts of our case and totally distinguishable.
3.17 He requested the Bench to kindly appreciate the extract of scheduled rates submitted in respect of various work orders that were allotted to us. This would readily give the information that the tender costing as worked out by various contractee departments clearly mentioned that the profit ratio is at 10 per cent inclusive of overheads. The very contractee departments in almost all the cases have accepted the costing that the percentage of profit for the works allotted to us is at a gross ratio of 10 per cent inclusive of overheads and profits. The same was explained both to the Assessing Officer and the learned Commissioner of Income-tax (Appeals) and both have totally ignored the issue and have drawn adverse inferences, though the Assessing Officer had not observed at any point of time that there were incomplete or incorrect recording of transactions in assessee's books of account. Among others, he placed strong reliance on the following decisions:Assn. CIT v. L.M.P. Tractors (P.) Ltd. [2005] 148 Taxman 52 (Ahd.) (Mag.) The learned Counsel submitted that the assessee has been consistently following the method of accounting including accounting of sub-contract from year after year. Its system of accounting was accepted and was not found at fault by the earlier Assessing Officers in respect of past years that have come for scrutiny. The Assessing Officer erred in treating commission receipts from sub-contractors and miscellaneous receipts as net income instead of treating them as part of total receipts. In other words, commission received against sub-contracts and miscellaneous receipts would also form part of turnover and cannot be directly considered as income. Concluding his arguments, the learned Counsel pleaded for quashing the assessment made by the Assessing Officer and sustained by the Commissioner (Appeals) as it is legally unsustainable, deleting all the additions made and directing the Assessing Officer to accept income returned by it.Pushpanjali Dyeing & Printing Mills (P.) Ltd. v. CIT [2001] 72 TTJ (Ahd.) 886.Ajanta Constructions (P.) Ltd. v. Asstt. CIT [2001] 116 Taxman 220 (JP)(Mag.).
(5) Asstt. CIT v. Heeral Constructions (P.) Ltd. [2004] 4 SOT 848 (Chennai).
(6) Shri Vardhanian Rice & General Mills v. Assessing Officer'[2001] 116 Taxman 298 (Delhi)(Mag.).Voltamp Transformers (P.) Ltd. v. CIT [1981] 129 ITR 105', 113(Guj.).Asstt. CIT v. L.M.P. Tractors (P.) Ltd. [2005] 148 Taxman 52 (Ahd.)(Mag.).
4. The learned Departmental Representative, on the other hand, vehemently controverted the arguments of the learned Counsel for the assessee. He submitted that: The Assessing Officer has given detailed reasons as to why he had to reject to the books of account under Section 145 and estimate percentage of profit. He took this Bench through the order of the Assessing Officer and specifically submitted that at the Mumbai Airport work, the assessee had accounted for total contract receipts of Rs. 49.70 lakhs and miscellaneous receipts of Rs. 1.11 lakhs and after deducting the expenditure of the assessee the profit worked out to a mere Rs. 2.36 lakhs i.e. 2.5 per cent approximately. Similarly he submitted that in the case of Cochin Works, the profit worked out to Rs. 6.74 lakhs whereas the receipt was Rs. 52.38 lakhs. Similarly he took this Bench through page Nos. 3,4,5 and 6 of the assessment order and submitted that percentage of profit between various works varied between loss to more than 46 per cent as in the case of CIAL works at Cochin. He specifically relied on paragraph under the heading 'acceptability of accounts' at pages 6, 7 and 8 of the assessment order and submitted that specific findings are given that there was mixing of accounts/materials between various sites. He specifically contended that in respect of sub-contract works, the assessee did not have any evidence in support of the expenditure claimed by debiting to the profit and loss account except mentioning that they were entitled to fixed rate of commission and the balance should be treated as expenditure. He pointed out that as the expenditure is directly debited to the profit and loss account of the assessee-company it was his duty to produce evidence in support of such expenditure claimed. It is further mentioned that the commission received by the assessee was subject to deduction of expenses incurred under other over-heads. On work-in-progress he submitted that while the work-in-progress as on 31-3-2001 was Rs. 49,777 it is seen that the assessee-company raised bills amounting to Rs. 1,45,30,926 in the month of April 2001. Thus from this it can be construed that the assessee has not disclosed the work-in-progress properly. He vehemently contended that the Assessing Officer took care to examine each and every variation as well as each and every claim made by the assessee and has come to the correct conclusion that the books have to be rejected in terms of Section 145 of the Income-tax Act. As regards the case laws relied on by the learned Counsel for the assessee, he submitted that all the case laws were prior to the amendment to Section 145 of the Act which was brought in with effect from 1-4-1997. According to the learned Departmental Representative, Section 145, Sub-section (3) specifically authorizes the Assessing Officer, in case where he is not satisfied about the correctness or completeness of the accounts of the assessee, for making an assessment as provided under Section 144 of the Act. On the plea of the assessee that for the earlier seven years, scrutiny assessments have been completed and the method of accounting followed by the assessee as well as the completeness of books of account have been regularly accepted by the Department, he submitted that there is no estoppel under Income-tax Act and for this proposition he relied on the following case laws: He submitted that stock registers were not maintained at certain sites and he relied on the following case laws for the proposition that in case stock registers have not been maintained, the Assessing Officer can reject the books of account: (a) Awadhesh Pratap Sign Abdul Rehman & Bros. v. CIT [1994] 210 ITR 4062 (All.) For the proposition that 12.5 per cent is reasonable percentage, he relied on the following orders of the Tribunal: (a) ITO, Ward-2, Nellore v. K.C. Reddy Associates IT Appeal No. 1843 (Hyd.) of 1989 - order dated 29-8-1994J (Bench B).
(b)ITO Ward-1, Nandyal v. Sri Srinivasa Constructions, Main Road, Kurnool IT Appeal Nos. 804 and 805 (Hyd.) of 1993 - Order dated 24-4-1996 (Bench 'B').
(c) Krishnamohan Constructions, Hyderabad v. Asstt. CIT, Central Circle I, Hyderabad IT Appeal Nos. 380 and 381 (Hyd.) of 1994 for assessment years 1991-92 and 1992-93 (Bench B - Order dated 20-3-1998) On a query from the Bench as to how the income from the subcontractors were estimated, he submitted that only the commission in respect of sub-contractors were considered as income of the assessee as per page 10 of the assessment order. The learned Counsel for the assessee distinguished the case laws relied upon by the Department in his rejoinder.
5. Contentions heard. On a careful consideration of the facts and circumstances of the case, we are of the considered opinion that the submissions of the learned Counsel for the assessee are having considerable force as compared to the findings of the revenue authorities for the following reasons.
5.1 Though several grounds have been raised by the assessee, the crux of the matter revolves round rejection of assessee's books of account and estimate of profit on execution of work and consideration of income from sub-contract works given to others separately by the Assessing Officer. In this case as already stated, the assessee in its return of income filed declared an income of Rs. 99,61,800 whereas the income determined by the Assessing Officer was Rs. 2,79,93,220. While doing so, the Assessing Officer rejected the assessee's book results by invoking the provisions of Section 145(3) and estimated the profit at 12.5 per cent for the following reasons: (1) The assessee-company maintained separate accounts in respect of works executed for each site but the administrative expenditure incurred in offices at Bangalore and Hyderabad are not incorporated site-wise.
(2) The profit rate declared is high for certain sites, whereas it is low for other sites.
(3) The expenditure debited to the P&L account in each of the sites is not completely verifiable in the absence of vouchers with supportive evidence. Therefore, the results declared by the assessee cannot be relied upon.
(4) The assessee-company executed part of the work on subcontract basis by assigning job works. The assessee could not furnish clear working out of charges paid to job work contracts.
(5) The assessee did not have satisfactory evidence in support of the expenditure claimed for sub-contract works. The sub-contract works were given on a fixed rate of commissions. However, the assessee-company has credited the entire contract amount in the P&L account. Entire expenditure of sub-contracts is debited in the account.
(6) The work-in-progress is not properly incorporated in the books of account.
The contention of the assessee is that though the Assessing Officer had no dispute about the method of accounting or compliance with the accounting standards prescribed under the Act, the sole ground which provoked the Assessing Officer to reject the books and estimate the profit, was the assumption that assessee's accounts were not complete and were incorrect which on the facts of the case was wrong. Though the assessee produced separate accounts which were in the nature of M.I.S.reports only, in respect of each work site of the assessee-company, the Assessing Officer came to the conclusion that the working results reflected in these M.I.S. reports were not reliable on the ground that the administrative overheads incurred at the Head Office were not debited to the concerned work site accounts. The Assessing Officer was not able to pinpoint any specific item in the working results of different contract sites for a specific addition in the assessment as disallowable item of expenditure etc. The comment of the Assessing Officer that profits in respect of different sites were either too low or too high are not borne out of facts as this assumption is wrong for the reasons pointed out by the assessee and these reasons do not form sufficient basis to reject the book results. Except giving a very casual comment that the expenditure debited to the P&L Accounts prepared in respect of various sites was not completely verifiable in the absence of vouchers with supporting evidence, he could not pinpoint the heads of expenditure nor quantify such expenditure that was not supported by evidence in spite production of all material by the assessee. In assessee's line of business certain items of expenditure to a small and reasonable extent cannot be supported with proper external evidence for example certain labour payments and purchase materials such as bricks, sand etc. It has to be seen whether such expenditure is within the acceptable limits of reasonableness. It is imperative for the assessee to incur such expenditure and such expenditure cannot be disputed by the assessing authorities.
Reasonableness of the expenditure should be judged from the view point of the business carried on by the assessee and not from the view-point of the revenue authorities. As regards the sub-contract works, the contention of the assessee was that it is the sub-contractor, who will execute the work as per the specifications given by the main contractor. But the main contractor will be accountable to the contractee for proper executions of the work. It is the subcontractor who maintains the accounts for the entire work taken by him on sub-contract basis. The commission paid to the main contractor would be claimed by the sub-contractor as his business expenditure. As far as the role of the main contractor, it is simply collecting the payments from the contractee and passing on the same to the sub-contractor after deducting its commission as per the terms of sub-contract agreement.
The main contractor, is in no way responsible for maintenance of account in respect of such work. There are legal sub-contract agreements between the assessee and the sub-contractors. But this was not properly appreciated by the Assessing Officer. On the other hand he projected it as a reason for rejecting book results. But at the same time the Assessing Officer has not disallowed any of the expenditure claimed on account of sub-contracts. In the assessment order he has only taken the commission as income thereby accepting the claim of expenditure by sub-contractors as stated / claimed by the assessee.
Thus this reason given for rejection of books cannot be countenanced.
In spite of categorical explanations given the Assessing Officer took the view that the work-in-progress in respect of works given to sub-contractors were not accounted in its books which is against the basic accounting practice in respect of sub-contracts. In a nutshell the revenue authorities committed a grave error in rejecting the book results and making the assessment.
5.2 In our considered opinion the assessee has made out a strong case supported by relevant case laws in its favour and against the revenue whereby i t has demonstrated that the revenue has erred in rejecting its books of account and completing the assessment making huge additions. It also distinguished the case law relied upon by the revenue. We accept the contentions of the assessee especially when the Assessing Officer did not dispute the method of accounting followed by the assessee and compliance of the accounting standards prescribed under the IT. Act. While coming to this conclusion we are supported in our view by the following decisions.
5.3 The Pune Bench of the Tribunal in the case of Asstt. CIT v. Mahesh T. Patodia [2001] 79 ITD 40 (Pune) held that only the consolidated profit and loss account needs to be examined as to is authenticity and completeness from the provisions of Section 145. In the case of Triveni Pharma v. ITO [2005] 92 ITD 125 (JP.) (TM) it was held by the Tribunal that loss gross profit ratio cannot be a reason to reject the books of account.Ashok Kumar & Co.
v. ITO [2004] 2 SOT 518 (ASR) (SMC) held that rejection of books cannot be resorted simply on the basis of absence of some vouchers and failures to produce the same by the assessee. The Kerala High Court in the case of CM. Francis & Co. (P.) Ltd. v. CIT held that where purchase vouchers for agricultural produce purchased from agriculturists could not be produced, books of account cannot be rejected in total on the basis of such finding. Again the Allahabad High Court in the case of Imran Ahmed v. CIT [1982] Tax LR (NOC) 111 (All.) held that on account of mere absence of vouchers to substantiate entries for the accounts, accounts in total cannot be rejected. It is well-settled that reasonableness of expenditure should be judged from the view point of the business carried on by the assessee and not from the view point of the revenue authorities Voltamp Transformers (P.) Ltd. v. CIT [1981] 129 ITR 105', 113 (Guj.) and CIT v. Dalmia Cements (Bharat) Ltd. [2002] 254 ITR 3772 (Delhi)].Hemraj Nebhomal & Sons v. CIT [2005] 146 Taxman 345 (M.P.) that the assessee is not under obligation to satisfy the Assessing Officer as to the legitimacy and necessity of expenditure. The Nagpur Bench of the Tribunal in the case of Section Gurlal Singh Tuli v. Asstt. CIT [2000] 73 ITD 365 (Nag.) held it was the bounden duty of the Assessing Officer and Commissioner (Appeals) to verify and indicate the particulars of the expenditure which were not vouched. But here too it would be a good case for separate addition only and not for rejection of books of account. It is well-settled principle that the power of rejection of books of account should be reasonably and judicially exercised.Asstt. CIT v. L.M.P. Tractors (P.) Ltd. [2005] 148 Taxman 52 (Mag.) the Ahmedabad Bench of the ITAT held that non-maintenance of quantitative details of spare parts could not be a ground for rejection of books of account and the Assessing Officer is not justified in rejecting the books of account without pinpointing specific defects and thereby making an ad hoc addition when discrepancies were duly reconciled before lower authorities.
5.7 In the case on hand, the undisputed fact is that the assessee which is a limited company has been consistently following a particular method of accounting. Its accounts are audited both under the Companies Act as well as under Section 44AB of the Income-tax Act. Such audited accounts are being filed with the Registrar of Companies as well as with the Income-tax Department for more than 7 years. The revenue has scrutinized the accounts and the method of accounting regularly employed and adopted by the assessee year after year have not been found fault with. Auditors of the Company both under the Companies Act and the Income-tax Act have been consistently certifying that the assessee has been regularly following the method of accounting and that the annual profits can be properly deduced from such method of accounting employed by the assessee. The auditors over the years have also been certifying that the accounts are regularly maintained and are complete in the sense that there is no significant omission therein.
This finding has been accepted by different Assessing Officers over a period of seven years. On these facts and circumstances, the question that arises is whether it would be justified on the principles of consistency to uphold the accounts of the assessee. No doubt the courts have held that though the doctrine of res judicata does not apply, in particular, to income-tax proceedings. Nevertheless at the same time, the Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 3211 (SC) declared that though the principles of res judicata do not apply to income-tax proceedings each assessment year being a unit by itself, yet in cases, when a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have been allowed that position to be sustained by not challenging the order, it may not be appropriate to allow that position to be changed in a subsequent year. Their Lordships extracted with approval the following passage from Hoysted v.Commissioner of Taxation [1926] AC 155 (PC) (page 328): Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents of the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted, and there is abundant authority reiterating that principle.(p. 328) Further the Court reiterated the following observation made by it in Parashuram Pottery Works Co. Ltd. v. ITO : At the same time we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicata and quasi-judicial controversies as it must in other sphere of human activity.(p. 10) Following the above decision the Delhi High Court in the case of CIT v.A.R.J. Security Printer and CIT v. Neo Poly Pack (P.) Ltd. [2000] 245 ITR 4922 (Delhi) held that even when the doctrine of res judicata does not apply to income-tax proceedings, where an issue has been decided consistently in a particular manner for earlier assessment years, the same view should prevail, even during the subsequent years unless there is a material change in the facts. The law is, therefore, fairly well-settled. For rejecting the view taken for the earlier assessment years, there must be a material change in the fact situation. There is no gainsaying that the previous view will have no application even in cases where the law itself has undergone a change but before an earlier view can be upset or digressed from, one of the two must be demonstrated, namely, a change in the fact situation or a material change in law whether enacted or declared by the Supreme Court.
5.8 In the case of a civil contractor who undertakes major works, a contract is spread over several years. The income arising from the same contract is spread over several assessment years and part of the profit of this contract is separately arrived at assessment year-wise and brought to tax. While so, for the same contract, the books of account are accepted for certain assessment years for the purpose of arriving at the profits, and for certain other assessment years the books of account are rejected in respect of the very same contract part of which is executed this year and the profit is estimated on a different basis.
When this is done without cogent and sufficient reasons or change in facts or law we have to necessarily apply the principles laid down by the Apex Court in the case of Radhasoami Satsang (supra) and hold that unless the fundamental aspects permeating through different assessment years are different, a different view possibly cannot be taken as it would result in anomalous results.
5.9 With this background, we again examine the reasons given by the Assessing Officer for rejection of books of account. As already stated, the Assessing Officer has accepted the factum of expenditure on account of sub-contractors and thus the nonavailability of vouchers of expenditure incurred by sub-contractors with the assessee cannot be a reason for rejection. Coming to the site-wise profit and loss account which are claimed to be MIS reports, the fundamental aspect is that each of these works is at different stages and phases of completion.
The works are of different nature and a comparison of such different works for estimating profits of such works, based on the MIS reports which are not complete, in the sense that administrative expenses and other direct expenses incurred in respect of each work or as overhead find place in the books of account of the head office and are not apportioned to these particular works, would be a wrong comparison and opinion formed. To reject the books of account on the basis of such erroneous and fallacious workings and data cannot be upheld. Cash flow statements maintained at each of the sites as found in the management information system, by no stretch of imagination can be termed as complete profit and loss account which would enable the Assessing Officer to arrive at the profit in that work so as to enable him to compare the profits of different works. It is not correct to assume that two different contract works pertaining to two different projects, at two different project sites in different States and at different stages of execution would derive identical profit. It is found that the site-wise MIS reports which are termed as profit and loss account are not part of the financial statements drawn up as per Schedule VI of the Companies Act nor are they prescribed books of account. When these statements are not books of account, and when they are not necessary documents or records for finalizing the books of account both under the Companies Act as well as under the Income-tax Act, infirmities, if any, in these statements cannot be a reason to reject the books of account.
There is no finding by the revenue authorities that the books of account produced before them are incomplete.
5.10 The Assessing Officer has not been able to quantify any particular item of deduction or expenditure as disallowable item for tax purposes only general observations are made. In other words, no specific defect has been pointed out or a specific addition made other than making general statements as to the authenticity of the vouchers. Simply stating that the expenditure is not verifiable without pinpointing any vouchers specifically when the assessee is disputing such a finding and is producing evidence to counter the findings of the Assessing Officer, could not be a valid reason for rejection of books. As already stated, depending on the nature of work certain percentage of vouchers are bound to be self-made or local purchase vouchers. In such cases, the expenditure claimed on such vouchers can be evaluated on the basis of reasonableness and the Assessing Officer has all the powers to disallow a certain percentage of such expenditure if he finds that the claims are unreasonable. But to reject the entire books of account on the basis that they are some self-made vouchers for labour, material, transport, etc. cannot be countenanced. Even in Government offices most of the expenditure which is petty in nature and which involves casual labour can be expected to have self-made vouchers. These vouchers can only be justified through circumstantial evidence. Reasonableness of the claim of expenditure under each head may be a matter of adjudication but not rejection of books. The Hon'ble Kerala High Court in the case of CM. Francis & Co. (P.) Ltd. v. CIT ...that the fact that the assessee did not obtain bought notes from the sellers in respect of its trade in arecanuts was not a defect by itself or something which the assessee could have helped, since the sellers were agriculturists from whom it was not possible in the ordinary course of business to obtain vouchers and also the fact that the maintenance of bought notes by the purchasers was the common feature in the assessee's line of business. Further, no case had been made out that the purchases were inflated or bogus purchases had gone into the assessee's accounts. Since the accounts were properly and regularly maintained and they had been accepted in respect of three out of the four commodities in which the assessee dealt, the fact that the purchases of arecanuts were supported only by the assessee's bought notes was no ground for the application of either the proviso to Section 13 of the 1922 Act or the proviso to Section 145 of the 1961 Act.
If the finding of the Appellate Tribunal cannot be sustained on any material, or if the facts stated in support of its finding have no relevancy to the conclusion of the Tribunal, it raises a question of law and High Court is entitled to examine whether the said finding can be sustained.
The Hon'ble Allahabad High Court in the case of Imrcm Ahmed v. CIT 1982 Tax LR (NOC) 111 (All.) held that on account of mere absence of vouchers to substantiate entries for the accounts, account in total cannot be rejected.
5.11 The reason given by the Assessing Officer that the job work charges paid for some of the job works by the assessee are not convincingly supported by proper workings also does not entitle him to reject the books of account. These items of job works can be quantified separately and disallowance made, in case the assessing authority felt that proper justification was never made in these job works. The opinion of the Assessing Officer is not supported by proper analysis.
Just making a statement that the job assigned by the assessee, was not convincingly supported by proper working without showing the basis for reasons and the data relied upon by the Assessing Officer to come to such conclusion, does not authorize rejection of books of account. All job works are small time jobs and the workers are employed on the spot at times to undertake the jobs and it is for the businessman, depending on the situation, to arrive at the cost, necessity, urgency etc. The Assessing Officer should view this expenditure from the businessman's point of view. We are of the considered view that the 1st appellate authority has committed an error in endorsing this view of the Assessing Officer.
5.12 Coming to the issue of work-in-progress, the assessee's arguments have been bought out in paras 3.13 to 15 of this order. The assessee has fully justified and has given cogent and valid reasons. A plain reading of these reasons and working show that the work-in-progress disclosed is correct. The assessee has justified the work-in-progress figures disclosed by it in its accounts. The Assessing Officer has not item-wise rejected the reasoning. He has also not bothered to point out as to how it can be said that reasons and data furnished by the assessee are wrong and false. General observation is made based on certain prima facie impressions without going into the root of the matter. The first appellate authority has also not rebutted these workings. Thus the observations of the Assessing Officer that the work-in-progress has not been correctly disclosed or that it was not possible to verify the same is erroneous. Thus, such an erroneous decision cannot form the reason for rejection of the books of account.
The assessee based on facts and figures with cogent material has demonstrated before us that the works undertaken during the year 2000-01 are completed to the maximum possible extent and have been billed in the same year and thus it resulted in lesser closing work-in-progress as on 31 -3-2001. The case laws relied on by the first appellate authority is not applicable to the facts of this case inasmuch as nothing is said on the material and data produced by the assessee before the Commissioner of Income-tax (Appeals). Each case law turns on its peculiar facts and circumstances. Unless the appellate authority rejects with cogent reasons the claims and data as well as material produced before it by the assessee a conclusion should not have been drawn by applying various case laws.
5.13 Even otherwise, it has been the judicial opinion that mere non-maintenance of stock registers does not give a licence to the Assessing Officer to reject the books of account. It should be coupled with other factors and the necessity of stock register should be considered keeping in view the nature of business of the assessee. In the case of a contractor executing works at remote locations and where material is purchased on a day-today basis or in lots depending on the immediate requirement for the work and where large stocks are not kept as in the case of a Departmental Store or in the case of a manufacturing concern, the primacy of maintenance of stock register is lesser or not of much significance, as compared with other nature of business, in coming to a conclusion as to whether the stock register make a big difference in arriving at the profit of a concern. If certain discrepancies are found in such stock register in the case of a contractor who purchased works specific items of stores, it does not distort the books of account maintained by the assessee. Even otherwise in this case the assessee was following a particular method of valuation consistently year after year and at best the revenue has found some discrepancies and the assessee explained these discrepancies by making submissions that there were stock 'transfers' internally between different work sites which lead to certain discrepancies. Such minor discrepancies are not reason enough for the Assessing Officer to reject the books of account.
5.14 Section 145(43) has been specifically relied upon by the revenue in this case. It reads as follows: Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee or where the method of accounting provided in Sub-section (1) or accounting standards as notified under Sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in Section 144.
The assessing authority has to look into the substance of the situation and decide the matter in such a manner that neither is put to unreasonable liability nor the assessee is subjected to unreasonable hardship. No doubt it is not only the right but also the duty of the Assessing Officer to consider whether or not the books disclosed the true state of accounts and the correct income can be deduced therefrom.
But these right and duty have to be exercised in such a manner and have to be based on cogent reasons and sufficient material. The reasons given by the Assessing Officer in this case on the facts and circumstances is demonstrated, as erroneous by the assessee. Rejection of books of account should not be done light heartedly as held by the Kerala High Court in the case of St. Teresa's Oil Mills v. State of Kerala and by the Assam High Court in the case of Tolaram Daga v. CIT [1966] 59 ITR 632. Accounts regularly maintained in the course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable and incorrect. The Department has to prove satisfactorily that the account books are unreliable or incorrect or incomplete before it can reject the accounts and this can be done by showing that important transactions are omitted or if proper particulars and vouchers are not forthcoming or the accounts do not include entries relating to a particular class of business.
5.15 When a return is furnished and accounts are put in support of that return, the accounts should be taken as the basis for assessment. They should not be rejected because they are complicated. The procedure of the Assessing Officer, is of judicial nature and in making the assessment should proceed on judicial principles. If evidence is produced by the assessee in support of his return it should be accepted unless it is rebutted by admissible evidence and not by mere hearsay.
For these propositions we draw strength from the following decisions: 5.16 Thus for all these reasons and as the assessee has produced sufficient material justifying its claim and as it has repelled the contentions advanced by both the Assessing Officer and the first appellate authority with cogent material and evidence, we have to necessarily uphold his contentions. We, therefore, direct the Assessing Officer to accept the book results shown by the assessee and complete the assessment based on these book results. Thus we allow the appeal filed by the assessee.