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2018 (9) TMI 1623 - AT - Income TaxRejection of books and accounts - estimation of profit - Held that - CIT (A) has not assigned any basis for estimating net profit rate of 6.5%. Although it is apparent from the orders of both the lower authorities that the assessee has been extremely negligent and careless in his approach and even after being given numerous opportunities, he failed to produce the books of accounts. All the same, the action of both the lower authorities in estimating the net profit rate without any basis can also not be approved. Therefore in the interest of justice, we deem it expedient to restore the issue to the file of the Assessing Officer to decide the issue de novo after giving due opportunity to the assessee to present its case and we also direct the assessee to produce the books of accounts before the Assessing Officer, failing which the Assessing Officer shall be at liberty to estimate the net profit rate as per law. - Decided in favour of assessee for statistical purposes.
Issues:
Appeal against assessment order for AY 2009-10 - Estimation of net profit @ 6.5% by CIT (A) challenged by assessee - Department challenges reduction from 10% to 6.5% - Rejection of books of accounts by AO under section 145(3) - Failure to produce books of accounts - Net profit estimation without basis - Restoration of issue to AO for de novo decision. Analysis: The case involved an appeal by the assessee against the assessment order for the assessment year 2009-10. The Assessing Officer had completed the scrutiny assessment, estimating the total income at a higher amount than declared by the assessee. The main issues in dispute were the estimation of net profit at 10% by the AO and the subsequent reduction to 6.5% by the CIT (A). The assessee challenged the sustained net profit addition, while the department challenged the reduction from 10% to 6.5%. The AO had also disallowed certain amounts and added them to the income of the assessee. The CIT (A) partially accepted the assessee's challenge, directing the AO to estimate the net profit at 6.5% instead of 10%. However, both the AO and the CIT (A) did not provide a basis for these estimations. The AR for the assessee argued that the AO was unjustified in rejecting the book results without valid reasons or defects in maintenance. It was emphasized that the books were audited and should not have been disregarded. The AR contended that the rejection of book results should only occur with strong reasons indicating unreliability, which was not the case here. On the other hand, the Sr. DR for the department claimed that the assessee was uncooperative and a habitual defaulter, justifying the rejection of book results. The Sr. DR argued that 10% was a reasonable net profit rate for the gross receipts amount. Upon review, the Tribunal found that the assessee failed to produce the books of accounts despite repeated requests, leading to the rejection of books under section 145(3). However, both the AO and the CIT (A) did not provide a valid basis for estimating the net profit rates. The Tribunal noted the negligence of the assessee but also criticized the estimation without a proper basis. Consequently, the Tribunal decided to restore the issue to the AO for a fresh decision, directing the assessee to produce the books of accounts. The appeals were allowed for statistical purposes. In conclusion, the judgment highlighted the importance of providing a valid basis for estimations and the necessity of cooperation from the assessee in assessment proceedings. The decision to restore the issue to the AO emphasized the need for a fair and well-founded assessment process.
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