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2014 (12) TMI 570 - HC - Income TaxRejection of books of accounts - Determination of NP @ 12% or 6% - CIT(A) allowed the claim of assessee and reduced the same to 6% whereas the Tribunal accepting the claim of revenue set aside the order of the Tribunal Nature of the power exercised while determining a net profit rate Held that:- Where books of accounts are rejected or not produced, the AO would be well within the limits of his jurisdiction to assess income by applying a fictional net profit rate - The power conferred is quasi-judicial and not unbridled as it must be guided by reason and though it may involve a degree of guesswork, must be based upon a rational analysis of facts. Factors required to be taken into consideration while applying a net profit rate Held that:- On the same set of facts the AO, the CIT and the Tribunal have applied different rates of net profit - The discretion to determine an adequate net profit rate vests with authorities under the Act but the discretion is neither unbridled nor unguided as it must be guided by reason i.e. should be preceded by reasons which, in turn, should be preceded by a perceptible process of reasoning based upon due consideration of all relevant facts - the word similar is not synonymous with the word 'identical' relying upon Dhakeswari Cotton Mills Ltd. Vs. CIT [1954 (10) TMI 12 - SUPREME Court] - the discretion to determine net profit rate vests in the authorities but discretion shall not be arbitrary and should have a reasonable nexus to the available material and the circumstances of the case, followed by reasons that appear to be legal and valid. Whether a net profit rate determined without assigning any reasons is not perverse and arbitrary Held that:- The authorities under the Act apparently misread the judgment in Commissioner of income-tax Versus Parbhat Kumar [2008 (11) TMI 356 - PUNJAB & HARYANA HIGH COURT] and ignored that while dismissing the appeal filed by the revenue, it was held that applying net profit rate on the basis of best judgment assessment 'in a given situation' will be a question of fact unless such assessment is shown to be arbitrary or perverse, thereby clearly setting out that if the net profit rate is not perverse and arbitrarily, it shall only be a question of fact - The judgment cannot be read as a precedent for a conclusion that in each and every case of a contractor, the AO would be legally obliged to apply a net profit rate of 12% de hors, the facts of the case and even where the net profit rate discloses an arbitrary and perverse consideration, it would be a question of fact - if consideration leading to a net profit rate is perverse and or arbitrary, the finding so rendered shall be illegal and shall not be a question of fact thus, the order of the Tribunal in the matter is set aside and the matter is remitted back to the re-determine the net profit rate Decided in favour of assessee.
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