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2018 (12) TMI 1588 - AT - Income TaxPenalty u/s 271)1)(c) - estimation of profit - Held that:- Penalty was imposed on estimated profit enhancement. The assessee has also filed a chart depicting the net profit percentages during the immediately four preceding assessment years wherein it is seen that the net profit assessed was 1.84% for assessment year 2002- 03, 3.3% for assessment year 2003-04, 2.71% for assessment year 2004-05 and 5% for assessment year 2005-06. Although, in the captioned year, the assessee did not prefer further appeal after the CIT (Appeals) reduced the net profit estimation rate from 8% to 6.75%, the fact remains that this is an estimate of profit and the CIT (Appeals), while allowing partial relief by directing application of net profit rate of 6.75%, has not given any cogent reason for arriving at this percentage. Thus, the net profit rate, as directed to be applied by the CIT (Appeals), is just an estimate without having any sound basis as the past financial results of the assessee have not been duly considered. It is settled law that penalty for furnishing inaccurate particulars of income can neither be imposed nor sustained on enhancement of net profit rate based on an estimate. The Hon'ble Delhi High Court in CIT vs. Aero Traders Pvt. Ltd [2010 (1) TMI 32 - DELHI HIGH COURT] has held that no penalty u/s 271(1)(c) can be imposed when income is determined on estimate basis - Thus no penalty is imposable on the facts of the present case. - decided in favour of assessee. Rejection of books of accounts - N.P. determination - Held that:- We find that right from assessment year 2002-03 to the year under consideration, the net profit rate has ranged between 1.84% to 6.75%. A perusal of the assessment order also shows that the books of accounts were rejected before applying the net profit rate of 8%. AO has not given any reason for justifying the rejection of books of accounts except for mentioning that the books of accounts could not be held reliable on account of a large number of self-generated cash vouchers. Thus, this cannot be held to be a justifiable reason for rejecting the books of accounts. On a direct query from the Bench, both the parties have also agreed that interest of justice would be met if the net profit rate of 6% is directed to be applied in this year - We modify the order of the Ld. CIT (Appeals) to the extent that now the Assessing Officer shall compute the net profit by applying net profit rate of 6% as against 8%. - Decided partly in favour of assessee.
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