2013 (8) TMI 1085 - AT - Income Tax

Summary

Issues Involved:
1. Estimation of production of bricks.
2. Estimation of gross profit rate.
3. Rejection of books of accounts and application of section 144.
4. Disallowance of interest on capital and remuneration to partners.

Summary:

Issue 1: Estimation of Production of Bricks
The assessee, a partnership firm engaged in the manufacturing and sale of bricks, declared a production of 27.80 lakhs bricks for A.Y. 2009-10. The A.O. estimated the production at 40.04 lakhs bricks and 4.45 lakhs tiles based on the amount of royalty paid and the expenditure on clay. The ld. CIT(A) reduced the estimated production to 35 lakhs bricks, noting that the A.O.'s estimation was based on conjecture and lacked corroborative material. The Tribunal upheld the CIT(A)'s estimation of 35 lakhs bricks, rejecting the A.O.'s higher estimate.

Issue 2: Estimation of Gross Profit Rate
The A.O. adopted a gross profit rate of 22% based on another brick-kiln owner's rates, whereas the assessee declared a net profit rate of 5.13%. The ld. CIT(A) applied a gross profit rate of 22% on the estimated production of 35 lakhs bricks. The Tribunal directed that the net profit rate of 5.82% from the previous year should be applied to the declared sales, subject to interest and remuneration to partners.

Issue 3: Rejection of Books of Accounts and Application of Section 144
The A.O. made the assessment u/s 144 r.w.s. 145(3) due to specific defects in the books of accounts. The ld. CIT(A) upheld the rejection of books of accounts but found the A.O.'s application of section 144 unjustified as the A.O. had issued notice u/s 142(1). The Tribunal agreed with the CIT(A) that the A.O. should have applied the rate declared and accepted in the immediate past year after rejecting the books of accounts.

Issue 4: Disallowance of Interest on Capital and Remuneration to Partners
The A.O. disallowed the interest on capital and remuneration to partners without providing any reasons. The ld. CIT(A) allowed the assessee's claim for interest and remuneration, finding it fair and reasonable. The Tribunal upheld this decision, allowing the deduction of remuneration and interest to partners from the estimated profit.

Conclusion:
- ITA No. 226/Jodh/2013 for A.Y. 2009-10 of the revenue is dismissed.
- ITA No. 243/Jodh/2013 for A.Y. 2009-10 is partly allowed.
- ITA No. 242/Jodh/2013 for A.Y. 2009-10 is allowed.