2014 (8) TMI 951 - AT - Income Tax

Determination of net profit rate - Rejection of books of account - Held that - There is considerable cogency in the submissions of the assessee that the same AO has estimated the household expenses without any basis and also not following the estimation following in the asstt. year 2008-09 and also Ld. CIT(A) has not considered the same. In view of the above, we are of the opinion that in the interest of justice, the matter needs to be considered in detail by the AO and assessee may be given one more opportunity to canvass his case to substantiate the claim before the AO, after producing relevant books of accounts and other documents, if any, to enable him to decide the issue afresh. - Matter remanded back - Decided in favour of assessee.

Summary

Issues:
1. Adoption of net profit rate of 5% without empirical evidence
2. Rejection of book results by AO
3. Estimation of household expenses

Analysis:

Issue 1: Adoption of net profit rate of 5% without empirical evidence
The Assessee challenged the adoption of a 5% net profit rate by the Assessing Officer (AO) without any empirical evidence or basis. The Assessee argued that the same AO had accepted a net profit rate of 1.21% in the following year after a thorough scrutiny. The Assessee contended that the books of accounts were never called for during the assessment, appellate, and remand proceedings. The Tribunal found merit in the Assessee's arguments and held that the matter needed detailed consideration. The Tribunal directed the AO to allow the Assessee an opportunity to substantiate their claim by producing relevant books of accounts and documents.

Issue 2: Rejection of book results by AO
The Assessee also contested the rejection of book results by the AO, claiming that the books of accounts were not produced despite repeated opportunities, although they were never called for by the authorities. The Tribunal noted the contradiction between the Assessee and the lower authorities regarding the production of books of accounts. Considering the submissions and the fact that the same AO accepted a lower net profit rate in the succeeding year, the Tribunal ordered a detailed reconsideration by the AO, granting the Assessee another opportunity to present their case with relevant documents.

Issue 3: Estimation of household expenses
Regarding the estimation of household expenses, the AO computed an amount and made an addition after allowing certain deductions. The Assessee argued that the estimation was higher than in the previous year and that the contribution from the Assessee's father towards household expenses was not considered. The Tribunal found the Assessee's contentions to be valid, noting that the AO's estimation lacked basis and did not follow the approach taken in the subsequent year. The Tribunal directed the AO to re-examine the issue, allowing the Assessee to present relevant documents for a fresh decision.

In conclusion, the Tribunal allowed the Assessee's appeal for statistical purposes, emphasizing the need for a detailed reconsideration of the issues raised regarding the net profit rate adoption and household expenses estimation.