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2010 (6) TMI 781 - HC - Income TaxRejection of books of accounts - Estimation of income - determining the net profit rate and turnover - method adopted by the AO for determining the net profit rate during the assessment year - Tribunal has restricted the net profit rate at 3 per cent - Being aggrieved the Department has filed the present appeals. HELD THAT - In the instant case various discrepancies were found by the AO as has already been pointed out by the learned counsel of the appellant. In such a situation the AO has no option except to reject the books of accounts and estimate the income as the accounts were found defective and s. 145(2) of the IT Act is applicable as per the ratio laid down in the case of CIT vs. Thakurmal Bajranglal 1987 (7) TMI 21 - RAJASTHAN HIGH COURT as well as Ramjiwan Lal 1979 (10) TMI 55 - ALLAHABAD HIGH COURT Therefore we uphold the rejection of the books of accounts by the AO for the assessment years under consideration. Additions to the total income shown by the assessee are not necessary concomitant to an order passed under s. 145 or 143(2) of the Act. In the instant case by looking at the history it appears that the net profit rate was in the range of 1.88 per cent to 3 per cent which was accepted by the AO himself or by the Tribunal which is a final fact -finding authority as observed in the case of Kamala Ganapathy Subramaniam 2001 (2) TMI 132 - SUPREME COURT Estimation is a question of fact - See New Plaza Restaurant 2008 (7) TMI 260 - HIMACHAL PRADESH HIGH COURT and Sanjay Oilcake Industries 2008 (3) TMI 323 - GUJARAT HIGH COURT As during the assessment years under consideration no different yardstick can be adopted and no interference is required as per the ratio laid down in the case of Zora Singh 2007 (2) TMI 153 - PUNJAB AND HARYANA HIGH COURT - No question of law arises because the method adopted by the AO for determining the net profit rate during the assessment year which is similar as in the other assessment years as per the ratio laid down in the case of Textile Agents 1990 (7) TMI 66 - ALLAHABAD HIGH COURT - The accounts were rejected and net profit rate was estimated which ultimately leads to the factual aspects of the case and normally no substantial question of law arises as per the ratio laid down in the case of Hargopal Singh 2004 (8) TMI 35 - PUNJAB AND HARYANA HIGH COURT We decline to interfere with the impugned orders passed by the Tribunal which are hereby sustained along with the reasons mentioned therein.
Issues:
- Assessment of income by applying net profit rate on gross receipts - Rejection of books of accounts by assessing officer - Discrepancies found in the books of accounts - Estimation of net profit rate by the Tribunal - Historical net profit rates and turnover of the Assessee - Legal principles governing estimation of income and net profit rate Analysis: Assessment of income by applying net profit rate on gross receipts: The appeals were filed against the Tribunal's orders assessing income by applying a 3% net profit rate on gross receipts for various assessment years. The substantial question of law revolved around the correctness of this assessment method. Rejection of books of accounts by assessing officer: The assessing officer rejected the books of accounts due to discrepancies found during the assessment years. This rejection was upheld by the court citing provisions under Section 145(2) of the Income Tax Act and relevant legal precedents. Discrepancies found in the books of accounts: Various discrepancies were identified in the books of accounts, including inflated or bogus purchases, unverifiable expenses, and missing entries. These discrepancies led to the rejection of the books of accounts by the assessing officer. Estimation of net profit rate by the Tribunal: The Tribunal restricted the net profit rate to 3% for certain assessment years, differing from the rates estimated by the assessing officer. The Tribunal's decision was based on past history and industry standards, with reference to the application made by the MES Contractor Association. Historical net profit rates and turnover of the Assessee: The historical net profit rates ranging from 1.88% to 3% were considered by the Tribunal and assessing officer for previous assessment years. The past history of the Assessee played a crucial role in determining the net profit rate and turnover. Legal principles governing estimation of income and net profit rate: The judgment highlighted legal principles concerning the estimation of income, rejection of books of accounts, and the relevance of past history in determining net profit rates. Various legal precedents were cited to support the decisions made by the court regarding the estimation of income and net profit rates. In conclusion, the court upheld the Tribunal's decision to apply a 3% net profit rate on gross receipts for the assessment years in question. The rejection of books of accounts by the assessing officer was deemed valid, and the historical net profit rates of the Assessee were taken into account. The judgment emphasized the factual nature of estimation and declined to interfere with the Tribunal's orders, ultimately dismissing all appeals.
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