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2014 (7) TMI 1207 - AT - Income TaxEstimation of net profit rate after rejection of books of account under section 145(3) - Held that - The Assessing Officer in the assessment order had tabulated the defects in the books of account maintained by the assessee and in view of the exhaustive list, we are in conformity with the order of the CIT (Appeals) in rejecting the books of account under section 145(3) of the Act. Once the books of account have been rejected then the next step to determine the income of the assessee is to apply justifiable net profit rate to the receipts declared by the assessee. The assessee during the year under consideration had claimed net profit rate of 5.29% which was increased to 12% by the Assessing Officer and was reduced to 6.5% by the CIT (Appeals). The assessee was engaged in the business of civil contractor and in the totality of the facts and circumstances, we hold that the net profit rate of 7% be applied to determine the income in the hands of the assessee. The Assessing Officer is directed to recompute the income of the assessee accordingly. - Decided partly in favour of revenue
Issues involved:
Estimation of net profit rate after rejection of books of account under section 145(3) of the Income Tax Act. Analysis: The appeal before the Appellate Tribunal ITAT Chandigarh was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) relating to the assessment year 2010-11 under section 143(3) of the Income Tax Act, 1961. The Revenue raised several grounds of appeal challenging the estimation of net profit rate applied by the Assessing Officer. The primary contention was regarding the rejection of books of account under section 145(3) of the Act due to various deficiencies noted during the assessment proceedings. The Assessing Officer had initially applied a net profit rate of 12%, which was later reduced to 6.5% by the CIT (Appeals). The Revenue argued that the 6.5% rate was unjustifiably low, advocating for a higher rate. The Tribunal considered the defects in the books of account and upheld the rejection under section 145(3), emphasizing the need to apply a reasonable net profit rate to determine the income of the assessee accurately. The CIT (Appeals) upheld the rejection of books of account but disagreed with the net profit rate applied by the Assessing Officer. The CIT (Appeals) deemed the 6.5% rate excessive and unjustified, opting to apply a lower rate. It was noted that interest, salary to partners, and depreciation were allowable expenses, leading to the conclusion that no further addition needed to be made. The Revenue challenged this decision, asserting that the 6.5% rate was inadequate. The Tribunal considered both parties' arguments, reviewed the defects in the books of account, and concluded that a net profit rate of 7% should be applied to determine the income of the assessee. Accordingly, the Assessing Officer was directed to recalculate the income based on the revised net profit rate. The Tribunal partially allowed the grounds of appeal raised by the Revenue, resulting in the appeal being partly allowed. In summary, the Tribunal addressed the issue of estimating the net profit rate after the rejection of books of account under section 145(3) of the Income Tax Act. By considering the facts and circumstances of the case, the Tribunal determined a reasonable net profit rate of 7% to be applied, directing the Assessing Officer to recompute the income accordingly. The Tribunal's decision partially favored the Revenue's appeal, emphasizing the importance of applying a justifiable net profit rate for accurate income determination in such cases.
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