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2010 (11) TMI 372 - AT - Income TaxEstimation of net income - @8% of gross receipts as per provisions of section 44AD - Powers in Section 250(4) - Rule 46A - The AO has determined the income of the appellant company by applying net profit rate of 8% on the gross business receipts, on the lines of the provisions of section 44AD of the Act - However, the assessee has produced his Cash book, Ledger and Journal alongwith details of receipts and expenses. The assessee also filed some of the vouchers/bills which have been test-checked with the books of account - Observed that the AO has nowhere stated in the remand report that some of the vouchers and bills were not maintained or were not available with the assessee or that these were not produced despite specific directions - The AO has not pointed out the bills and vouchers, which were not produced - Hence, the ld. CIT(A) has not violated the provisions of Rule 46A of the Income-tax Rules,1962 as submitted by the ld. Counsel for the assessee - The ld. CIT(A) has exercised his powers mentioned in Section 250(4) of the Act, which provides that the ld. CIT(A) may remand the case to the AO and call for a remand report on the assessment generally or on certain points - In view of the remand report, the ld. CIT(A) was justified in allowing the appeal of the assessee - Hence, dismissed the appeal of the Revenue.
Issues:
1. Admission of additional evidence without reasons under Rule 46A 2. Estimation of net income under Section 44AD 3. Compliance with Rule 46A and Section 250(4) in remand proceedings Analysis: Issue 1: Admission of additional evidence without reasons under Rule 46A The Revenue contended that the CIT(A) erred in accepting books of account as additional evidence without recording reasons, violating Rule 46A. The AO estimated income at 8% of gross receipts under Section 44AD due to ex-parte assessment. The CIT(A) called for a remand report, where the AO found no defects in the books produced during the remand proceedings. The CIT(A) justified admitting the evidence under Section 250(4) powers, leading to the deletion of the addition. The Tribunal upheld the CIT(A)'s decision, noting the absence of adverse comments in the remand report and no specific mention of missing vouchers or bills, affirming the CIT(A)'s order. Issue 2: Estimation of net income under Section 44AD The AO applied a net profit rate of 8% on gross receipts under Section 44AD, leading to a substantial addition. The assessee argued that the high turnover justified a lower profit rate, and Section 44AD was inapplicable due to the significant gross receipts. The CIT(A) deleted the addition after considering the remand report, where the AO found no issues with the books of account produced. The Tribunal agreed with the CIT(A), emphasizing the absence of defects in the books and supporting documents, leading to the dismissal of the Revenue's appeal. Issue 3: Compliance with Rule 46A and Section 250(4) in remand proceedings The CIT(A) called for a remand report under Section 250(4), where the AO acknowledged the production of books and supporting documents by the assessee. The Revenue alleged a Rule 46A violation, but the Tribunal found the CIT(A) within the powers of Section 250(4) to seek a remand report. The absence of adverse comments by the AO on the evidence presented by the assessee and the lack of specifics on missing vouchers supported the CIT(A)'s decision to delete the addition. Consequently, the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal. In conclusion, the Tribunal affirmed the CIT(A)'s decision to delete the addition based on the proper exercise of powers under Section 250(4) and the absence of defects in the books and supporting documents produced during the remand proceedings. The Revenue's appeal was dismissed, upholding the CIT(A)'s order in favor of the assessee.
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