2012 (7) TMI 787 - AT - Income Tax

Rejection of accounts of the Assessee u/s.145 of the I.T. Act - flat rate of net profit to the gross receipt of the assessee Held that - Merely because there was a fall in net profit rate, there is no reason to reject the books of account of the assessee - difference in TDS figures as per certificates and as per books of account have been reconciled by the assessee and the reconciliation has been accepted as correct by the Assessing Officer - appeal of the assessee are allowed CIT(A) was not justified in directing to take the Net Profit @ 4% on the declared receipts

Summary

Issues involved:
1. Validity of rejection of accounts under section 145 of the Income Tax Act.
2. Application of flat rate of net profit to the gross receipt of the assessee.
3. Justification of penalty under section 271(1)(c) of the Income Tax Act.

Issue 1: Validity of rejection of accounts under section 145 of the Income Tax Act:
In the case, the Assessee appealed against the rejection of accounts by the Assessing Officer and CIT(Appeals) under section 145 of the Income Tax Act. The Assessee argued that being a Government Contractor, there were no defects in the accounts warranting rejection. The main reason for rejection was a fall in Gross Profit, which the Assessee contended was not a valid ground. The Assessee also reconciled the TDS figures, which were initially a point of contention. The Tribunal found that the fall in net profit rate alone was insufficient to reject the accounts. The Tribunal noted that the Assessee had provided evidence of sub-letting contracts to unrelated parties, and previous assessments had accepted the trading results. Consequently, the Tribunal held that there was no justification for the rejection of the Assessee's accounts.

Issue 2: Application of flat rate of net profit to the gross receipt of the assessee:
The Revenue's appeal focused on the application of a 4% net profit rate on the Assessee's turnover. The Tribunal referenced its decision on the Assessee's appeal, where it deemed the rejection of the Assessee's accounts invalid. Therefore, the Tribunal dismissed the Revenue's appeal concerning the application of the 4% net profit rate, as it was intertwined with the validity of the rejected accounts.

Issue 3: Justification of penalty under section 271(1)(c) of the Income Tax Act:
Regarding the penalty imposed under section 271(1)(c) of the Income Tax Act due to trading additions resulting from the rejected accounts, the Tribunal reiterated its earlier decision on the Assessee's appeal. Since the rejection of accounts was deemed invalid, the Tribunal concluded that the penalty could not be upheld. Consequently, the Tribunal dismissed the Revenue's appeal concerning the penalty under section 271(1)(c).

In conclusion, the Tribunal allowed the Assessee's appeal, finding no justification for the rejection of accounts, and dismissed both appeals by the Revenue related to the application of the net profit rate and the penalty under section 271(1)(c) of the Income Tax Act.