2012 (10) TMI 702 - AT - Income Tax

Determination of Net profit rate - Applicability of N.P. rate @ 4% on the total receipts as against 8% applied by the AO, ld. first appellate authority has reduced the N.P. rate of 4% to the gross receipts computed by the A.O. instead of 8% applied by the A.O. on the basis of previous assessment year and especially the increase in the rates of the material used by the assessee in its construction business to meet ends of justice - Impugned order by dismissing the appeal filed by the Revenue and C.O. filed by the assessee is upheld - appeal of revenue is dismissed.

Summary

Issues Involved:
1. Dispute over the N.P. rate applied on total receipts - 4% by CIT(A) vs. 8% by A.O.
2. Rejection of book results by A.O. under section 145(3) despite audit under section 44AB.

Analysis:

Issue 1: Dispute over N.P. Rate
The Revenue appealed against the CIT(A)'s order directing the A.O. to apply a 4% N.P. rate instead of the 8% initially applied. The assessee contended that the N.P. rate was wrongly reduced by the CIT(A). The AO examined the books and found discrepancies, leading to the rejection of accounts under section 145(3). The AO relied on case laws to justify an 8% N.P. rate due to low turnover. The CIT(A) disagreed, reducing the rate to 4% considering material cost increases. The tribunal upheld the CIT(A)'s decision, citing lack of confrontation on case laws by the AO and material cost variations.

Issue 2: Rejection of Book Results
The A.O. rejected the book results under section 145(3) due to inflated expenses and suppressed receipts. The assessee's books were audited under section 44AB, but discrepancies led to rejection. The CIT(A) upheld the rejection, providing ample opportunity for the assessee to present evidence. The tribunal agreed with the CIT(A), noting unverifiable wage registers and upheld the application of section 145(3) for accurate income reflection.

In conclusion, the tribunal dismissed the Revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s order on both issues. The decision was based on detailed analysis of evidence, case laws, and the application of relevant sections of the Income Tax Act.