2012 (10) TMI 893 - AT - Income Tax

Search and seizure operation u/s 132(1) Rejection of books gross profit rate alleged that assessee has shown low gross profit Held that - Assessing Officer applied gross profit rate at 30% on the turnover resulting into addition as has been mentioned in the assessment order - books of accounts of the assessee were also not found reliable and the same were rightly rejected u/s 145(3) of the Act - it appropriate to apply the gross profit rate at 10% - appeals of the assessee are allowed in part

Summary

Issues Involved:
1. Application of Gross Profit (GP) rate for different assessment years.
2. Reliability of books of accounts and their rejection under Section 145(3) of the Income Tax Act.
3. Tax effect and maintainability of appeals by the Revenue.

Issue-wise Detailed Analysis:

1. Application of Gross Profit (GP) Rate:
The primary issue revolves around the appropriate GP rate to be applied for various assessment years. The Revenue contended that the CIT(A) erred in applying a GP rate of 12% for the assessment years 2000-01, 2001-02, 2002-03, 2004-05, and 2005-06, when the assessee had shown a GP rate of 24.14% for the assessment year 2003-04 and 25% as against 30% applied by the AO for the same year. The assessee argued that the CIT(A) adopted a higher rate of net profit than shown in the books, which varied from 4.68% to 24.14% across different years. The Tribunal, after considering the rival submissions, decided to apply a GP rate of 10% instead of 12% for the assessment years 2000-01, 2001-02, 2002-03, 2004-05, and 2005-06. For the assessment year 2003-04, the Tribunal retained the GP rate at 24.14% as shown by the assessee, rejecting the 25% rate adopted by the CIT(A).

2. Reliability of Books of Accounts and Rejection under Section 145(3):
The books of accounts maintained by the assessee were found unreliable due to incomplete details and lack of verification of purchase and sales transactions. The CIT(A) noted that the assessee failed to furnish complete details despite specific questionnaires and notices issued under Section 142(1). The Tribunal upheld the rejection of the books of accounts under Section 145(3) of the IT Act, agreeing with the CIT(A) that the AO was justified in rejecting the books due to the inability to verify the correctness and completeness of the accounts. The Tribunal cited several case laws to support the principle that assessments should be based on logical estimates rather than arbitrary figures when books of accounts are rejected.

3. Tax Effect and Maintainability of Appeals by the Revenue:
The Tribunal noted that the tax effect involved in the appeals of the Revenue for the assessment years 2002-03 to 2005-06 was below the prescribed monetary limit. Consequently, these appeals were dismissed as not maintainable. However, the Tribunal clarified that its findings on the merits of the case would remain in operation despite the dismissal of these appeals on technical grounds.

Conclusion:
The Tribunal dismissed the appeals of the Revenue and partly allowed the appeals of the assessee. The GP rate was adjusted to 10% for the assessment years 2000-01, 2001-02, 2002-03, 2004-05, and 2005-06, while retaining the GP rate at 24.14% for the assessment year 2003-04. The rejection of books of accounts under Section 145(3) was upheld, and the appeals with low tax effect were dismissed as not maintainable.