2012 (11) TMI 90 - AT - Income Tax

Estimation of net profit by applying a rate of 8% on gross receipts Held that - CIT(A), while directing the assessing officer to determine the income of the assessee applying a rate of 8% on the gross receipts, followed the order of the Tribunal in assessee s own case for the assessment year 2004-05 - no infirmity in the impugned order for the CIT(A), which is accordingly upheld - Revenue appeal dismissed. Additional evidence - three additions made by the assessing officer - allegation of the Revenue in the grounds of the present appeal, with regard to violation of provisions of Rule 46A, though there is no clarity as to what additional evidence has been entertained by the CIT(A) in violation of Rule 46A and such evidence relates to which of the issues - matter remanded to the file of the CIT(A) for fresh adjudication - Revenue s appeal allowed for statistical purposes

Summary

Issues Involved:
1. Assessment year 2005-06: Dispute over estimating net profit at 8% on gross receipts without further allowance.
2. Assessment year 2006-07: Dispute over disallowances under S. 40(a)(ia), cash payments, and depreciation on car; violation of Rule 46A.

Assessment year 2005-06:
The appeal by the Revenue contested the relief granted by the CIT(A) directing the assessing officer to estimate the net profit at 8% on gross receipts without additional allowance. The assessing officer, dissatisfied with the completeness of the accounts, estimated the profit at 15% of gross receipts without allowing depreciation. The CIT(A) referred to a previous Tribunal order for the same assessee in the assessment year 2004-05 and directed the 8% net profit rate. The ITAT upheld the CIT(A)'s decision, emphasizing the need to follow the Tribunal's previous order and dismissing the Revenue's grounds of appeal.

Assessment year 2006-07:
In this year, the Revenue challenged the CIT(A)'s decision on disallowances under S. 40(a)(ia), cash payments, and depreciation on a car. The assessing officer had made substantial additions to the total income, leading to an appeal. The CIT(A) upheld the disallowance under S. 40(a)(ia) but reduced the disallowance on cash payments from 20% to 10% and deleted the disallowance of depreciation on the car. The ITAT noted the interlinked nature of these decisions and the alleged violation of Rule 46A. Given recent Tribunal decisions and the impact of sustained disallowances, the ITAT set aside the CIT(A)'s order and remanded all three issues for fresh adjudication, emphasizing the need for a relook at the S. 40(a)(ia) disallowance in light of a recent Special Bench decision. The CIT(A) was directed to re-adjudicate the appeal, considering all relevant factors and giving both parties a fair hearing.

In conclusion, the ITAT dismissed the appeal for assessment year 2005-06 and allowed the appeal for assessment year 2006-07 for statistical purposes, highlighting the need for a fresh examination of all issues in the latter assessment year.