2013 (4) TMI 456 - HC - Income Tax

Matter related to the what will be the adequate rate of net profit will be applied while making assessment of the assesse pertaining to the year 2007-08. Held that - The Tribunal has applied net profit rate of 8% for the reason that net profit rate of 8% was applied in the case of assessee in the previous years 2005-06 and 2006-07, therefore, in the present assessment year, the Tribunal found no reason to interfere with the order passed by the Commissioner of Income-Tax (Appeals).of such rate applied in earlier years. Therefore, we do not find that any substantial question of law arises for consideration in the present appeal. Dismissed.

Summary

Issues:
1. Adoption of Net Profit rate - 7% vs. 12%
2. Applicability of principle of res judicata in income tax proceedings
3. Upholding the order of the CIT(A) without appreciating specific facts/discrepancies

Analysis:

1. Adoption of Net Profit rate - 7% vs. 12%:
The main issue in this case revolves around the adoption of the net profit rate for the assessment year 2007-08. The Revenue challenged the Tribunal's decision to allow an adoption of a 7% net profit rate, as ruled by the CIT(A), instead of the 12% rate adopted by the assessing officer. The Tribunal justified its decision by pointing out that a net profit rate of 8% was applied in the previous years, 2005-06 and 2006-07. The Tribunal clarified that its decision would not set a precedent if the assessing officer could provide sufficient evidence to warrant a higher net profit rate or a greater disallowance of expenses.

2. Applicability of principle of res judicata:
The second issue raised by the Revenue questions the Tribunal's decision to uphold the net profit rate applied in the earlier years for the assessee's case. The Revenue argued that the principle of res judicata should not apply to income tax proceedings as each year is considered separate. However, the Tribunal found no reason to interfere with the order passed by the CIT(A) based on the consistency of applying an 8% net profit rate in the previous years.

3. Upholding the order of the CIT(A) without appreciating specific facts/discrepancies:
The final issue concerns the Tribunal's decision to uphold the order of the CIT(A) without considering the specific facts and discrepancies highlighted by the Assessing Officer for the assessment year 2007-08. The Revenue contended that the Tribunal's decision was arbitrary and perverse as it failed to appreciate the Assessing Officer's speaking order that led to the adoption of a 12% net profit rate. However, the High Court dismissed the appeal, stating that the determination of the net profit rate is a question of fact in each case. The Court supported the Tribunal's decision to apply an 8% net profit rate based on the rates used in previous years, emphasizing that no substantial question of law arose in the present appeal.

In conclusion, the High Court upheld the Tribunal's decision and dismissed the appeal, emphasizing the importance of considering the facts and consistency in determining the net profit rate for each assessment year.