2014 (2) TMI 687 - AT - Income Tax

Rejection of books of accounts Assessement of income u/s 144 of the Act Necessary details not provided Held that - Estimation of income made by the CIT(A) at the rate of 5% of the net profit on total sales is concerned, an estimation is quite reasonable Relying upon C.Packirisamy vs. ACIT 2008 (12) TMI 190 - MADRAS HIGH COURT - in case of Best judgment assessment, estimation of net profit at 5% of total sales is in accordance with the established principles thus, there was no infirmity in the order of the CIT(A). Set off of losses Held that - The authorities have not given any finding as to why the earlier year losses should not be allowed to be set off against the income of the relevant assessment year and after set off if the net result is loss why not the same be allowed to be carried forward as per provisions of the Income Tax Act - If the income of the assessee for the year under consideration is assessed under section 144 of the act, that itself is no ground to disallow the setoff of earlier year losses, which the assessee otherwise entitled to claim as per law - the assessee is entitled to set off of loss of earlier years against the income directed by the CIT(A) to be estimated for the relevant assessment year - the assessee will be further entitled to carry forward if the resulting income will be negative Decided partly in favour of Assessee.

Summary

Issues Involved:
1. Rejection of books of accounts and estimation of income under section 144 of the Income Tax Act.
2. Allowance of set off of losses of earlier years against the income for the relevant assessment year.
3. Allowance of carry forward of unabsorbed losses of the appellant from earliest assessment years.

Issue 1: Rejection of books of accounts and estimation of income under section 144 of the Income Tax Act:
The appellant filed an appeal against the order of the CIT(A) confirming the AO's rejection of the books of accounts and directing the estimation of income at 5% of net profit on total sales. The AO proceeded with assessment under section 144 due to the appellant's non-cooperation in providing necessary details. The CIT(A) upheld the assessment method but disagreed with the additions made by the AO based on discrepancies in the accounts. The CIT(A) found the AO's estimation without basis and held it to be erroneous and not in accordance with the law. The CIT(A) determined the income at Rs.2,35,996, being 5% of total sales, considering it just. The ITAT upheld the CIT(A)'s decision on the estimation of income, citing established principles from case law. The ITAT noted the appellant's failure to address the rejection of books of accounts and AO's assessment under section 144, upholding the CIT(A)'s decision.

Issue 2: Allowance of set off of losses of earlier years:
The ITAT observed that the authorities did not provide any reasoning for disallowing the set off of earlier year losses against the income of the relevant assessment year. The ITAT held that the appellant should be allowed to set off losses of earlier years against the income estimated for the relevant assessment year under section 144. The ITAT emphasized that the appellant is entitled to carry forward any resulting loss if the income is negative, in accordance with the provisions of the Income Tax Act.

Issue 3: Allowance of carry forward of unabsorbed losses from earliest assessment years:
The ITAT addressed the appellant's claim for carry forward of unabsorbed losses from earliest assessment years. The ITAT partially allowed the appeal, granting the appellant the right to set off losses of earlier years against the estimated income for the relevant assessment year and carry forward any resulting loss as per the provisions of the Income Tax Act.

In conclusion, the ITAT upheld the estimation of income at 5% of total sales but allowed the appellant to set off losses of earlier years against the income for the relevant assessment year and carry forward any resulting loss as per the provisions of the Income Tax Act.