2015 (6) TMI 237 - AT - Income Tax

Rejection of books of accounts - estimation of net profit rate at 7% - Held that - We find merit in the arguments of ld. DR that it is incomprehensible that such a voluminous and diverse business can be profitably conducted by assessee without proper record and stock registers. Thus the books of account of the assessee have been rightly rejected by the lower authorities. Now coming to the estimate of NP, the facts and circumstances of assessee s business remained same as in the preceding year where various additions were made by the AO. In first appeal, the ld. CIT(A) restricted the estimation of net profit rate at 4.46% subject to depreciation and interest which is reasonable. Looking at the entirety of the facts and circumstances of the case, we are of the view that estimate of NP rate of 7% is on higher side looking at the past history of the assessee. Thus, we restrict the net profit rate at 4.46 % as adopted in preceding year instead of 7% determined by the ld. CIT(A). - Decided partly in favour of assesse.

Summary

Issues:
1. Dismissal of ground related to completion of assessment after the expiry of the time limit for serving notice under section 143(2).
2. Rejection of books of account under Section 145 of the Income Tax Act, 1961.
3. Estimation of gross profit rate at 7% instead of deleting the entire trading addition of Rs. 8,20,039.

Analysis:

Issue 1:
The assessee appealed against the dismissal of the ground related to completing the assessment after the notice under section 143(2) was served post the expiry of the time limit. The assessee did not press this ground during the hearing, leading to its dismissal by the tribunal.

Issue 2:
The rejection of books of account by the Assessing Officer (AO) under Section 145 was challenged by the assessee. The AO rejected the books due to incomplete records of material consumed, labor payments, and lack of proper vouchers for expenses. The CIT(A) upheld the rejection citing the inability to verify the correct profit due to decreased net profit rate. The tribunal found merit in the rejection based on the inadequacy of records, supporting the lower authorities' decision.

Issue 3:
Regarding the estimation of the gross profit rate at 7%, the assessee argued against the arbitrary application of an 8% rate without considering past assessments. The tribunal noted the substantial increase in turnover and reduced the net profit rate to 4.46% based on past history, providing relief to the assessee by partially allowing the appeal.

The tribunal's decision balanced the rejection of books due to inadequate records with a fair estimation of the net profit rate, considering the business's past performance and circumstances. The appeal was partly allowed, providing relief to the assessee in the assessment for the year in question.