2015 (6) TMI 462 - HC - Income Tax

Rejection of books of accounts - AO apply the net profit rate of 5% of gross receipts - as per CIT(A) net profit is estimated @ 2% i.e, 45,02,424/- as confirmed by ITAT - Held that - The ITAT went through the records, including the finding of the CIT(Appeals) that no rationale was shown for estimating the net profit @ 5% and that the evidence of supplies were otherwise forthcoming. In these circumstances, the ITAT refused to interfere after knowing that the net profit rate had been reduced by the CIT(Appeals). This Court holds that no substantial question of law exists.- Decided against revenue.

Summary

Issues:
1. Appeal against ITAT's order under Section 260A of the Income Tax Act, 1961 confirming CIT(A)'s order.
2. Rejection of books of account by AO and assessment of income at a specific amount.
3. Claimed expenses and credits in the construction business.
4. Notices issued under Section 133(6) with no response from parties.
5. Addition of amounts claimed against non-responding parties.
6. Application of net profit rate by AO.
7. CIT(A)'s considerations and findings.
8. ITAT's review and refusal to interfere.
9. Existence of substantial question of law.

Analysis:

1. The appeal was filed against the ITAT's order under Section 260A of the Income Tax Act, 1961, which upheld the CIT(A)'s decision. The Assessing Officer (AO) had rejected the books of account contrary to the assessee's case and assessed the income at a specific amount. The ITAT confirmed the CIT(A)'s order, leading to the appeal by the revenue.

2. The assessee, engaged in the construction business, had claimed various expenses and credits. The AO issued notices under Section 133(6) to parties, but no response was received. Consequently, the amounts claimed against these parties were added, and the AO rejected the books of accounts, applying a net profit rate of 5% of gross receipts. The CIT(A) considered the submissions and evidence provided by the appellant, including copies of account books and confirmations from suppliers, ultimately reducing the net profit rate to 2%.

3. The CIT(A) noted the appellant's compliance with providing necessary documentation, such as account payee cheques for payments to suppliers and muster rolls for wages. Comparisons with similar cases were made, highlighting discrepancies in the AO's assessment. The CIT(A) found the AO's objections inadequately supported and not justifying the rejection of the books of accounts or the application of a 5% net profit rate.

4. The ITAT reviewed the records, including the CIT(A)'s findings, and observed the lack of rationale for the 5% net profit rate. After noting the reduction of the net profit rate by the CIT(A), the ITAT declined to interfere. The High Court concurred, finding no substantial question of law to warrant further consideration, leading to the dismissal of the appeal.

5. In conclusion, the judgment emphasized the importance of justifying assessments and decisions based on sound reasoning and evidence. The courts upheld the CIT(A)'s decision to reduce the net profit rate, highlighting the need for proper evaluation and consideration of all relevant factors in income tax assessments.