2015 (8) TMI 424 - HC - Income Tax

Non production of books of accounts - gross profit rate on estimate basis of information available on record and while making best judgement - AO only on the ground that the books had not been produced adopted a rate of 20% - Held that - The CIT (Appeals) and the Tribunal rightly observed that there was no incriminating evidence against the respondent and no comparable cases had been cited for arriving at the GP rate of 20% to 22%. A judgement of the Privy Council in CIT Vs Laxmi Narain Badridas, 1937 (2) TMI 1 - PRIVY COUNCIL was relied upon by the Tribunal, where it was held that the Asssessing Officer cannot act capriciously and on the basis of his personal knowledge of previous returns and local knowledge. In the present case, in any case, the same was not even put to the assessee. The orders of the CIT (Appeals) and the Tribunal cannot be said to be perverse holding that gross profit rate declared by the assessee should be accepted - Decided against revenue.

Summary

Issues:
Appeal against ITAT order for assessment years 2005-2009; Substantial questions of law on deletion of additions made by AO; Dispute over GP rate application; Failure to produce books of account; GP rates disclosed by assessee; AO's adoption of 20% GP rate; Lack of evidence for GP rate comparison; CIT (Appeals) and Tribunal decisions; Reference to Privy Council judgment; Dismissal of appeals.

Analysis:
The case involved appeals against a common order by the Income Tax Appellate Tribunal (ITAT) for assessment years 2005-2009. The substantial questions of law raised by the appellant questioned the justification of deleting additions made by the Assessing Officer (AO) totaling significant amounts for each year due to the non-production of books of account. The appellant contested the application of a 20% GP rate by the AO based on estimates due to the absence of books. The dispute centered around the GP rates disclosed by the assessee ranging from 6.58% to 12.06%, significantly lower than the rate applied by the AO.

A search conducted under Section 132 of the Income Tax Act in 2010 required the respondent to produce books of account, which they failed to do. The AO justified the 20% GP rate based on the absence of books and his observation of GP rates in similar cases. However, the lack of specific details or evidence regarding these observations was noted. The CIT (Appeals) and the Tribunal found no incriminating evidence against the respondent and criticized the arbitrary application of the 20% GP rate without citing comparable cases. The Tribunal referred to a Privy Council judgment emphasizing that an AO cannot act capriciously based on personal knowledge.

Ultimately, the CIT (Appeals) and the Tribunal decisions were deemed reasonable and not perverse. The judgment highlighted that the AO's actions lacked a legal basis and failed to provide sufficient grounds for the chosen GP rate. As a result, the appeals were dismissed, concluding that no substantial question of law arose from the case.