2015 (10) TMI 2117 - AT - Income Tax

Estimation of income - method adopted by Assessing Officer of evaluating G.P. on the basis of G.P. ratio of the previous two years - AO rejecting the return of income filed by the assessee and disregarding the book result shown therein and estimating the income under the head business at ₹ 57,95,266/- as against the loss of ₹ 18,74,33,043/- as shown by the assessee in the return of income filed - CIT(A) deleted the addition - Held that - Details of party-wise sales and purchases made during the assessment year were also filed. Some confirmations of sales and purchases were also filed containing requisite particulars of the parties concerned i.e. name, complete address, PAN etc. The assessee also filed detailed note of justification for the loss suffered in business by the assessee during the year under appeal along with corroborative evidences and also citing the comparable case of other assessees having similar business and having suffered similar losses in the same year. In support of its claim of destruction of records due to water loging in the business premises caused by heavy rains on 8th July, 2009, the assessee filed affidavits and police complaint and copy of newspaper report. The Assessing Officer did not make verification of any of these documents, but disbelieved the same without bringing anything contrary on record. With regard to justification of the loss, the assessee had submitted evidences showing that the rate of Nickel (the main ingredient of non ferrous metal traded by the assessee), crashed consistently throughout the year and came down from ₹ 30,000/-per M.T. in April 2008 to ₹ 9,000/- per M.T. in March 2009, registering steep fall of more than 70%. The assessee had filed evidences in the form of quotations from London Metal Exchange, in support of his assertion. It was submitted that most of the sales have been shown by assessee out of the opening stock held, and all the purchases were made in the earlier years at higher rate prevailing at that time. Due to the aforesaid steep fall of more than 70% in the rate of goods traded by the assessee, gross loss was incurred by the assessee. The documentary evidences submitted, the details of which have been reproduced in this order above, would show that on the basis of these documentary evidences, the Assessing Officer could have very well satisfied himself to clear any doubts. During course of hearing, ld. D.R. could not bring anything contrary on record to controvert these facts, he could not point out anything wrong in the aforesaid documentary evidences submitted by the assessee before the Assessing Officer as well as before the CIT(A). In addition to that, assessee has also given justification for incurring loss during the year due to the reasons which were beyond his control i.e. a drastic crash in the global market, world over. None of these facts have been controverted by the Assessing Officer in the assessment proceedings or by Learned Departmental Representative at this stage. Thus ld. CIT(A) correctly deleted the addition made by the Assessing Officer. - Decided in favour of assessee.

Summary

Issues:
- Disallowance of business loss due to absence of produced books of accounts
- Justification of estimating income based on previous years' GP ratio

Analysis:
1. The primary issue in this case is whether the Assessing Officer was justified in rejecting the return of income filed by the assessee and estimating the income under the head 'business' at a significantly lower amount than the loss claimed by the assessee. The Revenue contended that due to the failure of the assessee to produce books of accounts, the Assessing Officer estimated the profit based on past history. The Revenue argued that the CIT(A) erred in reversing the Assessing Officer's order, and the addition made by the Assessing Officer should be upheld.

2. On the other hand, the assessee argued that the Assessing Officer's estimation of income was unjustified. The assessee explained that due to flooding in the office premises, records were destroyed, but data was saved on computers and reprinted for verification. The assessee provided various evidences to support the claim, including confirmations and subsidiary records. The assessee also highlighted the drastic decline in material prices affecting the business. The CIT(A) considered all facts and evidence, ultimately deleting the addition made by the Assessing Officer.

3. Upon review of the case, it was noted that the assessee's audited accounts and tax audit report were available to the Assessing Officer. The assessee had submitted various documents and evidences, such as affidavits, ledger accounts, stock records, and price graphs, to substantiate the claimed loss. The Assessing Officer did not verify these documents and disregarded the submissions. The assessee also provided justification for the loss incurred, citing the global market crash as a significant factor.

4. The Tribunal carefully considered all the facts and evidence presented by both parties. It acknowledged the efforts made by the assessee to provide alternative evidence in the absence of physical books of accounts. The Tribunal found that the documentary evidences submitted were sufficient for verification and that the Assessing Officer could have cleared any doubts through direct verification with concerned parties. The Tribunal emphasized that a 'best judgment assessment' should not be punitive and noted that the CIT(A) had made a detailed and judicious decision based on the evidence presented.

5. Ultimately, the Tribunal upheld the CIT(A)'s decision to delete the addition made by the Assessing Officer, concluding that no interference was warranted. The appeal filed by the Revenue was dismissed, and the order of the CIT(A) was upheld.