2015 (12) TMI 1407 - AT - Income Tax

Estimation of Gross Profit rate - Gross Profit rate of 11.5% confirmed by CIT(A) - Held that - It is undisputed that the books of accounts were never produced before the Assessing Officer. Certain other alarming facts were also found by the Assessing Officer, the obvious conclusion made by him was to reject the books of account. The assessee preferred not to press the ground related to rejection of books of accounts before us. In such a scenario the estimation of Gross Profit rate is a must. The assessee cannot plead to accept the Gross Profit rate as declared by him, when books of A/c and details were not produced before authorities below. The CIT(A), in this case has given a very detailed reasoned finding as to the fact that, why a Gross Profit rate of 11.5% may be applied. Considering facts of case it is clear that there is increase in turnover of assessee as compared to earlier years. The Ld. CIT(A) considered past history of assessee for estimating profit when no books were produced before AO. We rely on decision of Punjab & Haryana High Court in case of CIT Vs. Rajinder Parshad Jain, 2014 (12) TMI 567 - PUNJAB & HARYANA HIGH COURT - No infirmity in the order of CIT(A) on this issue. The Gross Profit rate 11.5% as estimated by the CIT(A) seems reasonable in the facts & circumstances of the case. As we have upheld the estimation of Gross Profit @ 11.5% while adjudicating the earlier grounds, no other disallowance of any expenses separately is called for. In view of the above, income having been estimated. Any other disallowance is not warranted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Rejection of books of accounts under Section 145(3) of the Income Tax Act, 1961.
2. Estimation of Gross Profit rate.
3. Disallowance of Rs. 51,945/- under Section 40(a)(ia) for non-deduction of TDS under Section 194C.

Issue-wise Detailed Analysis:

1. Rejection of books of accounts under Section 145(3):
The assessee, a manufacturer of harvester combines, failed to produce essential books of accounts such as cash book, ledger, day book, purchase and sale bills, and expenditure bills during the assessment proceedings. Additionally, no quantitative details of opening or closing stock, production register, or stock register for raw materials and finished/semi-finished goods were provided. The Assessing Officer (AO) noted a decline in the gross profit rate and discrepancies in the closing balances of certain parties. Significant brokerage payments were made to close relatives without proper agreements or details of services rendered. Consequently, the AO rejected the books of accounts under Section 145(3) and estimated the Gross Profit rate at 12.5%. The CIT(A) upheld the rejection of books but estimated the Gross Profit rate at 11.5%, considering the assessee's historical data and submissions.

2. Estimation of Gross Profit rate:
The assessee declared a Gross Profit rate of 10.59% for the assessment year 2010-11, lower than the previous years' rates of 11.28% and 11.09%. The AO estimated the Gross Profit rate at 12.5%, citing discrepancies and non-production of books. The CIT(A) adjusted this to 11.5%, considering the assessee's past performance and the increase in turnover. The Tribunal upheld the CIT(A)'s decision, noting that the books were not produced, and a reasonable estimation was necessary. The Tribunal found the CIT(A)'s estimation of 11.5% to be fair and reasonable, given the circumstances and historical data.

3. Disallowance of Rs. 51,945/- under Section 40(a)(ia):
The AO disallowed Rs. 51,945/- under Section 40(a)(ia) for non-deduction of TDS on advertisement and publicity expenses exceeding the threshold limits under Section 194C. The assessee contended that these payments were for purchases and not subject to TDS. The CIT(A) upheld the disallowance, stating that the provisions of Section 194C were applicable. However, the Tribunal ruled that since the Gross Profit rate was estimated, no separate disallowance of expenses was warranted. The Tribunal cited the Andhra Pradesh High Court's judgment in Indwell Constructions vs. Commissioner of Income Tax, which held that once income is estimated, further disallowances are not justified.

Conclusion:
The Tribunal dismissed the department's appeal and partly allowed the assessee's appeal. It upheld the rejection of books of accounts and the estimation of the Gross Profit rate at 11.5% by the CIT(A). However, it ruled in favor of the assessee regarding the disallowance of Rs. 51,945/-, stating that no separate disallowance was warranted once the Gross Profit rate was estimated.