2016 (1) TMI 494 - AT - Income Tax

Estimation of income - whether the gross profit rate (GP rate) or the net Profit rate (NP rate) should be adopted - Held that - A.O proceeded to adopt the GP rate at 6.19% and did not grant the deduction of expenses of transportation of loading and unloading charges only for the reason that Assessee could not prove the genuineness of expenses. It is an undisputed fact that Assessee is engaged in the business of coal trading and in the nature of business in which Assessee is engaged into, the expenditure on loading and unloading of expenses and the transportation is an important constituent of expenditure and without considering it the correct profits cannot be determined. We also find that Hon ble Gujarat High Court in the case of CIT vs. President Industries (1999 (4) TMI 8 - GUJARAT High Court) has also noted that entire undisclosed sales could not be added as income of Assessee but addition could be made only to the extent of embedded profits embedded in sales and for which net profit was adopted. Thus we are of the view that in the present case when the sales are undisputed, the ends of justice shall be met if the income of the Assessee is estimated after taking into consideration the net profit rate of 1.5%. - Decided in favour of assessee.

Summary

Issues:
Appeals against CIT(A) order for block period 01/04/1987 to 16/10/1997 - Estimation of income using GP rate vs. NP rate - Compliance with ITAT directions - Exclusion of income for years with no filed return due to non-taxable income - Review of predecessor's order - Levying of interest u/s 158BFA(1) - Initiation of penalty proceedings u/s 158BFA(2).

Analysis:
Estimation of Income using GP vs. NP Rate:
- Assessees' appeals concerned the estimation of income using GP rate instead of NP rate for the block period. The A.O initially assessed income at a higher amount, which was reduced by CIT(A) but still disputed.
- Assessee argued for NP rate adoption citing expenses like transportation and loading/unloading costs. The A.O and CIT(A) supported GP rate application.
- Tribunal noted undisputed sales and directed A.O to decide the appropriate rate. A.O initially considered NP rate but later applied GP rate without considering essential expenses.
- Relying on precedents, Tribunal directed income estimation at 1.5% NP rate, allowing Assessee's grounds.

Compliance with ITAT Directions:
- The Tribunal emphasized the importance of complying with its directions, especially regarding the appropriate profit rate application for accurate income estimation.

Exclusion of Income for Non-Filed Returns:
- Assessee raised concerns about including income for years where returns were not filed due to being below taxable limits.
- The Tribunal acknowledged the issue and directed the exclusion of such income, emphasizing the finality of previous directions.

Review of Predecessor's Order:
- Assessee challenged the review of the predecessor's order by CIT(A), arguing against the confirmation of additions for non-filed return years.
- The Tribunal upheld Assessee's argument, emphasizing the need to follow previous directions and principles of natural justice.

Levying of Interest and Penalty Proceedings:
- CIT(A) confirmed the levying of interest u/s 158BFA(1) and initiation of penalty proceedings u/s 158BFA(2), which were contested by Assessee.
- The Tribunal found in favor of Assessee, allowing the appeals and directing the exclusion of net profits at 1.5% of turnover.

Conclusion:
The Tribunal allowed all appeals, directing the estimation of income at 1.5% NP rate, emphasizing compliance with ITAT directions, exclusion of income for non-filed return years, and overturning the levying of interest and penalty proceedings.