2017 (2) TMI 1366 - HC - Income Tax

GP estimation - Tribunal reducing GP rate to 6% as determined by Settlement Commission at 8% - Held that - Tribunal while dealing with this issue has extensively examined the contention raised by the parties and thereafter recorded findings which is essentially a finding of fact accepted the gross profit rate at 6 per cent. Shri Gaurav Mahajan has not been able to point out any specific evidence or ground raised in the appeal which may suggest that the gross profit rated adopted by the Tribunal is either perverse or based on no evidence. As such, the findings recorded by the Tribunal is in accordance with law and does not require any interference. Allowing telescoping of income - whether undisclosed income of the assessee shown in the form of income from forfeiture of advances from customers and cessation of trading liability was not from trading activity - Held that - Assessing Officer himself having admitted in the questionnaire dated 22/12/2006 reproduced at internal page 3 of the assessment order that the aforesaid receipts are earned by way of business activity, the same thus are found to have a nexus with the business income estimated by the application of gross profit rate. The telescoping thereof accordingly is directed to be allowed. It again be a matter of fact as to whether the receipts are earned by way of business activity and there being no evidence to suggest otherwise. The findings recorded by the Tribunal does not warrant any interference. - revenue appeal dismissed.

Summary

Issues:
1. Justification of reducing GP rate by the Income Tax Appellate Tribunal.
2. Telescoping of income by the Income Tax Appellate Tribunal.

Analysis:
1. The appeal before the High Court was filed by the department under Section 260A of the Income Tax Act, 1961 against the Tribunal's order for the assessment year 2004-05. The primary issue was whether the Tribunal was justified in reducing the Gross Profit (GP) rate from 8% to 6% without providing specific facts to support this reduction. The Assessing Authority had initially applied a GP rate of 15%, which the CIT (Appeals) did not disturb. However, the Tribunal, after examining the parties' contentions, accepted the GP rate at 6%. The High Court found that there was no evidence presented to suggest that the Tribunal's decision was either perverse or lacked a factual basis. Therefore, the High Court upheld the Tribunal's decision on this issue, answering question 'B' in favor of the assessee.

2. The second issue revolved around the telescoping of income by the Tribunal. The Tribunal had allowed the telescoping of income, considering the receipts earned by the assessee as having a nexus with the business income estimated by applying the GP rate. The High Court reiterated that there was no evidence to suggest that the receipts were not earned through business activities. As a result, the High Court upheld the Tribunal's decision on this issue as well, answering question 'D' in favor of the assessee. Consequently, both questions were answered in favor of the assessee, leading to the dismissal of the appeal filed by the department.