2017 (1) TMI 1610 - AT - Income Tax

Rejection of books of accounts - Estimation of income - The assessee stated that the bills and vouchers are not available for production. Considering this, the AO observed that in absence of bills and vouchers, correctness and genuineness of expenses is not verifiable. - CIT(A) estimated the income @5% - Held that - Considering the past accepted results of the assessee, I am of the considered view that estimation of income of the assessee by applying the net profit rate of 4% will meet the ends of justice. I, therefore, modify the order of the CIT(A) accordingly and partly allow the ground of the appeal of the assessee. - Decided partly in favor of assessee.

Summary

Issues involved:
Appeal against CIT(A)'s order estimating net profit, rejection of books of account, excessive estimation of net profit, comparison with past accepted results.

Analysis:

1. Estimation of Net Profit:
The primary issue in this appeal was the estimation of net profit by the Assessing Officer at 5% of the turnover after rejecting the book results of the assessee. The CIT(A) upheld this estimation, leading to an addition of ?2,42,193 to the assessee's income. The appellant argued that the net profit rate applied was excessive compared to past results. However, the Tribunal noted that while the rejection of books was not challenged, the estimation of income should be reasonable. Considering the past accepted results of 3.04%, 2.77%, and 2.64% in previous assessment years, the Tribunal modified the order, reducing the net profit rate to 4% to align with past trends.

2. Rejection of Books of Account:
The Assessing Officer rejected the books of account due to the unavailability of bills and vouchers for expenditure verification. This led to the estimation of net profit at 5% of the turnover. The Tribunal acknowledged this rejection but focused on determining a reasonable net profit rate based on past accepted results rather than making arbitrary estimations.

3. Comparison with Past Results:
The appellant highlighted that the net profit shown in the current assessment year was 3%, while the Assessing Officer estimated it at 5%. By comparing these figures with past results of 3.04%, 2.77%, and 2.64% in preceding years, the Tribunal concluded that a 4% net profit rate would be more appropriate, considering consistency and fairness in estimation.

4. Decision and Outcome:
Ultimately, the Tribunal partly allowed the appeal, modifying the estimation of net profit from 5% to 4% based on past accepted results. This adjustment aimed to ensure a more just and reasonable determination of the assessee's income, aligning it with historical performance. The decision was pronounced in the open court, bringing resolution to the dispute between the parties.