2011 (12) TMI 712 - AT - Income Tax

Summary

Issues involved: Assessment of income u/s 147 of the IT Act, 1961, estimation of gross profits, disallowance of license fee and discount.

Assessment of income: The Assessing Officer assessed income at a higher amount than disclosed by the assessee, based on rejecting the books of accounts and adopting maximum gross margins, resulting in an increased sales estimation and profit amount.

Estimation of gross profits: The CIT(A) reduced the estimated gross profit rate to 24% from the initially adopted rate. The Tribunal, in a similar case, directed the Assessing Officer to compute income at 3% of the stock put up for sale, considering past net profit percentages.

Disallowance of license fee and discount: The Assessing Officer disallowed the license fee and discount, which was confirmed by the CIT(A). However, the Tribunal held that once books of accounts are rejected for profit estimation, no further additions should be made, as all expenditures are deemed to be allowed in the estimation process.

Judgment: The Tribunal partly allowed the assessee's appeal, directing the Assessing Officer to compute income at 3% of the stock put up for sale and disallowing further additions once profit is estimated after rejecting books of accounts.