2019 (3) TMI 1814 - AT - Income Tax

Estimation of income - Non rejecting of books of accounts - AO applying GP @ 20% on the basis of reply received from KSBCL authorities - HELD THAT - In turn following the judgment of Hon ble Karnataka High Court rendered in the case of CIT Vs. Anil Kumar Co. 2016 (3) TMI 184 - KARNATAKA HIGH COURT we hold that the addition made by the AO by estimating the GP without rejecting books of accounts is not justified and hence we delete the same.

Summary

Issues:
- Estimation of income based on gross profit percentage
- Rejection of books of accounts by Assessing Officer
- Applicability of Tribunal order in similar cases
- Legal justification for setting aside assessment based on estimation

Estimation of income based on gross profit percentage:
The appeal was against the order of the ld. CIT(A) directing the learned A.O to estimate the gross profit at 14.09% instead of the 20% adopted by the A.O. The A.O estimated the income by applying a gross profit rate of 20% based on information from KSBCL authorities. However, the Tribunal noted that there was no mention of the rejection of the books of accounts maintained by the assessee. Referring to a similar Tribunal order, it was held that an assessment made without rejecting the books of accounts is liable to be set aside. Citing the judgment of the Hon'ble Karnataka High Court, it was established that no addition can be made on an estimated basis without rejecting the books of account of the assessee. Consequently, the addition made by the A.O without rejecting the books of accounts was deemed unjustified, and the same was deleted.

Rejection of books of accounts by Assessing Officer:
The Tribunal emphasized that the A.O did not reject the books of accounts maintained by the assessee. It was highlighted that the laws mandate setting aside assessments made on estimation if the A.O did not reject the books of account. The Tribunal referred to a case where the High Court held that when the books of account are maintained in accordance with the system of accounting, they form the basis for income computation. As the A.O in the present case did not reject the books of account, the addition made based on estimation was deemed unsustainable, and the relief claimed by the assessee was granted.

Applicability of Tribunal order in similar cases:
The Tribunal considered a similar Tribunal order cited by the assessee's representative and found no difference in facts between the cases. It was concluded that the addition made by estimating the gross profit without rejecting the books of accounts was not justified, leading to the deletion of the same.

Legal justification for setting aside assessment based on estimation:
The Tribunal relied on the judgment of the Hon'ble Karnataka High Court, emphasizing that assessments cannot be based on estimation without rejecting the books of account of the assessee. It was reiterated that if the books of accounts are maintained in accordance with the system of accounting, they should form the basis for income computation. As the A.O did not reject the books of account in the present case, the assessment made by estimating the gross profit was deemed unjustified, resulting in the deletion of the addition.

In conclusion, the appeal filed by the assessee was allowed, and the addition made by estimating the gross profit without rejecting the books of accounts was deleted based on legal precedents and established principles of law.