2016 (12) TMI 1834 - AT - Income Tax

Rejection of the books of account u/s 145(3) - application of net profit rate of 12% - HELD THAT - Identical issue have been considered by ITAT Chandigarh Bench in the case of the assessee in preceding assessment years 2005-06 2006-07 and 2008-09. The Assessing Officer has recorded several reasons for rejection of the books of account in the assessment years which have not been disputed by ld. counsel for the assessee. The ld. counsel for the assessee did not challenge rejection of the books of account under section 145(3) of the Act therefore findings of authorities below to that extent are confirmed. Following history of the assessee it would be reasonable and appropriate to direct the Assessing Officer to apply NP rate @ 6% as against 12% adopted by the authorities below.

Summary

Issues:
- Rejection of books of account under section 145(3) of the Income Tax Act
- Application of net profit rate of 12% leading to addition to the returned income

Analysis:
1. Rejection of Books of Account under Section 145(3):
- The appellant, a civil contractor, challenged the rejection of books of account under section 145(3) of the Income Tax Act for assessment years 2009-10 and 2010-11.
- The Assessing Officer found the books of account incomplete and unreliable, especially regarding material purchases and labor expenses.
- The rejection was based on the inability to verify material purchases due to the absence of a stock register.
- The Assessing Officer applied a net profit rate of 12% citing a judgment from the Hon'ble High Court in a similar case.

2. Application of Net Profit Rate of 12% and Addition to Income:
- The Assessing Officer applied a net profit rate of 12% in both assessment years, leading to additions to the returned income.
- The ld. CIT(Appeals) confirmed the rejection of books of account and the addition based on the profit rate.
- The appellant argued that the 12% profit rate was excessive, citing historical profit rates accepted in previous assessment years.
- The appellant presented evidence of lower profit rates accepted in earlier assessments, ranging from 1.08% to 6%.
- The ITAT considered the appellant's history and directed the Assessing Officer to apply a net profit rate of 6% instead of 12% for both assessment years.

3. Judicial Decision and Outcome:
- The ITAT found the 12% profit rate excessive and modified the orders of the authorities below.
- Relying on the appellant's historical profit rates, the ITAT directed the Assessing Officer to compute income using a net profit rate of 6% for both assessment years.
- As a result, both appeals by the assessee were partly allowed, and the orders were pronounced in the Open Court.