2018 (4) TMI 1956 - AT - Income Tax

Validity of assessment order framed u/s 144 - an ex-parte order - HELD THAT - We as considered the assessment order and we find that in spite of several notices the assessee did not attend the assessment proceedings and therefore the Assessing Officer was left with no choice but to frame an ex-parte order under section 144 - No infirmity in the order so framed. Ground No. 1 is accordingly dismissed. Estimation of income - estimation of net profit by the CIT(A) @ 3% as against 8% applied by the AO - There is no dispute that the books of account of the assessee are audited and audited financial statements were available with the AO at the time of the assessment proceedings. No doubt the assessee did not produce the relevant bills/vouchers nor any supporting evidence was produced at the time of assessment proceedings. But as mentioned else were the AO should not have ignored the past history of the assessee in estimating the net profit @ 8%. Though FAA has reduced the net profit rate to 3% but at the same time he also ignored the past history of the assessee. Considering the nature of business of the assessee the profit rate as declared appears to be reasonable. No comparable cases have been brought on record by the AO or the CIT(A) to justify the adoption of the profit rate. Therefore we are inclined to accept the profit rate shown by the assessee. The Assessing Officer is directed to accept the net profit rate as shown by assessee in its financial statements. The addition on this ground is directed to be deleted. Non allowability of the depreciation on adoption of profit rate - HELD THAT - Since the assessee has claimed the depreciation in its return of income and has furnished necessary details in its audited statement of account, in our considered opinion, the claim of depreciation cannot be denied. In light of aforementioned circular Circular No. 029D (XIX-14) dated 31.08.1965 has clarified the claim of depreciation on adoption of profit rate, we accordingly direct the Assessing Officer to allow the claim of depreciation as further provisions of the law. Ground No. 3 is allowed. Disallowance of interest paid u/s 40(a)(ia) - HELD THAT - In our considered opinion due to the amendment brought in the relevant provisions of the Act this issue needs to be restored to the file of the Assessing Officer. The assessee shall furnish necessary details demonstrating that the payee has shown the receipt of the interest as its income and shall also furnished necessary certificate as provided. AO is directed to verify the details so furnished by the assessee and decide the issue afresh as per the amended provisions of the law. With these directions ground No. 5 is treated as allowed for the statistical purposes.

Summary

Issues involved:
1. Validity of assessment order under section 144 of the Act.
2. Estimation of net profit by CIT(A) @ 3% against 8% applied by Assessing Officer.
3. Non-allowability of depreciation on adoption of profit rate.
4. Disallowance of interest paid under section 40(a)(ia) of the Act.

Issue 1: Validity of assessment order under section 144 of the Act:
The appellant challenged the assessment order framed under section 144 of the Act, arguing that it was not according to law. The appellant did not attend the assessment proceedings, leading to the Assessing Officer framing an ex-parte order. The tribunal found no infirmity in the order as the appellant's non-attendance left the Assessing Officer with no choice. Thus, the challenge to the validity of the assessment order was dismissed.

Issue 2: Estimation of net profit by CIT(A) @ 3% against 8% applied by Assessing Officer:
The appellant objected to the CIT(A)'s estimation of net profit at 3% compared to the 8% applied by the Assessing Officer. Despite the ex-parte assessment, the tribunal noted that the Assessing Officer should have considered past financial results. The tribunal found the appellant's declared profit rate reasonable based on past history and directed the Assessing Officer to accept the net profit rate as shown by the appellant. Consequently, the addition based on the estimation of net profit was deleted.

Issue 3: Non-allowability of depreciation on adoption of profit rate:
The appellant contended the non-allowability of depreciation on adopting the profit rate. Referring to a CBDT circular, the tribunal held that if the assessee claimed depreciation and provided necessary details, the claim could not be denied. In line with the circular's provisions, the tribunal directed the Assessing Officer to allow the claim of depreciation. Thus, this ground was allowed in favor of the appellant.

Issue 4: Disallowance of interest paid under section 40(a)(ia) of the Act:
Regarding the disallowance of interest paid under section 40(a)(ia) of the Act, the tribunal noted the need for further verification due to amendments in the relevant provisions. The appellant was instructed to provide details demonstrating the payee's receipt of interest income and furnish the necessary certificate. The Assessing Officer was directed to re-examine the issue based on the amended provisions. Consequently, this issue was treated as allowed for statistical purposes.

In conclusion, the tribunal partly allowed the appeal, dismissing some grounds while ruling in favor of the appellant on others. The assessment order's validity was upheld, the estimation of net profit was adjusted in favor of the appellant, depreciation was allowed, and the disallowance of interest was subject to further verification.