2007 (2) TMI 153 - HC - Income Tax

Appeal to HC AO estimated the net profit 8% against the gross receipt by rejecting 1.52% shown by the assessee on non-production of books of account and vouchers by the assessee but tribunal marginally reduces the estimated net profit of the AO HC refused to interfere with estimate

Summary

Issues:
1. Estimation of net profit rate at 8% of gross receipts and application of provisions of Section 145.
2. Justification of upholding accrual and arising of income in the opening of the relevant financial year.

Analysis:
1. The appellant, a labour contractor, filed an appeal under Section 260-A of the Income Tax Act against the Tribunal's order regarding the assessment years 2001-02. The appellant's substantial questions of law revolved around the estimation of net profit at 8% of gross receipts and the application of Section 145. The appellant's initial investment of Rs. 1,20,000 was disputed, leading to Rs. 80,000 being disallowed and added to income as undisclosed sources. The Assessing Officer estimated the net profit rate at 8% due to the appellant's failure to produce books of accounts, which was later reduced to 6.5% by the Tribunal. The Court upheld the Tribunal's decision, stating that in the absence of material to suggest otherwise, the estimation made by the authorities was justifiable within the realm of estimation.

2. The appellant's appeal also questioned the justification of upholding the accrual and arising of income in the opening of the relevant financial year. Despite the appellant's inability to provide satisfactory explanations, additional relief of Rs. 40,000 was granted for the initial capital investment. The Tribunal granted further relief of Rs. 80,210, reducing the net profit rate to 6.5%. The Court found no reason to interfere with the Tribunal's decision, emphasizing that it would not substitute its own opinion on estimation when the authorities' view was reasonable given the circumstances. The addition of Rs. 40,000 on account of income from undisclosed sources was also upheld by the Court.

In conclusion, the Court dismissed the appeal, affirming the Tribunal's decisions on the estimation of net profit rate and the addition of income from undisclosed sources. The Court emphasized the importance of respecting the authorities' estimation in the absence of material suggesting otherwise, highlighting that the Court would not substitute its own opinion in such matters.