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2016 (5) TMI 368 - AT - Income TaxRejection of books of accounts - estimation of net profit rate - Held that - The assessee has not maintained proper records and books of account. The assessee s non-explanation of huge expenses around ₹ 1.00 crore and wayside expenses of ₹ 92,01,739/- cannot be taken lightly as they are incurred in cash. It is the burden on the assessee to demonstrate that the expenses claimed by him are corroborated and reasons for non-maintenance of records are duly explained. It has not been demonstrated by the assessee that distinguishing features as pointed out by the ld. CIT(A) in respect of earlier years and current year are unjustified. Consequently, the nature of inference leads to believe that in this year the severity and nature of defects in the books of account are different than earlier years. We thus find merit in the contentions of the ld. DR that principles of res judicata do not apply to ITAT proceedings and principles of consistency are also not applicable as facts are distinguishable. It is settled law that estimate based on best judgment assessment due to rejection of books of accounts, should not be ordinarily interfered by appellate authorities, unless there are demonstratively cogent reasons to do so. In this case, the assessee has failed to point out that order of the ld. CIT(A) as to estimation of net profit rate is contrary or excessive. In view thereof, we see no infirmity in the order of the ld. CIT(A) which is upheld. - Decided against assessee
Issues:
1. Interpretation of Section 145(3) of the Income Tax Act, 1961. 2. Application of net profit rate on freight receipts. 3. Adherence to earlier decisions of the ITAT in the case of the appellant. Issue 1: Interpretation of Section 145(3) of the Income Tax Act, 1961: The appellant, a transporter, appealed against the ld. CIT(A)'s order for the assessment year 2009-10, challenging the invocation of Section 145(3) of the Income Tax Act, 1961. The ld. AO rejected the appellant's books of accounts due to discrepancies and deficiencies, especially in freight payments, which were mostly made in cash without proper documentation. The AO observed unverifiable freight expenditures, leading to the rejection of the books of accounts under Section 145(3). Issue 2: Application of net profit rate on freight receipts: The appellant failed to maintain detailed records of freight receipts and expenses, leading to the AO estimating a net profit rate of 3.40% on freight receipts, resulting in an addition to the taxable income. The ld. CIT(A) upheld the AO's decision, citing the lack of proper documentation and the inability to verify the real income of the appellant. The appellant argued for the adoption of an average net profit rate based on previous ITAT orders, but the CIT(A) rejected this plea, emphasizing the need to consider the specific circumstances of the current year. Issue 3: Adherence to earlier decisions of the ITAT in the case of the appellant: The appellant contended that the addition made by the AO was excessive compared to previous years and requested the deletion of the addition based on past history. However, the ld. DR argued that the appellant's consistent failure to maintain proper records and the distinguishing features of the current year justified the rejection of the appellant's plea for applying an average net profit rate. The ITAT upheld the decision of the ld. CIT(A), emphasizing the appellant's failure to provide sufficient explanation for the deficiencies in maintaining records and the distinctions between the current and previous years. In conclusion, the ITAT dismissed the appellant's appeal, upholding the decision of the ld. CIT(A) to reject the books of accounts under Section 145(3) and to apply a net profit rate on freight receipts based on the specific circumstances of the current year. The ITAT emphasized the importance of maintaining proper records and providing justifiable explanations for discrepancies, rejecting the appellant's plea for applying an average net profit rate based on past history.
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