2016 (5) TMI 1176 - AT - Income Tax

Genuineness of the production and sale of fertilisers and the amount of subsidy received from the Government of Uttar Pradesh - Held that - Commissioner of Income-tax (Appeals) has recorded the findings that the assessee was engaged in manufacturing and sale of fertilisers and such findings have been made based on the remand reports and the orders of the trade tax authorities and the Central Excise authorities and the Directorate of Agriculture, U. P. Government. The learned Commissioner of Income-tax (Appeals) has also based his findings on the order of the Meerut court in an first information report filed against the assessee for showing fictitious production of fertilisers which was upheld by the High Court. We find that it could not be shown by the Revenue to us as to how such findings are not in consonance with the material on record. In view of quite speaking order based on evidence passed by the Commissioner of Income-tax (Appeals), we uphold the order of the Commissioner of Income-tax (Appeals). - Decided against revenue Estimation of net profit - Held that - We agree with the contention of the learned authorised representative that the estimation of net profit in any case should be on a reasonable basis and we find that the maximum assessed profits shown by the assessee in the earlier years is 8.42 per cent. Further, since no other reasonable basis has been given by the learned Departmental representative, we hold that the reasonable net profit rate taking into consideration the past history of the assessee be taken at 8.5 per cent. and the income of the assessee be calculated accordingly. - Decided partly in favour of assessee

Issues Involved:
1. Genuineness of sales and production of fertilizers.
2. Deletion of addition of Rs. 35,09,310 receivable by way of subsidy.
3. Direction to estimate the income by applying a 10% net profit rate.
4. Inclusion of subsidy in the total turnover.
5. Rejection of the books of account under section 145(3) of the Income-tax Act, 1961.

Detailed Analysis:

1. Genuineness of Sales and Production of Fertilizers:
The Revenue contended that the Commissioner of Income-tax (Appeals) erred in allowing relief to the assessee based on the Meerut court judgment, which treated the sales as genuine and found no evidence of bogus production of fertilizers. The Commissioner of Income-tax (Appeals) conducted necessary inquiries and considered evidence from the Trade Tax Department and Central Excise Department, which confirmed the production and sales of fertilizers. The court case alleging fraud against the assessee was dismissed due to a lack of credible evidence, leading to the release of the withheld subsidy. The Tribunal upheld the Commissioner of Income-tax (Appeals)'s findings, confirming the genuineness of the production and sales.

2. Deletion of Addition of Rs. 35,09,310 Receivable by Way of Subsidy:
The Revenue argued that the Commissioner of Income-tax (Appeals) erred in deleting the addition of Rs. 35,09,310, ignoring the facts and findings of the Assessing Officer. The Commissioner of Income-tax (Appeals) found that the subsidy was already included in the total turnover shown by the assessee and was part of the production and sales verified by government records. The Tribunal agreed with the Commissioner of Income-tax (Appeals), confirming that the subsidy was legitimately included in the turnover.

3. Direction to Estimate the Income by Applying a 10% Net Profit Rate:
The Commissioner of Income-tax (Appeals) directed the Assessing Officer to estimate the income by applying a 10% net profit rate on the total turnover of Rs. 1,07,66,250, instead of the 7.2% declared by the assessee. The Tribunal found that the Commissioner of Income-tax (Appeals) provided a well-reasoned order based on the remand reports and evidence. However, the Tribunal agreed with the assessee's argument that the 10% net profit rate was excessive, considering the past history of the assessee's net profit rate never exceeding 8.42%. The Tribunal revised the net profit rate to 8.5%.

4. Inclusion of Subsidy in the Total Turnover:
The Commissioner of Income-tax (Appeals) held that the subsidy received by the assessee was already included in the total turnover and did not require a separate addition. The Tribunal upheld this view, confirming that the subsidy was part of the turnover as verified by government records.

5. Rejection of the Books of Account Under Section 145(3) of the Income-tax Act, 1961:
The assessee's cross objection argued against the rejection of the audited books of account. The Commissioner of Income-tax (Appeals) found that while the production and sales were verified, the purchases remained unverified due to non-traceable or non-genuine suppliers. Therefore, the rejection of the books under section 145(3) was justified. The Tribunal upheld this rejection but revised the net profit rate estimation to 8.5%, considering the past profit history.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross objection. The net profit rate was revised to 8.5%, and the inclusion of the subsidy in the total turnover was confirmed. The rejection of the books of account under section 145(3) was upheld.

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