2017 (2) TMI 559 - HC - Income Tax

Rejection of books of accounts - G.P. determination - Held that - Though the petitioner at the relevant time was in the first year of his business but his turn over was far more than the turnover of other players in the market as is evident from the details mentioned in the order of the Assessing Officer. The turnover of the appellant was 1, 16, 38, 55, 100/-. The Assessing Officer has compared gross profit and net profit of other concerns in the same business and for that very financial year found that assessee had shown gross profit much lower in comparison to average gross profit of other six business concerns engaged in the business of trading in Mentha Oil. Accordingly he arrived at the conclusion that profit returned by the appellant is on the lower side and after rejecting the books of accounts u/s 145(3) of the Act 1961 he applied the gross profit rate of 0.65% on total turnover of 1, 16, 38, 55, 100/- based on the average gross profit rate arrived at on the profit return by other concerns which comes to 75, 65, 058/-. Accordingly the difference in the profit return and the one assessed which comes to 66, 54, 087/- was added to the income of the appellant. It is this assessment which was not accepted by the Commissioner of Income-tax (Appeals) whereas the Tribunal has concurred with the arguments of Departmental Representative and the finding of the Assessing Officer and rejected the view of the Commissioner Income-tax (Appeals) on the ground that Menthol is not a restricted item which could be sold only to a particular buyer. It was an open commodity and the Assessing Officer has rightly assessed the income and profit of the appellant based on comparison of profit of other concerns from the same business and in the same financial year. Even though the reasoning given by the Tribunal is not very detailed yet as it has concurred with the reasoning of the Assessing Officer therefore on a perusal of comparative chart disclosing the rates of profit of others engaged in the same business in the same financial year we do not find any error having been committed by the Tribunal in passing the impugned judgment affirming the order of Assessing Officer which may be said to give rise to a substantial question of law in the matter requiring our interference

Summary

Issues:

1. Assessment of gross profit and net profit of the assessee.
2. Addition of income based on gross profit rate applied by the Assessing Officer.
3. Treatment of personal expenses as business withdrawal.
4. Appeal against the order of Commissioner of Income-tax (Appeals).
5. Decision of the Income-tax Appellate Tribunal.

Assessment of Gross Profit and Net Profit:

The appellant, a proprietor of a trading firm, disclosed a low gross profit of 0.08% and net profit of 0.007% in the income tax return for the year 2012-13. The Assessing Officer rejected the gross profit return, comparing it with other assesses in the same business. The Officer applied a higher gross profit rate of 0.65% on the total turnover, leading to an addition of ?66,54,087 to the income of the assessee. The Commissioner of Income-tax (Appeals) set aside the assessment, considering the appellant's unique circumstances and set a gross profit rate of 0.1%, confirming an addition of ?11,63,855.

Addition of Income Based on Gross Profit Rate:

The Income-tax Appellate Tribunal concurred with the Assessing Officer, rejecting the Commissioner's order. The Tribunal emphasized that menthol, the traded commodity, was not restricted to specific buyers, supporting the Officer's assessment based on a comparative chart of businesses in the same financial year. The Tribunal allowed the Department's appeal, affirming the assessment.

Treatment of Personal Expenses as Business Withdrawal:

During assessment, the appellant's personal expenses of ?55,944 were treated as a withdrawal, with ?2,16,000 estimated for household expenses. The balance was added as 'Low Withdrawal' income. The total income was computed at ?74,92,780, with interest imposed under sections 234B & 234C of the Income-tax Act, 1961.

Appeal Against Commissioner's Order:

The appellant challenged the Tribunal's decision, arguing that the judgment lacked consideration of relevant facts. The appellant's firm, being new in the business, was not comparable to established players. Despite being in the first year of business, the appellant's turnover exceeded others, justifying the Assessing Officer's comparison and subsequent addition to the income. The Tribunal upheld the Officer's assessment, dismissing the appeal.

Decision of the Income-tax Appellate Tribunal:

The Tribunal's decision was based on the open nature of the commodity traded and the correctness of the assessment by the Assessing Officer. The Tribunal found no error in the assessment, considering the comparative chart of profit rates of businesses in the same financial year. The Tribunal's concurrence with the Officer's reasoning led to the dismissal of the appeal, as no substantial question of law requiring interference was identified.

This detailed analysis covers the assessment of gross profit, addition of income, treatment of personal expenses, appeal proceedings, and the final decision of the Income-tax Appellate Tribunal, providing a comprehensive understanding of the legal judgment.