2017 (3) TMI 1472 - AT - Income Tax

Addition applying net profit rate of 8% after invoking the provisions of Section 145(3) - Held that - As find from the copy of the order of Sales Tax Authority dated 04.11.2010, wherein the assessee has shown gross sales in computation sheet at ₹ 6,03,44,734/-, which also shows that there is a variation in the sales shown by the assessee in profit and loss account and as per sales registers as well as sales to the Sales Tax Authorities. Further, the Sales Tax Authorities has also pointed out the variation of sales amounting to ₹ 4,72,299/- in their assessment order dated 04.11.2010. In the light of these facts and circumstances of the case, we are of the considered opinion that the AO was correct in invoking the provisions of Section 145(3) of the Act, as in absence of non-production of original documents, audit report, sales and purchase bills, vouchers of expenses and FIR, profit from the books of accounts cannot be deduced properly. Therefore, we are of the view that the AO was justified in invoking the provisions of section 145(3) of the Act. Considering the claim of the assessee, the deduction/ set-off on account of DEPB income of ₹ 18,70,576/- would also be available to the assessee as set-off as the assessee has already shown this income in profit and loss account. Therefore, net income is worked out at ₹ 14,80,589/- (33,51,165-18,70,576) as against the income computed at ₹ 44,68,220/-by the AO as per the assessment order and ₹ 6,25,650/- disclosed in return of income by the assessee under regular provision of Act. As regards, the deletion of ₹ 18,70,576/- on account of addition of DEPB income by the AO, we are of the view that the ld. CIT(A) has wrongly deleted the same while deleting total addition of ₹ 44,68,220/- made on application of net profit as the said income is shown by the assessee in its profit and loss account. However, the set off of the same is available to the assessee as given above by us from the estimated income as computed above by taking the gross profit at 6% estimate of gross profit rate. Therefore, we make it clear that the net taxable income after this order would be at ₹ 14,80,589/- as against returned income of ₹ 6,25,650/- as shown by the assessee. Appeal of the Revenue is partly allowed.

Summary

Issues Involved:
1. Deletion of addition of ?44,68,220/- by the CIT(A) after AO invoked Section 145(3) and estimated NP @ 8% on gross sales.
2. Deletion of addition of ?18,70,579/- by the CIT(A) treating it as income from other sources.

Detailed Analysis:

1. Deletion of Addition of ?44,68,220/-:
The Revenue's appeal contested the CIT(A)'s deletion of ?44,68,220/- added by the AO by applying a net profit rate of 8% under Section 145(3) of the Income-tax Act, 1961. The AO rejected the assessee's books of accounts due to the non-production of original sale bills, purchase bills, vouchers, and FIR related to the alleged theft of these documents. The AO noted discrepancies in the sales figures between the profit and loss account and the sales register, and discrepancies reported by the Commercial Tax Officer. The AO relied on precedents like S.N. Namasivayam Chettiar vs. CIT and Awadesh Pratap Singh Abdul Rehman & Brothers vs. CIT to justify the rejection of books and estimation of income.

The CIT(A) found that the assessee had provided sufficient evidence, including a copy of the FIR and details of sales and purchases. The CIT(A) concluded that the rejection of books and the application of an 8% net profit rate were without basis, thus deleting the addition.

Upon review, the Tribunal noted the assessee's failure to produce original documents and discrepancies in sales figures. The Tribunal upheld the AO's invocation of Section 145(3) but revised the net profit rate to 6% instead of 8%, considering the nature of the assessee's business and the evidence provided. The Tribunal calculated the gross profit at ?33,51,165/- and allowed a set-off for DEPB income of ?18,70,576/-, resulting in a net income of ?14,80,589/-.

2. Deletion of Addition of ?18,70,579/-:
The AO added ?18,70,579/- shown by the assessee as income from other sources in the profit and loss account. The CIT(A) deleted this addition, recognizing it as DEPB incentive income related to export sales, already accounted for in the profit and loss account.

The Tribunal agreed with the CIT(A) that the DEPB income was correctly shown in the profit and loss account and should be considered in the overall income computation. However, the Tribunal clarified that the net taxable income, after considering the revised gross profit rate and set-off for DEPB income, would be ?14,80,589/-.

Conclusion:
The Tribunal partly allowed the Revenue's appeal, upholding the AO's rejection of books under Section 145(3) but revising the net profit rate to 6%. The net taxable income was determined to be ?14,80,589/- after accounting for DEPB income, as opposed to the AO's computed income of ?44,68,220/- and the assessee's declared income of ?6,25,650/-. The Tribunal's decision balanced the AO's concerns with the evidence provided by the assessee, resulting in a fair and reasonable assessment.