2017 (4) TMI 617 - HC - Income Tax

Estimation of income - N.P. determination - ITAT legally correct in upholding the findings of the CIT (A)- Held that - It is an admitted case between the parties that the books of account have not been produced at the stage of assessment. Consequently a best judgement assessment was made. While the assessing officer adopted a gross profit rate to estimate the income of the assessee. The CIT (Appeals) had adopted a net profit rate of 10% considering the comparable cases of other persons engaged in similar business in respect of income arising from contracts. In respect of liquor business the CIT (Appeals) adopted a net profit rate of 2% on the basis of comparable case of one Ram Kumar Shiv Kumar Shivhare that had travelled up to the tribunal and been approved at that rate. The estimation of income involves certain guess work and the fact finding authorities are in the best position to make the estimation. The net profit rate method is also an acceptable method to estimate the income of an assessee.In the instant case the net profit rate has been approved by the Tribunal by relying on the comparable cases of other assessees engaged in similar business. Thus the method adopted to make the estimate of income of the assessee cannot be said to be based on no evidence or basis. No error in the same or need to interfere with such an order of the Tribunal. - Decided in favour of the assessee

Summary

Issues:
1. Whether the ITAT was legally correct in upholding the findings of the CIT (A) regarding the application of net profit rate in estimating income?
2. Whether the ITAT was legally correct in upholding the findings of CIT (A) regarding the sales of country liquor by the assessee?

Analysis:
1. The High Court addressed the first issue concerning the application of net profit rate in estimating income. The case involved an appeal by the revenue against the ITAT's order for the assessment year 2004-05. The assessing officer had made a best judgment assessment due to the absence of the assessee's books of account. The CIT (Appeals) then adopted a net profit rate of 10% for income estimation based on comparable cases of others in similar business. In the case of liquor business, a net profit rate of 2% was applied based on a specific comparable case. The High Court noted that the estimation of income involves some guesswork, and the net profit rate method is an acceptable means of estimation. The Tribunal approved the net profit rate by relying on comparable cases, indicating a reasonable basis for the estimation.

2. The second issue revolved around the sales of country liquor by the assessee. The High Court found that the Tribunal's decision to uphold the CIT (A)'s findings on applying the net profit rate for liquor sales was justified. Despite the assessee lacking a license for liquor purchase and sale, being a depot agent only, the net profit rate was still deemed appropriate based on the comparable case of another individual. The Court emphasized that the appellate authorities' findings were supported by material on record, indicating a valid basis for the decision.

In conclusion, the High Court dismissed the appeal, ruling in favor of the assessee and against the revenue. The Court found no errors in the estimation method adopted by the authorities, as it was based on evidence and comparable cases. Thus, the judgment favored maintaining the order of the Tribunal without interference.