2017 (5) TMI 163 - AT - Income Tax

GP estimation - non maintaining of proper books of accounts - Held that - The lower authorities have rightly invoked the provisions of Section 145(3) of the Act for not maintaining the qualitywise quantitative details of dhania and hence the gross profit rate was not verifiable from the records. As regards confirming the addition of ₹ 3,72,233/- by the ld. CIT(A) estimating the gross profit rate at 3% by taking into consideration the assessment order and submissions of the assessee before him, the Bench feels that in order to maintain equity and justice the lumpsum addition of ₹ 2.00 lacs (Rs. Two Lacs) only is sustained. Thus the appeal of the assessee is partly allowed.

Summary

Issues:
Appeal against order upholding action of ITO in applying Section 145(3) and estimating gross profit rate without appreciating facts.

Analysis:
1. The Assessing Officer (AO) invoked Section 145(3) due to discrepancies in the accounts, including variations in purchase and sale rates of goods, lack of qualitywise and quantitative details, and unverifiable gross profit rate.
2. The AO's decision was supported by the principle that rejection of books of account should be based on specific defects, not just a fall in gross profit rate, as highlighted in various judicial precedents.
3. The AO made a best judgment assessment based on comparative cases and estimated a higher gross profit rate, resulting in an addition to the assessee's income.
4. The Commissioner of Income Tax (Appeals) partly upheld the addition, considering the explanation provided by the assessee and reducing the estimated gross profit rate from 3.69% to 3%.
5. The Tribunal found that the lower authorities were justified in invoking Section 145(3) due to the lack of qualitywise quantitative details, but reduced the addition to maintain equity and justice, sustaining a lump sum addition of Rs. 2,00,000.

Conclusion:
The appeal was partly allowed, with the Tribunal sustaining a reduced addition to the assessee's income based on the estimated gross profit rate, balancing the need for accurate assessment with considerations of fairness and justice.