2017 (8) TMI 941 - AT - Income Tax

N.P. determination - best judgment assessment - Held that - CIT(A) has confirmed the income from Brick Kiln Hanuman Gram Udyog Mandal of assessee without any evidence or any material as the AO computed the income arbitrarily by estimating, the same without confronting the material for such estimate ignoring the principles applied in best judgment assessment and section 44AD for estimating the production and price of bricks. The computation the income by estimation, without any basis, ignoring the principle of best judgment method, which in my considered opinion should have been estimated by applying net rate of profit @8% as provided u/s. 44AD as is applied in no books case and also done in the cases of other Brick Kiln in the locality. Keeping in view as explained above, the Net profit @8% is quite reasonable and genuine, because Ld. DR could not produce any contrary order of the higher Court.

Issues Involved:
1. Estimation of income based on "dumb documents."
2. Arbitrary computation of income without evidence.
3. Admission of income computation by the appellant.
4. Disputed computation for excessive turnover and high profit rate.
5. Lack of opportunity for the appellant to contest the computation.
6. Application of net profit rate under Section 44AD.
7. Merits of the income computation method.
8. Deduction for production and sale shortage.
9. Charging of interest on estimated income.

Issue-wise Detailed Analysis:

1. Estimation of Income Based on "Dumb Documents":
The appellant argued that the Ld. CIT(A) erred in upholding the estimation of income for Hanuman Gram Udyog Mandai based on documents that were not taken into possession from the assessee and were impounded unlawfully. The Tribunal found that the AO computed the income arbitrarily without confronting the material for such an estimate, ignoring principles applied in best judgment assessment and Section 44AD for estimating the production and price of bricks.

2. Arbitrary Computation of Income Without Evidence:
The appellant contended that the Ld. CIT(A) confirmed the income from the brick kiln without any evidence or material, as the AO computed the income arbitrarily. The Tribunal noted that the computation was made without confronting the material for such an estimate, which was against the principles of best judgment assessment.

3. Admission of Income Computation by the Appellant:
The appellant argued that the Ld. CIT(A) wrongly considered the computation obtained from the appellant as an admission, which was against the facts and not supported by any material. The Tribunal found that any admission against facts should be ignored in law, and thus, the addition of income based on such admission was liable to be canceled.

4. Disputed Computation for Excessive Turnover and High Profit Rate:
The appellant disputed the computation for excessive turnover and high profit rate in a petition under Section 144 before the JCIT. The Tribunal noted that the appellant had contested the computation and reasons for excessive turnover and high profit rate.

5. Lack of Opportunity for the Appellant to Contest the Computation:
The appellant claimed that no date of hearing was fixed after 28/03/2015 for confronting the computation of net profit, and the AO passed a predetermined and biased order without providing a fair opportunity. The Tribunal agreed that the estimation was arbitrary and against the principle of natural justice.

6. Application of Net Profit Rate Under Section 44AD:
The appellant argued that the income should have been estimated by applying a net profit rate of 8% as provided under Section 44AD, which is applied in cases without books and other brick kilns in the locality. The Tribunal found that the net profit rate of 8% was reasonable and genuine, as applied in similar cases.

7. Merits of the Income Computation Method:
The appellant contested the method of computation on several grounds, including excessive sale price, arbitrary gross turnover, and ignoring market rates and government-fixed rates. The Tribunal noted that the computation was made without any basis, ignoring the principle of best judgment method.

8. Deduction for Production and Sale Shortage:
The appellant argued that the Ld. CIT(A) erred in not allowing a deduction for production and sale shortage at 15%, as allowed in other brick kiln cases in the locality. The Tribunal directed that calculation should be made with an additional 5% on account of wastage from the total turnover.

9. Charging of Interest on Estimated Income:
The appellant contended that interest should not be chargeable when income is estimated on a presumptive basis under Section 44AD or best judgment. The Tribunal did not specifically address this issue but focused on the reasonableness of the net profit rate.

Conclusion:
The Tribunal concluded that the net profit rate of 8% was reasonable and genuine, and directed the AO to compute the income at this rate, canceling the orders of the authorities below. Both appeals filed by the different assessees were allowed in this manner.

← Previous Next →