2017 (9) TMI 372 - AT - Income Tax

Re-determination of the profits from business - net profit determination - CIT(A) compared the results of Gokuldas Exports Ltd. and found as assessee s business being similar, the net profit determination could be justifiably made at 10% of the sales - Held that - The methodology adopted by the CIT(A) is far from reasonable because, there is no material brought out by him to show how the Gokuldas Exports Ltd. was comparable to the operations carried out by the assessee. Therefore, under these circumstances, in our considered opinion, the manner of estimation made by the CIT(A) cannot be sustained. Also observed that before the CIT(A) assessee furnished an unaudited P&L Account, which formed the basis for the CIT(A) to apply the profit percentage on the declared sales. In our view, before taking into account such unaudited P&L Account, it was imperative to examine its authenticity and in that respect we do not find any particular finding by the CIT(A). Pertinently, this unaudited P&L Account was not before the Assessing Officer in the course of the assessment proceedings. Thus, we deem it fit and proper to set-aside the order of CIT(A) and restore the assessment for the two captioned assessment years back to the file of Assessing Officer for determination afresh in accordance with law. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
- Assessment of business income based on information from DRI and Enforcement Directorate
- Assessment completed by Assessing Officer under section 144 r.w.s. 254 of the Act
- CIT(A)'s decision to scale down the estimated business income
- Dispute regarding the estimation of profit at 10% by CIT(A)
- Appeal for restoration of profit determination back to the Assessing Officer

Analysis:

Assessment of business income based on information from DRI and Enforcement Directorate:
The assessment for the years 1999-2000 and 2000-01 was completed by the Assessing Officer based on information from the DRI and Enforcement Directorate regarding fraudulent import-export activities by the assessee. The Assessing Officer determined the profit from the export business and assessed the total income for both years, including duty drawback amounts claimed by the assessee.

Assessment completed by Assessing Officer under section 144 r.w.s. 254 of the Act:
The Assessing Officer completed the assessment under section 144 r.w.s. 254 of the Act due to non-compliance by the assessee in providing requested details and information. The total income was assessed at a significant amount for both years based on the best judgment of the Assessing Officer.

CIT(A)'s decision to scale down the estimated business income:
The CIT(A) noted that charges by the Enforcement Directorate were dropped, indicating lack of evidence for over-invoicing of exports. The CIT(A) found the Assessing Officer's profit estimation to be unrealistic and scaled down the income by applying a 10% profit rate based on a comparable case. The CIT(A) determined the income for both years accordingly.

Dispute regarding the estimation of profit at 10% by CIT(A):
The assessee and Revenue filed cross-appeals challenging the CIT(A)'s profit estimation at 10%. The assessee argued the estimation was unjustified, while the Revenue contended that the scaling down was not justified. The issue of profit determination became the focal point of the appeals.

Appeal for restoration of profit determination back to the Assessing Officer:
During the appeal, the assessee requested the profit determination issue to be sent back to the Assessing Officer for redetermination, as the CIT(A) sustained the addition in an ad hoc manner. The Departmental Representative acknowledged the need for redetermination but highlighted the lack of proper accounting documentation by the assessee.

The Tribunal considered the arguments and found faults in both the Assessing Officer's and CIT(A)'s approaches to profit estimation. The Tribunal set aside the CIT(A)'s order and remanded the assessment back to the Assessing Officer for a fresh determination, emphasizing the assessee's responsibility to justify the results declared in the unaudited P&L Account. The decision aimed to ensure a lawful and credible reassessment process, placing the onus on the assessee to substantiate income appropriately.

In conclusion, the cross-appeals were treated as allowed for the assessment years 1999-2000 and 2000-01, with the order pronounced on 30/08/2017.