2017 (12) TMI 201 - HC - Income Tax

Rejection of books of accounts - G.P. estimation - ITAT restricted the net profit rate at 5.5% of contract receipts on the ground of consistency - Held that - ITAT 2016 (4) TMI 335 - ITAT JAIPUR is justified in law in restricting net profit rate at 5.5% of contract receipts - Issue is answered in favour of the assessee and against the department.

Summary

Issues:
1. Challenge to Tribunal's judgment modifying order of CIT(A) and AO.
2. Question of law regarding net profit rate application.
3. Rejection of books of accounts under section 145(3) and estimation of income.
4. Comparison of net profit rates in current and previous assessment years.
5. Disallowance of interest to third parties and consistency principle.
6. Jurisdictional challenge and fair income estimation.
7. Application of net profit rate @ 5.5% by the Tribunal.
8. Reference to past judgments and decision in favor of the assessee.

Analysis:
1. The appellant challenged the Tribunal's decision modifying the orders of the CIT(A) and the Assessing Officer (AO). The primary issue was the applicability of the net profit rate, leading to a question of law formulated by the Court for consideration.

2. The Court examined the contentions of the appellant regarding the rejection of books of accounts by the AO under section 145(3) and the subsequent estimation of income. The appellant argued for a higher net profit rate based on past history, while the CIT(A) upheld the AO's decision of applying a net profit rate of 11%. The Court noted the comparative figures presented by the appellant and the reasoning behind the AO's decision.

3. The Tribunal, however, upheld the rejection of books of accounts under section 145(3) due to incomplete records. It emphasized the importance of accurate income determination in the absence of complete accounts. The Tribunal also discussed the fair income estimation process and compared net profit rates from previous assessment years to justify its decision.

4. The issue of disallowance of interest to third parties and adherence to consistency principles was raised. The Tribunal referred to past cases and the appellant's history of accepting certain disallowances. The Tribunal concluded that the net profit rate applied by the lower authorities was on the higher side and directed the AO to calculate income at a reduced rate of 5.5%.

5. The Court considered the arguments presented by the respondent's counsel, highlighting relevant judgments and the Tribunal's decision in a similar case. The Court emphasized the need to proceed with the case promptly due to its longstanding nature. Ultimately, the Court ruled in favor of the assessee, upholding the Tribunal's decision to apply a net profit rate of 5.5% and dismissing the appeal.

This comprehensive analysis outlines the key issues raised, the arguments presented by both parties, and the detailed reasoning behind the Tribunal's decision and the Court's final judgment in favor of the assessee.