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2017 (12) TMI 854 - AT - Income TaxRejection of books of accounts - estimation of income - Best Judgement Assessment - Held that - It is true that in earlier years the profit declared by assessee on the turnover was only 0.3% and 0.5%. The return was accepted u/s. 143(1) of the Act. It is also a fact that assessee has not appeared before AO and so he has no option than to reject the books of account. Therefore to the extent of rejection of books of account I agree with the findings of Ld.CIT(A). However the AO as well as CIT(A) have not given any comparable cases for estimation at 2%. As assessee has not furnished the books of account for verification and in earlier years the return of income was accepted u/s. 143(1) and not scrutinized it is of the opinion that the income can be estimated at 1% of the turnover given in the facts of the case. Therefore the AO is directed to modify the order restricting the profit estimation to 1% of the turnover. The grounds are accordingly partly allowed.
Issues:
1. Estimation of income based on rejection of books of account. 2. Non-compliance with statutory notices during assessment proceedings. 3. Justifiability of estimation of income at 2% of gross receipts. 4. Delay in filing the appeal. Estimation of Income Based on Rejection of Books of Account: The appellant, an individual involved in cotton processing and trading, maintained proper books of account audited by a Chartered Accountant. The Assessing Officer (AO) conducted a scrutiny assessment and estimated the net profit at 2% of gross receipts, also disallowing a deduction under Chapter VIA. The appellant contended that the AO should not have resorted to estimation, as the details of stocks were properly maintained and submitted. The Commissioner of Income Tax (Appeals) upheld the AO's decision, citing non-compliance with statutory notices and lack of produced documents. The CIT(A) justified the rejection of books and estimation of income at 2% based on available material, dismissing the appellant's arguments. Non-Compliance with Statutory Notices During Assessment Proceedings: The AO issued notices under sections 143(2) and 142(1) of the Income Tax Act, but the appellant allegedly did not respond, leading to an ex-parte assessment under section 144. The CIT(A) highlighted the repeated non-compliance with notices, justifying the best judgment assessment under section 144 due to failure to produce essential documents. Citing legal precedents, the CIT(A) emphasized that even partial compliance warrants best judgment assessment, as seen in the conduct of the appellant before the AO. Justifiability of Estimation of Income at 2% of Gross Receipts: The appellant argued that the estimation of income at 2% was unjustified, given the fluctuating nature of cotton trading rates and the lack of comparable cases submitted. The CIT(A) upheld the 2% estimation, stating that the AO had no option but to estimate income based on available material after rejecting the books of account. Legal references were cited to support the rejection of book results and the subsequent profit estimation, concluding that the 2% estimation was reasonable and required no interference. Delay in Filing the Appeal: The appellant filed the appeal with a delay of 35 days, attributing the delay to communication issues with the auditor. The delay was condoned, and the appeal was admitted. The appellant contended that previous returns were accepted without further verification, and the profit margins in earlier years were significantly lower than the 2% estimation. The AO and the CIT(A) did not provide comparable cases for the 2% estimation. The Tribunal modified the profit estimation to 1% of turnover, considering the lack of furnished books of account for verification and the history of accepted returns under section 143(1). This detailed analysis of the judgment addresses the issues of estimation of income, non-compliance with notices, justifiability of the 2% estimation, and the delay in filing the appeal, providing a comprehensive overview of the legal proceedings and decisions made by the authorities involved.
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