2018 (1) TMI 452 - AT - Income Tax

Estimation of Gross profit - rejection of books of accounts - Held that - First of all coming to the estimation resorted by the A.O in this case. He did not refer any other cases of similar trade. Secondly, he did not clarify the basis on which he resorted to the adoption of his estimate, but mechanically adopted the average of previous years G.P rate. Thus while considering the nature of the assessee s business being that of a food grain dealer, he should have mentioned about better market conditions, worked out specific other direct expense comparables and then should have resorted to his best estimate of Profits in my opinion because the food grain business is highly volatile and prices are quite fluctuating year to year based on cropping success, monsoons and several other factors involved. Thus just increasing the Gross Profit based on some average of earlier year s rates without any reasonable basis was uncalled for. We do not agree with the A.O s estimation and hold that the addition made needs to be restricted to ₹ 1,50,000/ - to cover up for the possibility of certain expenses being unvouched or fully for business purposes. The balance addition of ₹ 10,94,635/- is directed to be deleted. Since the addition is being made to the Net profit of the assessee, the disallowances in other expenses shall be deemed to be covered in this addition as the rejection of the books of accounts has been confirmed. - Decided against assessee.

Summary

Issues involved:
Restriction of addition by CIT(A) in the assessment of the appellant for A.Y. 2011-12, 2012-13, and 2013-14.

Detailed Analysis:

1. Issue of restricting the addition by CIT(A):
The sole issue in the appeal was the restriction of the addition of ?1,50,000 by the CIT(A) in the assessment of the appellant. The CIT(A) based the decision on various factors, including the GP rate, expenses claimed, and discrepancies in supporting documents. The Assessing Officer (AO) had raised concerns about the lack of supporting evidence and discrepancies in expenses. The CIT(A) noted that the appellant did not provide complete information during the proceedings, even though the accounts were audited. The AO rejected the books of accounts under Section 145(3) and estimated the income at 1%, resulting in an addition of ?12,44,635. The CIT(A) emphasized the importance of reasonable estimation and the need for proper supporting evidence. Reference was made to legal precedents emphasizing the need for assessments to be based on reason and justice, not arbitrary decisions. The CIT(A) found fault with the AO's estimation method and restricted the addition to ?1,50,000, deleting the balance amount. The CIT(A) highlighted the volatility of the food grain business and the need for a more reasoned approach to estimation.

2. Judgment and Upholding of CIT(A) Order:
During the appeal, the arguments made by the appellant's representative were reiterated, while the Revenue relied on the lower authorities' orders. The ITAT Bench concurred with the CIT(A)'s findings, noting the absence of contrary material against the CIT(A)'s decision. As no new material was presented, the Bench upheld the CIT(A)'s order, dismissing the ground of the appellant's appeal. Subsequently, in two other appeals by the appellant, which raised similar grounds, the ITAT dismissed the appeals as the appellant failed to challenge the CIT(A)'s findings. The orders of the CIT(A) were upheld in these appeals as well, resulting in the dismissal of all three appeals by the appellant.

In conclusion, the ITAT upheld the CIT(A)'s decision to restrict the addition made by the AO in the assessment of the appellant for the relevant assessment years. The judgment emphasized the importance of reasonable estimation, proper supporting evidence, and adherence to legal principles in making assessments. The ITAT's decision to dismiss all three appeals by the appellant indicates a consistent affirmation of the CIT(A)'s orders in the matter.