2018 (3) TMI 948 - AT - Income Tax

Rejection of books of accounts - profit estimation - Held that - There is no dispute with regard to the rejection of books of accounts. There is no change in the facts and circumstances as compared to last assessment year as observed from the assessment order of earlier year(s). However, we note that AO has not elaborated the reasons for adopting the higher profit as compare to the earlier year(s). AO estimated the profit @ 6.50% of the gross turnover which was reduced by the ld. CIT(A) to 6% of the gross turnover. It was observed that the profit of the assessee was estimated by the AO @5.77% of the gross turnover in the immediate preceding AY 2011-12 which was not challenged by the assessee before the ld. CIT(A). As all other facts of the assessee are same as of the immediate preceding year, therefore in our considered opinion, it would serve the end of justice to the assessee if the estimate is scaled down to the profit @ 5.77% of the gross turnover. The grievance of the assessee is, as such, partly allowed.

Summary

Issues involved:
- Disallowance of business expenses due to lack of documentary evidence
- Estimation of profit percentage by Assessing Officer
- Appeal against the order of Commissioner of Income Tax (Appeals)

Issue 1: Disallowance of business expenses due to lack of documentary evidence
The appellant, a Partnership Firm engaged in civil construction services, faced disallowance of business expenses by the Assessing Officer (AO) due to lack of documentary evidence. The AO rejected the books of accounts under section 145(3) as most expenses were supported by self-made vouchers and no daily stock register was maintained. The AO estimated the profit at 6.5% of the gross turnover, resulting in an addition of ?56,10,944 to the total income of the assessee.

Issue 2: Estimation of profit percentage by Assessing Officer
The appellant contended that the profit percentage should be accepted at 5.48% as declared, instead of the 6% estimated by the AO. The appellant highlighted that in the previous assessment years, the profit percentages were 5.13% and 5.77%, respectively, and no appeals were preferred against those additions. The appellant argued that the turnover had significantly decreased, justifying a lower profit percentage estimation. The Commissioner of Income Tax (Appeals) partially allowed relief to the assessee, reducing the profit percentage to 6% and sustaining an addition of ?29,45,490 out of the total addition made by the AO.

Issue 3: Appeal against the order of Commissioner of Income Tax (Appeals)
The appellant appealed the order of the Commissioner of Income Tax (Appeals) before the Income Tax Appellate Tribunal (ITAT). The ITAT considered the continuous fall in turnover, the improvement in returned income percentage, and the lack of comparative cases brought on record by the AO for profit estimation. The ITAT noted that the AO did not provide reasons for adopting a higher profit percentage compared to previous years. Ultimately, the ITAT partly allowed the appeal, scaling down the profit estimation to 5.77% of the gross turnover, in line with the immediate preceding assessment year.

This detailed analysis covers the issues of disallowance of business expenses, estimation of profit percentage, and the appeal process, providing a comprehensive understanding of the legal judgment delivered by the ITAT Kolkata.