2018 (6) TMI 502 - AT - Income Tax

Rejection of books of account u/s 145 - estimation of net profit @ 3% - Held that - AO has not given any reasons for rejection of books of account - thus we direct the AO to adopt net profit rate at 1.75 % in place of 3 % and recomputed the addition after applying this rate - hence appeal filed by the assessee is partly allowed. Initiation of penalty u/s u/s 271(1)(c) - Held that - Penalty needs to be cancelled on the ground that the AO did not specify the charge also the addition has been made on the basis of estimation - thus penalty u/s u/s 271(1)(c) is cancelled - Decided in favor of assessee.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Estimation of net profit rate.
3. Rejection of books of accounts.
4. Levy of penalty under Section 271(1)(c) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The assessee's appeals were delayed by 29 days due to the death of the assessee's brother. The assessee submitted an application along with a death certificate and an affidavit as evidence. The Tribunal found the reasons to be reasonable and condoned the delay, admitting the appeals for adjudication.

2. Estimation of Net Profit Rate:
The assessee, engaged in the trading of ferrous and non-ferrous metals, declared a gross profit of ?27,97,918 on a turnover of ?19,99,28,840 at a rate of 1.39% for the assessment year 2010-11. The Assessing Officer (AO) rejected the books of accounts under Section 145 of the Income-tax Act, 1961, due to the absence of details regarding godown rent and estimated the net profit at 3% of the gross turnover. The CIT(A) upheld this addition. The Tribunal, however, noted that the AO did not provide any reasons for rejecting the books of accounts and did not consider the past history of the assessee. Consequently, the Tribunal directed the AO to adopt a net profit rate of 1.75% instead of 3%, and recompute the addition accordingly.

3. Rejection of Books of Accounts:
The AO rejected the books of accounts due to the absence of details about godown rent and the return of letters issued under Section 133(6) to suppliers as unserved. The assessee argued that all purchases were made through bank routes and provided case laws to support that mere non-appearance of suppliers should not lead to the rejection of books. The Tribunal found that the AO did not provide specific reasons for rejecting the books and emphasized that the AO should have considered the past history of the assessee. The Tribunal directed the AO to adopt a lower net profit rate, acknowledging that the rejection of books was not fully justified.

4. Levy of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:
The AO levied a penalty of ?15,81,940 under Section 271(1)(c) for alleged concealment of income and furnishing inaccurate particulars. The assessee contended that the penalty was based on mere estimation and not on concrete evidence. The Tribunal referred to case laws indicating that penalties should not be levied based on estimations. The Tribunal found that the AO did not specify the charge and that the addition was made on an estimated basis. Therefore, the Tribunal canceled the penalty, deeming it unjustified.

Conclusion:
The Tribunal partly allowed the appeal regarding the estimation of net profit rate, directing the AO to adopt a rate of 1.75%. The appeal concerning the penalty under Section 271(1)(c) was fully allowed, resulting in the cancellation of the penalty. The order was pronounced in the open court on 08.06.2018.

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