2019 (1) TMI 46 - AT - Income Tax

Revision u/s 263 - Estimation of gross profit - Held that - There is no case for the Revenue that assessee failed to produce its books of accounts or the evidence in support of such books of accounts during the course of assessment proceedings. It is to be noted that original by the assessment was completed u/s. 143(3) on 30.09.2012 accepting the returned income. Impugned assessment was in a second round of proceedings pursuant an order under Section 263 of the Act. In both the rounds, AO could not point out any defect in the books of accounts. Just for a reason that gross profit was lower, in our opinion an addition could not have been made. No doubt as held in the case of Goodyear India Ltd 2000 (7) TMI 32 - DELHI HIGH COURT , it is not necessary to accept the books just because an audit u/s.44AB of the Act was conducted. Here the question is not audit conducted u/s.44AB of the Act, the question is whether there were any defects in the books of accounts. AO was unable to find any deficiency in the books produced by the assessee. That apart, we also find that assessee had given a reasonable explanation for the lower gross profit shown by it during the relevant previous year - addition for lower gross profit was not warranted. In our opinion, CIT (Appeals) was justified in deleting such addition - decided against revenue

Summary

Issues:
1. Estimation of gross profit by the Assessing Officer.
2. Deletion of the estimation of gross profit by the Commissioner of Income Tax (Appeals).

Estimation of Gross Profit by the Assessing Officer:
The appeal filed by the Revenue was against an order of the Commissioner of Income-tax (Appeals)-1, Madurai. The Revenue raised three grounds, with the second ground focusing on the estimation of gross profit by the Assessing Officer. The Assessing Officer had enhanced the gross profit due to the absence of documentary evidence supporting a reduction in profit margin. The assessment was based on discrepancies highlighted by the Commissioner of Income Tax, including unaccounted excess stock and profit variations. The Assessing Officer's decision was challenged by the appellant, leading to a fresh assessment. The Assessing Officer emphasized the need for evidence to support the lower gross profit claimed by the assessee. Despite explanations provided by the assessee regarding factors affecting profit margins, the Assessing Officer increased the gross profit ratio, resulting in a substantial addition to the assessment.

Deletion of the Estimation of Gross Profit by the Commissioner of Income Tax (Appeals):
The Commissioner of Income Tax (Appeals) noted that the Assessing Officer had not addressed the main issue identified by the Commissioner regarding excess jewellery found during a survey. The Commissioner observed that the Assessing Officer had erroneously added to the gross profit without identifying any deficiencies in the books of accounts. The Commissioner highlighted that the statements recorded during the survey had limited evidentiary value, citing relevant legal judgments and CBDT instructions. Consequently, the Commissioner deleted the addition made by the Assessing Officer for gross profit, emphasizing the regular maintenance and audit of the books of accounts by the assessee. In the subsequent appeal, the Departmental Representative contested the Commissioner's decision, arguing for the validity of the Assessing Officer's actions based on the survey findings and promises made by the Managing Director. However, the Authorized Representative supported the Commissioner's order.

Final Decision:
Upon reviewing the contentions and orders of the authorities, the Tribunal upheld the Commissioner's decision to delete the addition to the gross profit made by the Assessing Officer. The Tribunal emphasized the lack of defects in the books of accounts and the reasonable explanations provided by the assessee for the lower gross profit. The Tribunal agreed that the addition was unwarranted, considering the circumstances and explanations provided. The Tribunal dismissed the Revenue's appeal, affirming the Commissioner's decision to delete the gross profit estimation.

This detailed analysis of the judgment highlights the key issues surrounding the estimation of gross profit and the subsequent deletion of such estimation by the Commissioner of Income Tax (Appeals), providing a comprehensive overview of the legal proceedings and decisions involved in the case.