2020 (1) TMI 699 - HC - Income Tax

Bogus purchases - NP determination - HELD THAT - Tribunal found that the AO, while estimating the net profit at 20% had proceeded on the basis of stock register, delivery challans of goods, work orders, and there was no application of mind for deriving at the figure of 20%. The Tribunal, therefore, found it fit to remand the proceeding to the Assessing Officer. We have not been shown as to how the finding regarding non application of mind by the Assessing Officer is incorrect. The Tribunal has rightly emphasised on the need to scrutinise the relevant aspects while working out the estimation, and not to arrive at the same in a haphazard manner. Tribunal, while disposing of the appeal has not given conclusive findings but has made certain observations to emphasis the need for remand. Tribunal has made these observations only to emphasis that there are various aspects for the Assessing Officer could have taken into consideration. No substantial question of law.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal for Assessment Year 2010-11 regarding net profit ratio estimation and addition of income based on bogus purchases.

Analysis:
1. Estimation of Net Profit Ratio: The Appellant challenged the Tribunal's decision to restore the matter to the Assessing Officer for reexamination of the correct net profit ratio. The Appellant argued that the past history of the assessee should not be relevant in cases of bogus purchases. However, the Tribunal emphasized the need for a proper justification for applying a higher net profit rate of 20% when the assessee's historical net profit ratios ranged between 9.30% to 11.40%. The Tribunal found that the Assessing Officer did not provide sufficient reasoning for the 20% estimation and remanded the matter for a more detailed examination.

2. Assessment Process: The Respondent, engaged in Interior Designing & Contracting, declared a net profit ratio of 11.48% for the Assessment Year 2010-11. The Assessing Officer, after inquiry, rejected the assessee's book results and estimated the net profit ratio at 20%, adding further income of ?86,64,618. The Commissioner of Income Tax (Appeals) and the Tribunal both reviewed the case, with the Tribunal highlighting the lack of proper justification for the 20% estimation and the need for a more thorough examination of relevant aspects before arriving at such figures.

3. Role of Tribunal: The Tribunal, in its decision, emphasized the importance of scrutinizing relevant aspects and not making estimations in a haphazard manner. While the Tribunal did not provide conclusive findings, it underscored the need for a detailed reassessment by the Assessing Officer. The Tribunal's focus on the necessity of a thorough examination before estimation is crucial in ensuring fair and accurate assessments in income tax cases.

4. Conclusion: The High Court dismissed the Appeal, stating that the questions of law framed did not give rise to any substantial question of law. The Court upheld the Tribunal's decision to remand the matter back to the Assessing Officer for a more detailed examination and proper justification for the net profit ratio estimation. The judgment underscores the importance of a reasoned and well-supported approach in income tax assessments to ensure fairness and accuracy in determining taxable income.