2020 (3) TMI 468 - AT - Income Tax

Rejection of books of accounts - invoking section 145 - NP estimation - HELD THAT - We find the AO in the instant case, invoking the provisions of section 145 of the IT Act, rejected the book results and estimated net profit at ₹ 8,58,68,992/- by adopting net profit rate 2.77% and thereafter made addition of ₹ 3,37,59,.400/- declared by the assessee as its additional income. We find the Ld. CIT(A) deleted the addition of ₹ 8,58,68,992/- determined by the AO by estimating the net profit at ₹ 2.77% over and above the profit declared by the assessee, the reasons of which have already been reproduced in the preceding paragraph. We find identical issue had come up before the Tribunal in the case of the sister concern of the assessee namely M/s. Pearl Bottling Private Limited 2019 (2) TMI 1811 - ITAT DELHI held his is not a fit / case for rejection of books of account and estimation of profits as the search has not thrown up any specific discrepancies in the accounts regularly maintained by the appellant. A.O. has rejected the books of account and estimated the profits of the business only based upon NP ratio without confronting the same to the appellant. This is completely in violation of principles of natural justice. A.O. has adopted a very simplistic approach in completing the assessment. - Decided against revenue.

Summary

Issues Involved:
1. Legality of the CIT(A)'s order.
2. Addition of ?6,26,000 under Section 40A(3).
3. Deletion of ?8,58,68,992 addition by CIT(A) under Section 145(2).
4. Justification of the assessee's additional income of ?3,37,59,400 during search.
5. Rejection of books of accounts by the AO.

Issue-wise Detailed Analysis:

1. Legality of the CIT(A)'s Order:
The assessee challenged the CIT(A)'s order, claiming it was "bad in law, wrong on facts and against the principles of natural justice." The Revenue also contested the CIT(A)'s order, arguing it was incorrect in law and on facts, particularly in deleting the addition of ?8,58,68,992. The Tribunal upheld the CIT(A)'s order, finding no specific deficiencies pointed out by the AO in the books of accounts and noting that the CIT(A) had thoroughly examined the matter.

2. Addition of ?6,26,000 under Section 40A(3):
The assessee did not press the grounds related to the addition of ?6,26,000 under Section 40A(3) due to the smallness of the amount. Consequently, these grounds were dismissed by the Tribunal.

3. Deletion of ?8,58,68,992 Addition by CIT(A) under Section 145(2):
The AO had rejected the books of accounts and estimated the net profit at ?8,58,68,992, citing a steep fall in the net profit ratio. The CIT(A) deleted this addition, noting that the AO had not provided specific reasons for rejecting the books and had not sought any explanation for the fall in net profit. The Tribunal upheld the CIT(A)'s decision, referencing a similar case involving the assessee's sister concern, where the Tribunal had also upheld the CIT(A)'s deletion of the addition.

4. Justification of the Assessee's Additional Income of ?3,37,59,400 during Search:
The AO had added ?3,37,59,400 to the net profits, arguing that the assessee had artificially reduced its net profits by inflating expenses and camouflaging them by crediting the additional income in the P&L account. The CIT(A) found that the assessee had provided a detailed explanation for the additional income and had honored the declaration of surrender of income made during the search. The Tribunal upheld the CIT(A)'s findings, noting that the AO had not found any discrepancies in the books of accounts during remand proceedings.

5. Rejection of Books of Accounts by the AO:
The AO had rejected the books of accounts under Section 145, citing a steep fall in the net profit ratio and the assessee's failure to produce details, confirmations, bills, vouchers, or books of accounts. The CIT(A) found that the AO had not given any show cause notice seeking justification for the fall in net profit ratio and had not provided specific reasons for rejecting the books. The Tribunal upheld the CIT(A)'s decision, noting that the AO had not found any discrepancies in the books during remand proceedings and that the rejection of books was not justified.

Conclusion:
The Tribunal dismissed both the assessee's and the revenue's appeals, upholding the CIT(A)'s order. The Tribunal found that the AO had not provided specific reasons for rejecting the books of accounts and had not sought any explanation for the fall in net profit ratio. The Tribunal also noted that the CIT(A) had thoroughly examined the matter and found no discrepancies in the books of accounts during remand proceedings. The Tribunal's decision was consistent with a similar case involving the assessee's sister concern.