2021 (2) TMI 70 - AT - Income Tax

Estimation of income - Addition on estimate basis - assessee did not file requisite details before A.O - CIT(A) found that since in the preceding assessment year he has estimated the G.P. at 25% after rejecting the books of account, therefore, the G.P. declared by the assessee at ₹ 24% is justified - HELD THAT - Even though assessee has not filed certain details called for by the A.O. at assessment proceedings, but, no basis is shown as to how the income of the assessee have been estimated at ₹ 2.50 crores. A.O. even while estimating the income has not rejected the book results of the assessee.A.O. has also not brought any material on record to justify higher estimation of income and even no comparable case or history of the assessee have been mentioned. Thus, it was a mere estimation of income without any justification. A.O. has also referred to his order for preceding A.Y. 2010- 2011 while making estimation of income, but, the Ld. CIT(A) on consideration of the details on record found that in preceding assessment year he has rejected the book results of the assessee and estimated the gross profit at 25%. In assessment year under appeal there is a significant fall in the turnover of the assessee and assessee has disclosed G.P. at 24%. The A.O. has not rejected the book results of the assessee even in assessment year under appeal. CIT(A) considering the history of the assessee and nature of the business of the assessee, correctly deleted the addition particularly when books of account have not been rejected in assessment year under appeal. We, therefore, do not find any justification to interfere with the Order of the Ld. CIT(A). - Decided against revenue.

Summary

Issues:
- Addition of income on estimate basis challenged by Revenue
- Non-compliance by assessee in filing details and documents
- Estimation of income by AO without rejecting book results
- Challenge of addition before CIT(A) based on trading results
- Justification of CIT(A) in deleting the addition

Analysis:
The appeal was filed by the Revenue against the Order of the Ld. CIT(A)-19, New Delhi, for the A.Y. 2011-2012, disputing the deletion of an addition of ?2,12,53,958/- made by the Assessing Officer (AO) on an estimate basis. The AO noted non-compliance by the assessee in filing necessary details and documents, despite being engaged in wholesale trading of readymade garments. The AO estimated the income of the assessee at ?2,50,00,000/- due to lack of financial statements and audit reports, based on a turnover of ?3,68,46,437/-. The assessee challenged this addition before the CIT(A), who accepted the trading results after considering discrepancies in cloth purchase and consumption, and estimated the gross profit at 25% of turnover.

The CIT(A) requested the assessee to provide reconciliation of cloth purchased and consumed, details of fabrication expenses, and information on tax deductions. The assessee complied with the reconciliation of cloth and fabrication expenses, showing that payments were made by cheque with tax deductions, but expenses for dyeing, embroidery, and washing remained unverifiable. The CIT(A) accepted the trading results, noting a significant drop in turnover and the assessee's disclosure of a gross profit of 24%, which was close to the estimated 25% gross profit. The CIT(A) found no justification for the AO's estimation of income at ?2.50 crores, as the books of account were not rejected, and no material or comparable cases were presented to support the higher estimation.

Ultimately, the Tribunal upheld the CIT(A)'s decision to delete the addition, emphasizing that the AO did not reject the books of account for the assessment year under appeal. The Tribunal found no basis for the income estimation and dismissed the Revenue's appeal, affirming the deletion of the addition by the CIT(A).