2022 (8) TMI 1178 - AT - Income Tax

Rejection of books of accounts - estimating the profit on turnover declared by the assessee - HELD THAT - We are of the considered view that for mis-match of figure of sales and inventory was duly replied by the assessee giving reconciliation of the sales figure and inventory value. AO without pointing out any error in such reconciliation nor pointing out any other mistake in the audited book result rejected the same. Find no merit in this action of the ld. CIT(A) confirming the action of the ld. AO rejecting the book results without assigning any plausible reason. We, therefore, reverse the finding of ld. CIT(A) and delete the addition of estimated profit made in the hands of the assessee. All the grounds raised by the assessee are allowed.

Issues:
1. Validity of reason recorded for reopening the case.
2. Justification of the Ld. CIT(A) in dealing with the points of law.
3. Assumption of jurisdiction to reassess the case.
4. Addition based on gross profit ratio on the difference of stock.

Issue 1: Validity of reason recorded for reopening the case
The appeal challenged the reopening of the case for the Assessment Year 2007-08. The appellant contended that the reason recorded for reopening was legally flawed, asserting that the notice lacked a valid basis. The appeal argued that any proceedings based on such an invalid notice should be deemed unsustainable. The Tribunal observed the appellant's stance on the legality of the reopening and proceeded to analyze the jurisdictional aspect of the reassessment process.

Issue 2: Justification of the Ld. CIT(A) in dealing with the points of law
The appellant raised concerns regarding the Ld. CIT(A)'s handling of the legal aspects and the appellant's arguments on the legality of the proceedings. The appeal contended that the Ld. CIT(A) failed to address the points of law adequately and did not properly consider the appellant's arguments. The Tribunal reviewed the appellant's contentions and assessed whether the Ld. CIT(A) had appropriately appreciated the legal arguments presented by the appellant.

Issue 3: Assumption of jurisdiction to reassess the case
The appellant challenged the jurisdiction assumed for reassessing the case, citing legal precedents and settled principles of law. The appeal argued that the jurisdiction exercised for reassessment was legally unsound. The Tribunal examined the legal framework and relevant case law to determine the validity of assuming jurisdiction for the reassessment process.

Issue 4: Addition based on gross profit ratio on the difference of stock
The main grievance of the appellant pertained to the addition of Rs. 1,23,794 made by the Assessing Officer (AO) concerning the estimation of profit based on the difference in stock. The appellant contested the AO's rejection of the book results and the subsequent addition. The Tribunal scrutinized the business activities of the appellant, the discrepancies identified during assessment, and the grounds for the AO's decision to estimate the profit. After evaluating the facts and circumstances, the Tribunal concluded that the rejection of the book results was unjustified, and the addition of estimated profit was unwarranted. Consequently, the Tribunal reversed the decision of the Ld. CIT(A) and deleted the addition of Rs. 1,23,794.

In summary, the Tribunal allowed the appeal, emphasizing the need for a valid basis for reopening a case, proper consideration of legal arguments, adherence to jurisdictional principles, and the justification for any additions made during assessment.

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