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2022 (9) TMI 961 - AT - Income TaxEstimation of net profits in absence of reliability of books of accounts - CIT(A) partly allowing the appeal of the assessee by considering net profit to be taken @ 6% instead @ 10% taken by the AO - HELD THAT - For estimation of profits, either the past history of the assessee which has been accepted and has attained finality or comparable data in case of other assessee involved in the similar line of business would provide a reasonable basis. In the instant case, AO has neither considered the past history or the comparable data of other assessee involved in similar line of business whereas the ld. CIT(A) has considered the past history of the assessee. During the course of hearing, nothing has been brought on record disputing the past history of the assessee which is on record and has been considered by the CIT(A). We therefore do not find any affirmity in the order of the CIT(A) and the same is hereby confirmed. In the result, the ground of appeal taken by the Revenue is dismissed. Addition u/s 68 - whether no supporting evidence had been submitted by the assessee to establish creditworthiness and genuineness of the trade advances? - HELD THAT - During the course of hearing, our reference was drawn to increase in trade payable during the year and corresponding increase in consumption of raw material during the year and it was submitted that the increase in trade payable is directly linked to purchase and consumption of raw material and where net profit has been estimated, no further disallowance can be made towards the trade payables. We find merit in the contention so advanced by the ld. AR which also find supports from various decisions referred supra and therefore, we do not find any justifiable basis to disturb the findings of the CIT(A) in absence of any contrary material brought on record. In the result, the ground of appeal taken by the Revenue is dismissed.
Issues:
1. Estimation of net profits at a lower rate than assessed by the Assessing Officer. 2. Treatment of trade payables as unexplained cash credit under section 68 of the Income Tax Act. Issue 1: Estimation of Net Profits: The appeal by the Revenue challenges the order of the Commissioner of Income Tax (Appeals) regarding the computation of net profit rates for the Assessment year 2016-17. The Assessing Officer (AO) initially estimated the net profit rate at 10% on gross receipts due to the lack of documentary evidence provided by the assessee. The assessee, however, contended that a net profit rate of 6% was more reasonable based on past assessment history and judicial pronouncements. The Commissioner of Income Tax (Appeals) upheld the net profit rate at 6%, considering comparable cases and past history. The Tribunal affirmed the decision, emphasizing the importance of past history or comparable data in estimating profits. The Tribunal found no justification to disturb the Commissioner's decision, dismissing the Revenue's appeal. Issue 2: Treatment of Trade Payables: The second ground of appeal concerns the treatment of an increase in trade payables as unexplained cash credit under section 68 of the Income Tax Act. The Assessing Officer noted a significant increase in trade payables and treated it as unexplained cash credit due to the lack of supporting evidence from the assessee. The Commissioner of Income Tax (Appeals) allowed relief to the assessee, stating that the trade payables were directly linked to purchases and could not be disallowed once a net profit rate was applied. The Tribunal agreed with the Commissioner's findings, citing legal precedents and the direct link between trade payables and purchases. The Tribunal dismissed the Revenue's appeal, upholding the decision to delete the addition of trade payables under section 68. In conclusion, the Tribunal upheld the Commissioner of Income Tax (Appeals) decisions on both issues, affirming the estimation of net profits at 6% and deleting the addition of trade payables under section 68. The appeal by the Revenue was dismissed, and the orders were pronounced on 13.07.2022.
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