1997 (4) TMI 103 - AT - Income Tax

Summary

Issues Involved:
1. Reduction of addition from Rs.14,16,912 to Rs.1,00,000.
2. Estimation of net business income at 0.50% on the turnover of Rs.2 crores.
3. Validity of the loss of books of account.
4. Estimation of sales and gross profit.
5. Disallowance of expenses.

Issue-wise Detailed Analysis:

1. Reduction of Addition from Rs.14,16,912 to Rs.1,00,000:
The Revenue contended that the CIT(A) erred in reducing the addition from Rs.14,16,912 to Rs.1,00,000 by estimating net business income at 0.50% on the turnover of Rs.2 crores. The Tribunal upheld the CIT(A)'s decision, noting that the estimate of Rs.1 lakh was fair and reasonable given the circumstances and past records of the assessee.

2. Estimation of Net Business Income at 0.50% on the Turnover of Rs.2 Crores:
The CIT(A) reduced the income to Rs.1 lakh by estimating the turnover at Rs.2 crores and applying a net profit rate of 0.50%. The CIT(A) considered the past records of the assessee, where the net profit rates for previous years were 0.35%, 0.15%, and 0.25%. The Tribunal found this estimation to be reasonable and upheld the CIT(A)'s decision.

3. Validity of the Loss of Books of Account:
The Assessing Officer (AO) believed the loss of books was a concocted story, noting discrepancies in the complaint and the timing of the advertisement. The CIT(A) and the Tribunal, however, accepted the assessee's claim that the books were lost in transit, supported by a police complaint and an advertisement in a local newspaper. The Tribunal noted that the books were not available before the AO, CIT(A), or the Tribunal, necessitating an estimation of income.

4. Estimation of Sales and Gross Profit:
The AO estimated the sales for the period from 1-4-1985 to 22-10-1985 at Rs.2.90 crores and applied a gross profit rate of 6.5%. The CIT(A) reduced the estimated sales to Rs.2 crores, considering the past turnover and the fact that the accounting year extended to only 6 months and 2 days. The Tribunal upheld the CIT(A)'s estimation, noting that the sales figures for the first two months were high due to peak season, and the sales for the remaining period were likely lower.

5. Disallowance of Expenses:
The AO disallowed 40% of the expenses, noting that some debit notes were unstamped and unsigned. The CIT(A) did not specifically address this issue, but the Tribunal directed that all expenses be allowed without any deduction, as the estimation of sales and gross profit was already based on an appropriate analysis of figures. The Tribunal concluded that the CIT(A) was justified in estimating the income at Rs.1 lakh for the period of 6 months and 22 days.

Separate Judgments:
The Judicial Member differed from the Accountant Member, upholding the AO's estimation of sales at Rs.2.90 crores and the application of a gross profit rate of 6.5%. However, the Third Member concurred with the Accountant Member, upholding the CIT(A)'s estimation of sales at Rs.2 crores and the application of a net profit rate of 0.50%, resulting in a net income of Rs.1 lakh. The majority view was in favor of the CIT(A)'s decision, and the Revenue's appeal was dismissed.