2004 (7) TMI 313 - AT - Income Tax

Summary

Issues:
Reduction of addition on account of low GP rate.

Analysis:
The appeal and cross-objection arose from the order of CIT(A) for the assessment year 1994-95. The main issue raised in the appeal was the reduction of the addition from Rs. 1,20,400 to Rs. 20,400 made on account of a low GP rate in the case of an assessee deriving income from running a hospital. The AO observed defects in the accounts and estimated income by applying a net profit rate of 22% before depreciation, resulting in the addition. The assessee contended that the AO wrongly rejected the book results and failed to consider interest claimed in the P&L account. The CIT(A) upheld the addition of Rs. 20,400 and allowed a relief of Rs. 1,00,000, leading to the Revenue's appeal.

The Departmental Representative did not provide specific arguments, relying on the AO's order. In contrast, the assessee's counsel heavily relied on the CIT(A)'s order, emphasizing the higher net profit rate for the assessment year under reference compared to the earlier year. The counsel also cited precedents to support the argument against the AO's addition based on a 22% net profit rate.

After considering the submissions and evidence, the tribunal found the AO's income estimation excessive and unreasonable. The AO failed to account for the interest liability, resulting in a higher net profit rate for the assessment year under review compared to the previous year. The tribunal emphasized the AO's duty to make a fair and reasonable income estimate based on evidence and past history. Given the better results in the assessment year under review, the tribunal upheld the CIT(A)'s decision to allow relief of Rs. 1,00,000. Consequently, the appeal of the Revenue was rejected.

Regarding the cross-objection by the assessee, which supported the CIT(A)'s order, it was deemed infructuous since the tribunal upheld the CIT(A)'s decision. Therefore, the cross-objection was dismissed. In conclusion, both the Revenue's appeal and the assessee's cross-objection were dismissed by the tribunal.