2010 (4) TMI 268 - HC - Income Tax

Rejection of books of account The Tribunal in the impugned order has upheld the opinion expressed by the CIT (Appeals) for rejection of books of account and the application of rate of 10% of the gross receipts in order to compute income subject to allowances. The Tribunal has rejected the arguments of the assessee/appellant that the rate of 10% adopted by the CIT (Appeals) was on higher side. It is pertinent to mention that the Assessing Officer has applied a rate of 12% which has been scaled down by the CIT (Appeals) to 10% with a further allowance for expenditure on account of salary paid to partners and depreciation Held that - view taken by the Tribunal does not warrant interference because for rate of 10% with further allowance of salary to partners and depreciation is absolutely reasonable in the facts and circumstances of the case especially when the books of account belonging to the assessee-appellant have been rejected. It has not been shown that the rate of 10% has been applied arbitrarily and could not have applied.

Summary

Issues:
Assessment of income based on flat rate of 10% vs. 12% by CIT (Appeals) for the assessment year 2005-06.

Analysis:
The High Court judgment pertains to a case where the assessee appealed against the order of the Income Tax Appellate Tribunal which upheld the CIT (Appeals) decision to reject the books of account and apply a flat rate of 10% of gross receipts to compute income subject to allowances for the assessment year 2005-06. The Assessing Officer had initially applied a rate of 12%, which was reduced to 10% by the CIT (Appeals) considering the expenditure on salary to partners and depreciation. The Court noted that the estimation of income using a flat rate involves subjectivity, and in this case, the rate of 10% was deemed reasonable given the circumstances. The Court found no arbitrariness in applying the 10% rate and dismissed the appeal, stating that there was no question of law warranting admission under Section 260A of the Income Tax Act, 1961.

The judgment highlights that the Tribunal's decision to uphold the CIT (Appeals) order was based on the reasonableness of applying a 10% rate for income estimation after rejecting the books of account. The Court emphasized that the rate reduction to 10% with additional allowances was justified and not arbitrary in the absence of any evidence to the contrary. The Court further emphasized that the appeal lacked merit and did not raise any substantive question of law necessitating its admission under the Income Tax Act, 1961.

In conclusion, the High Court dismissed the appeal, affirming the Tribunal's decision to support the CIT (Appeals) order applying a 10% flat rate for income computation after rejecting the assessee's books of account for the assessment year 2005-06. The judgment underscored the reasonableness of the 10% rate with additional allowances for salary to partners and depreciation, highlighting the absence of arbitrariness in the application of the said rate.