2014 (5) TMI 847 - AT - Income Tax

Addition by estimation of gross profits @25% - Assessee shown profits @10.85% - Held that - The wages register was found tampered, the Revenue stamps found affixed were not even in existence during the period of payment as is evidenced by the report of the General Manager, Indian Security Press, Nashik - The assessee is not only a contractor in making furniture but is also an interior decorator - The gross profit margin of 10.85% shown by the assessee appears to be much lower in this line of the business added to this, the wages are not verifiable - the AO has also not brought on record any comparable justifying his adoption of GP margin at 25% - neither the assessee has justified his claim of profit and at the same time found to have manipulated the wages register which amounts to filing of inaccurate particulars and tampering with the profit nor the Revenue has brought any cogent material evidence on record to justify the adoption of GP rate of 25% - there was no choice but to make a fair estimate of the profit the AO is directed to restrict the adhoc addition of Rs. 20,00,000 Decided partly in favour of Assessee.

Summary

Issues involved:
Assessment of gross profit margin, validity of AO's estimation, compliance with Sec. 145 of the Income Tax Act, justification of adhoc addition, comparison with previous assessment year.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai involved a dispute regarding the assessment of the gross profit margin for the assessment year 2008-09. The assessee, a furniture contractor and interior decorator, challenged the addition of Rs. 35,68,565 made by the Assessing Officer (AO) by estimating the gross profit at 25%, higher than the 10.85% shown by the assessee. The AO raised concerns about the wages register, noting discrepancies such as single-person signatures and new stamps, leading to the rejection of the books of account under Sec 145(3) of the Act.

The Lower Authorities, including the CIT(A), upheld the AO's decision, prompting the assessee to appeal before the ITAT. The ITAT examined the evidence, including the tampered wages register and the report from the General Manager, Indian Security Press, which indicated discrepancies in the stamps affixed during the relevant financial year. The Tribunal observed that the assessee's gross profit margin of 10.85% seemed low for the nature of the business and the unverifiable wages raised doubts.

In the absence of concrete evidence from either party to support their positions, the ITAT decided to make a fair estimate of the profit. Ultimately, the ITAT directed the AO to restrict the disallowance to Rs. 20,00,000, providing the assessee with partial relief of Rs. 15,68,565. This decision was based on a holistic consideration of the facts and the lack of substantial evidence from both sides to justify their respective claims. The ITAT's judgment aimed to strike a balance in the assessment process, ensuring fairness and justice in the final outcome.