2014 (7) TMI 769 - HC - Income Tax

Validity of order - Rejection of books of account Held htat - The business operation of the assessee is the same for the AY as compared with the previous AYs - profits estimated in the previous years is a safe guide for estimation of the profits for the AY for estimating the turnover since the business activity conducted by the assessee remains the same - the average gross profit rates comes to 9.62% - the average gross profit works out to 10.42% - the estimation of the gross profit at 10% by the AO was perfectly correct, which requires no interference - estimation of gross profits is a question of fact which normally should not be interfered unless the estimation is perverse and ill-logical and has no reasonable nexus with the business activity vis-a-vis the turnover of the assessee. The Tribunal is a last fact finding authority is required to give its own reason howsoever brief it may be - the reasoning given by the Tribunal though in brief was not cryptic, which could result in non-application of mind - the Tribunal applied its mind and thereafter, passed the order after considering the submissions of the parties the Tribunal was justified in not remanding the matter - reasoning adopted by the AO was perfectly justified and in accordance with the average estimation of the gross profits after comparing it with the gross profit rates with the previous years - Decided against Assessee.

Summary

Issues:
1. Rejection of books of account by Assessing Officer and subsequent assessment based on gross profit rate.
2. Appeal against deletion of addition by appellate authority.
3. Tribunal's decision to set aside the order of the Commissioner of Income Tax and restore the order of the Assessing Officer.
4. Appeal under Section 260A of the Act challenging the Tribunal's decision.

Analysis:
1. The appellant, engaged in the business of Bidis, had its books of account rejected by the Assessing Officer for the assessment year 1986-87. The Assessing Officer estimated the income at a higher amount based on discrepancies in the gross profit rate compared to previous years. The appellant's explanation of an increase in gross profit rate was not accepted, leading to additions on the turnover due to specific defects in maintaining records. The appellate authority initially deleted the addition, but the Tribunal later set aside the appellate authority's decision and upheld the Assessing Officer's order based on better reasoning for estimating gross profit rates.

2. The appellate authority's decision to delete the addition was based on the gross profit rate of the immediately preceding assessment year. However, the High Court found this reasoning flawed as the defects in maintaining stock registers were not adequately addressed. The High Court emphasized that past profit estimates serve as a guide for the current assessment year, and the Assessing Officer's estimation of gross profit at 10% was deemed correct and required no interference.

3. The Tribunal's decision to set aside the Commissioner of Income Tax's order and restore the Assessing Officer's order was upheld by the High Court. The Tribunal's brief reasoning was considered sufficient as it demonstrated a proper consideration of submissions and comparison of gross profit rates from previous years. The High Court concluded that the Tribunal's decision was reasoned and justified, affirming the order of the Assessing Officer.

4. The High Court rejected the appeal challenging the Tribunal's decision, stating that the Tribunal's reasoning was adequate and in line with the estimation of gross profits based on past records. The Court found no grounds for interference with the Tribunal's decision and upheld the dismissal of the appeal, answering the questions of law accordingly.