2014 (8) TMI 491 - HC - Income Tax

Estimation of appeal - Rejection of books of accounts u/s 145(3) Held that - The net profit rate has already shown at the rate 3.25% which appears reasonable, which is higher in comparison to the previous and subsequent assessment years - during the assessment under consideration, the assessee has suffered a loss in respect of Sada-Gwalior Project and Bareilly-Badaun Project - The net profit rate shown by the assessee, which is higher in comparison to the earlier and subsequent assessment years, appears reasonable and is to be accepted. Applicability of section 44AD Held that - Section 44AD is not applicable as the turnover is more than 40 lacs - The accounts were properly audited there was no reason to interfere with the orders passed by both the appellate authorities Decided against Revenue.

Summary

Issues:
1. Appeal filed under Section 260-A of the Income Tax Act, 1961 against the judgment and order of the Income Tax Appellate Tribunal for the assessment year 2003-04.
2. Rejection of books of account under Section 145(3) of the Income Tax Act, 1961.
3. Estimation of net profit rate at 8% by the Assessing Officer.
4. Deletion of the addition by the CIT (A) and Tribunal.
5. Comparison of net profit rates in previous and subsequent assessment years.
6. Reasonableness of the net profit rate shown by the assessee.
7. Applicability of Section 44AD.
8. Proper audit of accounts.
9. Sustaining the orders of the appellate authorities.
10. Dismissal of the appeal by the department at the admission stage.

Analysis:
1. The appeal was filed under Section 260-A of the Income Tax Act, 1961 challenging the judgment and order of the Income Tax Appellate Tribunal for the assessment year 2003-04. The Assessing Officer had rejected the books of account under Section 145(3) of the Income Tax Act, 1961 due to discrepancies found during the assessment year.

2. After rejecting the books of account, the Assessing Officer estimated the net profit rate at 8% of the cost receipt before depreciation, drawing inspiration from Section 44AD of the Act. However, the CIT (A) and Tribunal deleted the said addition, leading to the department filing the present appeal.

3. The record revealed that in the previous and subsequent assessment years, the department had accepted lower net profit rates ranging from 1.85% to 2.62%. In contrast, for the assessment year under consideration, the assessee had shown a net profit rate of 3.25%, which was higher. The court deemed this higher net profit rate as reasonable, especially considering the losses incurred by the assessee in certain projects.

4. The court noted that Section 44AD was not applicable due to the turnover exceeding 40 lakhs, and the accounts were properly audited. Consequently, there was no justification to interfere with the decisions of the appellate authorities. The orders were sustained along with the provided reasons.

5. Given the circumstances and the lack of any substantial question of law, the court dismissed the department's appeal at the admission stage. This comprehensive analysis addressed the issues raised in the appeal and provided a detailed examination of the key aspects considered by the court in reaching its decision.