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2015 (5) TMI 746 - AT - Income TaxAd hoc disallowance - N.P. estimation @ 12% - Held that - Assessee s conduct during the course of assessment and appellate proceedings does not give a conducive picture, in the entirety of facts and circumstances of the case, there is no infirmity in the order of ld. CIT(A) holding that the assessee s books of account should have been rejected and NP should be estimated at 12%. This way of estimation in case of rejection of books is also a recognized manner. It is trite law that while challenging the estimate made by the income tax authorities, the burden is on the assessee to convincingly demonstrate that the estimate is arbitrary, so as to enable the appellate authority to interfere. In absence of any convincing arguments or evidence in this behalf, we see no reason to interfere in the order of estimate made by the learned CIT(A). In these circumstances, we see no reason to interfere with the rate of N.P. as estimated by the learned CIT(A). However, we find merit in the alternate prayer of the learned counsel for the assessee that a relief of interest of ₹ 42403/- and depreciation of ₹ 26641/- should be given which is allowed to the assessee. - Decided partly in favour of assessee.
Issues Involved:
1. Application of net profit rate by CIT(A). 2. Disallowance of various expenditures by the Assessing Officer (AO). 3. Rejection of books of accounts and estimation of net profit. 4. Reasonableness of the estimated net profit rate. Issue-wise Detailed Analysis: 1. Application of Net Profit Rate by CIT(A): The CIT(A) applied a net profit rate of 12% after observing discrepancies in the assessee's records. The AO had made disallowances based on the assessee's failure to provide supporting evidence for various expenditures. However, the CIT(A) found that the discrepancies warranted a rejection of the books of accounts and an estimation of net profit. The CIT(A) considered a 12% net profit rate reasonable given the large-scale manipulation and submission of bogus bills by the assessee. 2. Disallowance of Various Expenditures by the AO: The AO disallowed significant portions of the expenditures claimed by the assessee due to non-cooperation and lack of evidence. The disallowances included: - Rs. 14,19,442/- for material purchases. - Rs. 6,23,104/- for diesel purchases. - Rs. 4,04,835/- for machinery, JCB, truck, and tractor expenses. - Rs. 78,437/- for blasting and borewell expenses. - Rs. 1,93,770/- for labor expenses. The AO's disallowances were based on the assessee's failure to provide logbooks, vouchers, and addresses of recipients, among other discrepancies. 3. Rejection of Books of Accounts and Estimation of Net Profit: The CIT(A) held that the AO should have rejected the books of accounts due to the discrepancies and estimated the net profit instead. The CIT(A) observed that the total disallowances led to a net profit rate of 19.12%, which was deemed too high. Therefore, the CIT(A) applied a more reasonable net profit rate of 12%, resulting in a net profit of Rs. 24,90,804/- as opposed to the Rs. 12,49,467/- declared by the assessee. 4. Reasonableness of the Estimated Net Profit Rate: The assessee argued that the 12% net profit rate was arbitrary and harsh, suggesting that the net profit rate from previous years should be considered. However, the CIT(A) and the Tribunal found the 12% rate reasonable given the assessee's non-cooperation and the discrepancies in the records. The Tribunal noted that the burden was on the assessee to demonstrate that the estimate was arbitrary, which the assessee failed to do convincingly. The Tribunal also acknowledged the alternate prayer of the assessee for relief on interest and depreciation, allowing a deduction of Rs. 42,403/- for interest and Rs. 26,641/- for depreciation. Conclusion: The Tribunal upheld the CIT(A)'s decision to apply a 12% net profit rate, considering it reasonable in light of the assessee's non-cooperation and discrepancies in records. The Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal, granting relief for interest and depreciation. The decision emphasized the importance of cooperation and proper documentation in assessment proceedings.
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