2017 (3) TMI 90 - HC - Income Tax

N.P. determination - Tribunal determining the net profit at 5% - Held that - Considering the material on record, more particularly Annexure-A-7 and the order passed by the Settlement Commission, Central Excise, by which, on appreciation and/or considering the Annexure-A-7, the learned Settlement Commission has determined and/or arrived at net profit at 5% with respect to A.Ys. 2000-2001 and 2003-2004 and thereafter with respect to A.Ys. 2001-2002, 2002-2003 and 2004-2005, when the learned tribunal has determined the net profit at 5%, it cannot be said that the learned tribunal has committed any error which calls for interference of this Court. It is required to be noted that on the basis of the material on record, the learned tribunal has estimated net profit at 5%. - Decided against revenue

Summary

Issues:
Estimation of net profit at 5% instead of 8% based on seized documents in search & seizure operation by excise department.

Analysis:
The appeals before the Gujarat High Court involved a common question of law regarding the estimation of net profit at 5% instead of 8% based on seized documents in a search & seizure operation by the excise department. The case pertained to different assessment years but the same assessee. The primary issue was whether the learned tribunal erred in directing the Assessing Officer to calculate the net profit at 5% on sales, ignoring specific documents seized during the operation.

The facts of the case revolved around a search operation conducted by the excise department at the premises of a glass manufacturing company. The seized documents, including Annexure-A-7, revealed recorded and unrecorded transactions related to the assessee company. The Sales Manager confirmed the authenticity of the documents, which contained details of the business activities associated with the assessee. The Assessing Officer compared the profits declared by the assessee with the figures in Annexure-A-7, leading to a shortfall in the declared profit. Consequently, the AO determined the income of the assessee based on the figures in Annexure-A-7.

The dispute escalated when the CIT(A) estimated the profit at 8% of the total turnover, relying on the Settlement Commission's acceptance of the same percentage. However, the tribunal decided to adopt a net profit of 5% based on Annexure-A-7 and the Settlement Commission's findings. The tribunal's decision led to the dismissal of the revenue's appeal and partial allowance of the assessee's appeal.

During the proceedings, the appellant-revenue argued that the tribunal erred in reducing the net profit to 5% from 8% determined by the CIT(A). On the other hand, the assessee's advocate contended that the tribunal's decision was based on factual considerations and did not warrant interference. The tribunal's estimation of net profit at 5% was deemed appropriate given the evidence from Annexure-A-7 and the Settlement Commission's findings for other assessment years.

Ultimately, the High Court held that the tribunal's decision to estimate the net profit at 5% was based on the material on record and did not constitute a legal error. The court emphasized that unless there was perversity in the tribunal's decision, it could not be deemed a question of law. Considering the circumstances and evidence presented, the court found no substantial question of law warranting interference and dismissed all the appeals accordingly.