2017 (6) TMI 598 - AT - Income Tax

Estimating the profit @ 1.5% of the total turnover - best judgment assessment - Held that - Admittedly, the assessee failed to produce the books of account at the time of assessment. It is also a fact to determine the actual income the books of account play the crucial role. In the absence of books of account, we find that Ld. CIT(A) had to resort to accept to determine the income to the best of his judgment. However, the income in the case of best judgment assessment should be worked out reasonable and scientific manner. The income on estimated basis should be. 80% to the gross turnover of the assessee. It is because the amount of profit shown by assessee in the earlier years cannot be set aside while determining the income on the basis of best judgment. Therefore after considering the trend of the assessee s business we direct the AO to re-compute the profit @. 80% of the turnover. This ground of assessee s appeal is partly allowed. Addition on account of difference between the creditors shown by assessee vis- -vis shown by the respective parties - Held that - Though the assessee has filed the re-conciliation the difference by stating that certain bills were raised at the fag-end of the year which was accounted for in the subsequent year. In such situation, if the differences are added to the total income of assessee then this will lead to double taxation in the hands of assessee. Therefore, we find that the impugned order passed by Ld. CIT(A) by estimating the income in the aforesaid facts and circumstances is reasonable enough to determine the actual tax liability. Thus, we do not find any infirmity in the order of Ld. CIT(A). Thus appeal of the Revenue is dismissed.

Summary

Issues involved:
Cross-appeal by assessee and Revenue against CIT(A)'s order estimating profit at 1.5% of turnover.

Assessee's Appeal:
The primary issue raised by the assessee was the estimation of profit at 1.5% of the total turnover by the CIT(A). The assessee, engaged in wholesale cloth business, failed to provide details during assessment leading to disallowance of various items by the AO. The CIT(A) partially allowed the appeal, estimating income at 1.5% of turnover citing lack of produced books of account. The CIT(A) referred to previous years' profit rates but acknowledged discrepancies in accounts. The CIT(A) directed the AO to fix income at 1.5% of turnover, considering judicial decisions and case circumstances. The CIT(A) also addressed disallowance under section 40(a)(ia) and allowed deduction under section 80C based on the estimated income. The assessee challenged the CIT(A)'s decision on various grounds, arguing against the estimation method and the failure to consider plausible explanations for discrepancies.

Revenue's Appeal:
The Revenue's appeal focused on disallowances made by the AO regarding differences in closing and opening balances of sundry creditors. During the hearing, the assessee's representative argued that the estimated income was unreasonably high, while the Revenue supported the AO's decision due to the lack of produced books of account. The ITAT analyzed the situation, considering the assessee's historical profit rates and the absence of books of account. The ITAT concluded that the income should be re-computed at 0.80% of the turnover based on the assessee's business trend. Regarding the Revenue's appeal, the ITAT found the CIT(A)'s estimation reasonable given the circumstances, preventing double taxation. Consequently, the Revenue's appeal was dismissed.

In conclusion, the ITAT partially allowed the assessee's appeal by adjusting the profit estimation percentage and dismissed the Revenue's appeal. The decision aimed to balance the estimation method with the assessee's historical performance and the absence of complete accounting records.