2018 (9) TMI 1692 - AT - Income Tax

Rejection of books of accounts - estimation of profit - Held that - The fall in net profit rate cannot be brushed aside lightly. However, we find that the estimation of profit at 5.2% is from reasonable on the facts of the case and should meet the ends of justice. We, therefore, do not find any error or infirmity in the findings of the CIT(A) so far as the estimation of profit is concerned. However, in our considered opinion once net profit is estimated as a percentage of sales no further disallowances should be made in the profit and loss account. Since we have confirmed the estimation of net profit, we do not find any merit in the additions / disallowances made by the Assessing Officer. Provisions for bad and doubtful debts disallowance - Held that - We find that the Assessing Officer has disallowed the same because he was of the opinion that the provisions for bad debts is not allowable. When the matter was agitated before the first appellate authority the First Appellate Authority confirmed the disallowance made by the Assessing Officer stating that the claim of bad debts is not in accordance with the provision of section 36 (2) of the IT Act and therefore cannot be allowed. Both the lower authorities have grossly erred in not appreciating the facts in true perspective. Both the lower authorities have ignored the fact that the asset side is actually reduced by the amount of bad debts which means that the debt has been actually written of. The Hon ble Supreme Court in the case of Vijaya Bank 2010 (4) TMI 46 - SUPREME COURT has categorically held that if the asset side is reduced by the provision it amounts to writing of the debts. Drewing support from the ratio laid down by the Hon ble Supreme Court (supra), we direct the Assessing Officer to delete the disallowance on account of provision for bad debts.

Summary

Issues Involved:
1. Estimation of net profit and rejection of books of accounts for A.Y. 2009-10.
2. Disallowance of expenses and estimation of net profit for A.Y. 2012-13.

A.Y. 2009-10:
The case involved two separate appeals filed by the assessee against the orders of CIT (A)-2, Delhi for A.Y. 2009-10 and 2012-13. The Assessing Officer observed a decline in the profit ratio compared to previous years and rejected the books of accounts. The net profit was estimated at 6.5%, resulting in an addition of ?4.07 crores. The CIT(A) estimated the net profit at 5.2% and confirmed certain additions. The tribunal found the estimation of profit at 5.2% reasonable, directing the deletion of certain disallowances. The tribunal further directed the deletion of disallowances made under sections 43B and 40(a) (ia) of the Act. Regarding provisions for bad and doubtful debts, the tribunal held that the lower authorities erred in disallowing them, directing the Assessing Officer to delete the disallowance.

A.Y. 2012-13:
For A.Y. 2012-13, the Assessing Officer disallowed 10% of expenses, which was confirmed by the first appellate authority. The tribunal noted that since the net profit rate of 5.2% was estimated for A.Y. 2009-10 and accepted by the revenue, the same rate should be adopted for A.Y. 2012-13. The tribunal directed the Assessing Officer to adopt the net profit rate of 5.2% instead of making ad-hoc disallowances of 10% of total expenditure. Consequently, the appeal for A.Y. 2012-13 was also partly allowed.

The stay petitions for both years were deemed unnecessary as the appeals had been decided. The tribunal's order was pronounced on 26.09.2018, partially allowing the appeals filed by the assessee for both assessment years.