2020 (5) TMI 362 - HC - Income Tax

Difference in the net profit ratio as compared to the preceding - invoking the provisions of Section 145(3) - ITAT upholding the order of Ld. CIT(A) in deleting the addition - HELD THAT - Books of Accounts of the assessee were found to be doubtful on the ground that Net Profit rate had dropped drastically in the preceding years. Subsequently, a remand was ordered and in the remand report the Books of Accounts produced were checked but no finding of any discrepancy was ascertained. It was in these circumstances that the Commissioner allowed the appeal of the assessee and that finding was upheld by the Tribunal. The questions proposed are pure questions of fact and not questions of law much less substantial questions of law.

Summary

Issues:
1. Appeal against Tribunal's judgment.
2. Questions of law proposed regarding addition of income and net profit ratio.
3. Interpretation of Income Tax Act provisions.
4. Assessment of Books of Accounts and Net Profit rate.

Analysis:
1. The appeal was filed against the Tribunal's judgment rejecting the Revenue's appeal. The questions of law raised included whether the ITAT was correct in upholding the CIT(A)'s decision to delete the addition of a specific amount made by the AO due to a difference in net profit ratio, invoking Section 145(3) of the Income Tax Act, 1961. Another question was whether the ITAT was right in deleting the addition without examining the issue of net profit ratio thoroughly and without considering a previous Supreme Court decision regarding profit estimation in the absence of vouchers.

2. The brief facts revealed that the Books of Accounts of the assessee were deemed doubtful due to a significant drop in the Net Profit rate in preceding years. After a remand was ordered and the Books of Accounts were reviewed, no discrepancies were found. The Commissioner and subsequently the Tribunal upheld the appeal of the assessee based on these findings. The Court determined that the questions raised were factual in nature and not substantial questions of law, leading to the dismissal of the appeal.

3. The judgment emphasized that the issues raised were primarily factual and did not involve substantial questions of law. The decision was based on the assessment of the Books of Accounts and the Net Profit rate, indicating that the appeal was dismissed due to the factual nature of the questions raised.

4. With the main case being decided, any pending applications were also disposed of accordingly. The judgment provided a comprehensive analysis of the issues raised in the appeal, focusing on the interpretation of the Income Tax Act provisions and the assessment of the Books of Accounts and Net Profit rate to arrive at the final decision.