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2021 (3) TMI 588 - AT - Income TaxRejection of books of accounts u/s 145(3) - Estimation of new profit - A.O estimated the Profit at 5% as against the negative profit of (-) 5.74% shown by the assessee - CIT(A) partly deleted by addition by estimating the profit at 2.3%. - HELD THAT - All the discrepancies observed by the Ld. A.O have been duly rebutted by the facts of the case which shows that the assessee has properly maintained the books of accounts and the Ld. A.O was not justified in rejecting the same and estimating the profits. Also the basis taken by the Ld. A.O about the alleged unaccounted turnover observed by the Excise Department is no more a good basis since the assessee has succeeded before CESTAT and the alleged show cause notice for the unaccounted turnover has been quashed. We have gone through each and every fact relating to the observation made by Ld. A.O and come to the conclusion that no such discrepancy existed and we are thus satisfied with the losses incurred during the year. We thus set aside the finding of Ld. CIT(A) and are of the considered view that Ld. A.O grossly erred in rejecting the books of accounts of the assessee and proceeding ahead to estimate the net profit rate.
Issues Involved:
1. Assessment of net profit versus declared loss. 2. Scope of scrutiny under CASS. 3. Rejection of books of account under Section 145(3) of the Income Tax Act. 4. Estimation of net profit rate by the CIT(A). 5. Reference to GP rate of other companies. 6. Justification of suppressed gross profit addition by the Assessing Officer. Detailed Analysis: 1. Assessment of Net Profit Versus Declared Loss: The assessee contested the CIT(A)'s decision to assess a net profit of ?1,45,33,103 as opposed to a declared loss of ?3,62,89,590. The Tribunal found that the CIT(A) erred in rejecting the books of accounts and estimating net profits without proper justification. The Tribunal concluded that the books of accounts were correctly maintained, and the declared loss should be accepted. 2. Scope of Scrutiny Under CASS: The assessee argued that the case was selected under CASS and additions should be restricted to the reasons for selection. However, the Tribunal dismissed this ground as not pressed since no specific submissions were made by the assessee's counsel. 3. Rejection of Books of Account Under Section 145(3) of the Income Tax Act: The Tribunal examined the correctness of the Assessing Officer's observations for rejecting the books of accounts under Section 145(3). The Tribunal found that the AO's observations regarding freight expenses, URD scrap purchases, increased wages, gas and fuel expenses, excise duty on closing stock, and sundry creditors were not justified. The Tribunal noted that the discrepancies pointed out by the AO were either factually incorrect or adequately explained by the assessee. 4. Estimation of Net Profit Rate by the CIT(A): The Tribunal addressed the CIT(A)'s decision to estimate the net profit rate at 2.3%. Given that the Tribunal found the rejection of books of accounts unjustified, it held that the estimation of net profit rate by the CIT(A) was also incorrect. Consequently, the Tribunal allowed the assessee's ground and set aside the CIT(A)'s estimation of net profit. 5. Reference to GP Rate of Other Companies: The assessee objected to the reference of GP rates of other companies (M/s Jaideep Ispal & Alloys P Limited and M/s Rathi Iron & Steel Ltd.) without providing data for comments. The Tribunal found that the GP rates of other companies were not comparable due to differences in turnover and bank loans. Therefore, this reference was deemed inappropriate. 6. Justification of Suppressed Gross Profit Addition by the Assessing Officer: The Revenue's appeal contested the CIT(A)'s restriction of the addition to ?1,45,33,103 against the AO's addition of ?11,34,71,546. The Tribunal dismissed the Revenue's appeal, noting that the AO's basis for estimating suppressed gross profit was flawed. The Tribunal emphasized that the books of accounts were correctly maintained and supported by proper documentation, thus rejecting the need for any estimation of net profit. Conclusion: The Tribunal allowed the assessee's appeal in part, accepting the declared loss and rejecting the estimation of net profit. The Tribunal dismissed the Revenue's appeal, affirming that the books of accounts were correctly maintained and the net profit estimation by the AO and CIT(A) was unjustified. The Tribunal's decision was pronounced in the open court on 10.03.2021.
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