2021 (12) TMI 1035 - HC - Income Tax

Rejection of books of accounts - estimated net profit for the year under consideration at 7.6% of the total turnover - HELD THAT - ITAT has observed that though there is no dispute regarding the fact that there are some technical mistakes in maintaining the books of accounts, however, AO should not loose sight of the gross profit rate shown by the assessee during the year under consideration as compared to the gross profit rate shown in the immediate proceeding year while coming to the conclusion of rejecting the books of accounts and estimating the net profit rate. ITAT has found that during the year under consideration, the gross profit rate shown by the assessee is 29.29% as compared to the gross profit fate of 27.87% shown in the immediately preceding year. ITAT is of the opinion that the gross profit rate shown during the very year is much better than the gross profit of preceding year and, in such circumstances, there is justification for complete decline of contract expenditure claimed by the asssessee, which goes to constitute the gross profit rate. ITAT has further taken into consideration the profit and loss accounts of the assessee for comparison of expenses and found that the same are in order. After finding the gross profit shown by the assessee as reasonable, the ITAT has found that the assessee s claim of interest expenditure and depreciation is required to be allowed. In our opinion, the ITAT after thoroughly examining the material available on record has assessed the income of the assessee and according to us, the same is essentially a question of fact and appreciation of evidence. After going through the entire material available on record, the ITAT has come to the conclusion, which in our view is not liable to be interfered with. Learned counsel for the Revenue has failed to point out any perversity in the finding of fact recorded by the ITAT.

Summary

Issues:
1. Assessment of total income on adhoc basis without proper consideration of facts and evidence.
2. Determination of income on adhoc basis despite technical mistakes in maintaining books of accounts.
3. Reasonableness of estimating the N.P rate based on past 3 years despite technical mistakes.

Analysis:

Issue 1:
The appeals were filed by the Revenue challenging the ITAT's orders assessing the total income of the assessee at ?50 lakh on an adhoc basis. The Revenue contended that the ITAT erred in not considering the facts and evidence presented in the assessment order by the AO, highlighting the lack of proper maintenance of books of accounts by the assessee. The Revenue argued that despite acknowledging technical mistakes in the books of accounts, the ITAT assessed the income at ?50 lakh only. The Revenue emphasized the importance of accurate assessment based on evidence.

Issue 2:
The ITAT observed technical mistakes in the maintenance of books of accounts by the assessee but noted a higher gross profit rate in the year under consideration compared to the preceding year. The ITAT justified the decline of contract expenditure claimed by the assessee based on the improved gross profit rate. Additionally, the ITAT found the profit and loss accounts of the assessee in order, supporting the allowance of interest expenditure and depreciation. The ITAT's assessment was based on a thorough examination of the available material and evidence, concluding that the findings were reasonable and not open to challenge.

Issue 3:
The ITAT's decision to estimate the N.P rate by considering the average rate of the past 3 years was questioned. Despite technical mistakes in maintaining books of accounts, the ITAT found the gross profit rate reasonable and allowed certain expenditures. The Court upheld the ITAT's decision, stating that it was a question of fact and evidence appreciation. The Court found no perversity in the ITAT's findings and concluded that no substantial question of law required adjudication under Section 260-A of the Income Tax Act, 1961.

In summary, the Court dismissed the appeals filed by the Revenue, as it found them devoid of merit based on the thorough assessment conducted by the ITAT and the absence of substantial questions of law necessitating further adjudication.