2022 (6) TMI 1005 - AT - Income Tax

Rejection of books of accounts - Estimation of net profit - HELD THAT - AO rejected the books of account of the assessee since the documents impounded clearly showed that the assessee entered into business transactions with Sky Lark Hatcheries (P) Ltd. and since the assessee did not report these transactions in the regular books of account the explanation of the assessee was rejected. The books were rejected u/s 145(3) and estimated net profit from suppressed sales at 0.45%. AO is justified in rejecting the books of account as the assessee did not reflect the correct picture of its true profits as the consignment sales were not recorded in the regular books of account. The net profit estimated by the Ld. AO @ 0.45% is on higher side. Taking the totality of facts and circumstances into consideration and the net profit percentage shown by RS Poultry and SA Poultry for the AY 2018-19 it would be fair and just to estimate the net profit from the suppressed sales at 0.25%. Thus, the AO is directed to estimate the net profit at 0.25% of the suppressed consignment sales turnover and re-compute the income for the assessment year under consideration. Grounds raised by the assessee are partly allowed.

Summary

Issues:
1. Addition of Rs. 10,52,422/- on suppressed consignment sales turnover.
2. Rejection of books of account by the Assessing Officer.
3. Justification of estimating net profit at 0.45%.

Analysis:
1. The appeal was filed against the order sustaining the addition of Rs. 10,52,422/- on suppressed consignment sales turnover. The assessee did not appear despite multiple notices. The Departmental Representative submitted that a survey revealed transactions with Sky Lark HC Pvt. Ltd. and others totaling Rs. 48,20,66,980/-. The assessee failed to explain the investment and gross profit on suppressed turnover. The assessee contended that the transactions were due to a personal relationship and offered to estimate profit at 0.14%. However, the Assessing Officer estimated net profit at 0.44%, leading to the addition.

2. The Assessing Officer rejected the books of account under section 145(3) of the Act due to unrecorded consignment sales with Sky Lark Hatcheries (P) Ltd. The Tribunal found the rejection justified as the true profits were not reflected. However, the estimated net profit at 0.45% was deemed high. Considering the circumstances and profits of similar entities, the Tribunal directed to estimate net profit at 0.25% of suppressed sales turnover. Thus, the appeal was partly allowed.

3. The CIT(Appeals) upheld the Assessing Officer's addition. The Tribunal disagreed with the 0.45% net profit estimation, adjusting it to 0.25% based on fairness and comparison with other entities. The Tribunal found the rejection of books justified but revised the net profit percentage. Consequently, the appeal was partly allowed, and the income for the assessment year was to be recomputed at the revised net profit rate.

In conclusion, the Tribunal partially allowed the appeal, directing the Assessing Officer to estimate the net profit at 0.25% of the suppressed consignment sales turnover, deviating from the initial 0.45% estimation.