2022 (9) TMI 500 - AT - Income Tax

Rejection of books of accounts - estimation of Net Profit - Reliance on profit returned in the preceding year - no explanation to low profit during the year - HELD THAT - The assessee has at no point of time given any proper explanation for the huge loss returned by it in the impugned year more particularly when there were profits returned in the preceding year. The explanation furnished ,as reproduced above has been rightly found to be general in nature by the CIT(A) the assessee having only stated that there are several reasons for fluctuation in prices of goods and bought and sold and mentioning only general market condition variations etc. CIT(A) has also pointed out anomaly in the books of the assessee - CIT(A) has rightly upheld the order of the AO rejecting the books of accounts of the assessee and thereafter justifiably estimating net profit on the basis of that returned in the preceding year. Accordingly, all grounds of appeal of the assessee are dismissed.

Summary

Issues:
Rejection of books of accounts and estimation of gross profit of the assessee firm.

Analysis:
The appeal was filed against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre under section 250 of the Income Tax Act, 1961, for the assessment year 2015-16. The assessee did not appear during the proceedings, showing a consistent non-cooperative attitude. The assessee's sole issue related to the rejection of books of accounts and the estimation of gross profit. The Assessing Officer (AO) passed an ex parte assessment order due to the assessee's non-cooperation, resulting in a huge loss declared by the assessee. The AO estimated the net profit based on the previous year's profitability. The assessee failed to provide specific details during both assessment and appellate proceedings, offering only general explanations for the losses incurred.

The Commissioner noted that the reasons provided by the assessee for the low profit were general and lacked specific evidence or proofs. The financial accounts revealed discrepancies in stock valuation, with opening and purchases shown but closing stock reflected as NIL. The Commissioner upheld the rejection of books of accounts and the estimation of net profit based on the previous year's profitability, as the explanations provided were deemed insufficient and lacked supporting evidence. The Commissioner found the explanations to be general and lacking in specific details or evidence to substantiate the reasons for the losses.

The Tribunal reviewed the Commissioner's order and found it to be appropriate. The Tribunal agreed that the assessee failed to provide a satisfactory explanation for the significant loss declared, especially considering profits in the previous year. The Tribunal concurred with the Commissioner's assessment that the explanations given were general in nature and lacked specific details or evidence. Anomalies in the assessee's books were also noted. Consequently, the Tribunal upheld the rejection of books of accounts and the estimation of net profit based on the previous year's profitability. The Tribunal dismissed all grounds of appeal raised by the assessee, leading to the dismissal of the appeal.

In conclusion, the Tribunal upheld the Commissioner's decision to reject the books of accounts and estimate the net profit based on the previous year's profitability due to the assessee's failure to provide specific details or evidence to support the reasons for the losses declared. The appeal was ultimately dismissed by the Tribunal.