2023 (3) TMI 280 - AT - Income Tax

Validity of assessment u/s 144 - net profit determination by rejecting the books of account u/s 145(3) - assessee was unable to produce the books of account and detailed documents during the assessment proceeding - arbitrary profit rate of 6% of gross receipts contrary to rate of 2.07% returned by the appellant on the basis of audited financial statements - CIT(A) only restricted the net profit @ 4% for non-submission of the books of account of the assessee - HELD THAT - We find that for assessment year 2014-15 the net profit percentage declared by the assessee was 3.11. Appellate authority has taken a realistic view has determined the NP @4% on the gross turnover of the assessee. CIT(A) properly clarified that the assessee was unable to explain the reasons for non-submission of the books of accounts before the assessing authority. Without proper books of account, the ld. appellate authority has determined the net profit @ 4%. After a thoughtful consideration, we find that no infirmity in the order of the ld. CIT(A), so, the grounds of the appeal of assessee for A.Y. 2015-16 are dismissed. Determination of Net profit by the ld. CIT(A) is inclusive of salary interest paid to partners - CIT(A) has determined lower net profit. We find no infirmity in this issue in the order of the ld. CIT(A). Related to issue in interest on deposit the Counsel took the plea that the fix deposit / FDRs are utilize to acquire the bank guarantee. Entire FDR is related to opportunity generation of business income in several years. The assessee maintained the consistency for utilising this interest earned and interest paid in the P L account. The issue was already agitated before the ld. CIT(A) by the assessee. We find that there is a nexus in between interest earned and interest paid in relation to the assessee business. Considering the factual matrix, we find that this particular issue is accepted by the bench. The interest paid should be adjusted with interest received which will not separately assessable. Appeal of the assessee dismissed.

Summary

Issues:
1. Assessment made under section 144 of the Income Tax Act based on arbitrary profit rate.
2. Non-service of notices under section 143(2) as prescribed.
3. Inadequate opportunity provided to the appellant.
4. Reliance on assumptions and presumptions without proper scrutiny of evidence.
5. Disallowance of salary and interest paid to partners.
6. Treatment of interest income separately as income from other sources.
7. Determination of net profit percentage by the CIT(A).
8. Rejection of books of account under section 145(3) of the Act.
9. Appeal challenging the orders of the CIT(A) for A.Ys. 2015-16 and 2017-18.

Analysis:
1. The appeals were against the orders of the Commissioner of Income Tax (Appeals) and the Assistant Commissioner of Income Tax for A.Ys. 2015-16 and 2017-18, based on assessments under section 144 of the Income Tax Act. The appellant contested the arbitrary profit rate of 6% imposed by the Assessing Officer, contrary to the 2.07% rate declared by the appellant based on audited financial statements.

2. The appellant raised concerns regarding the non-service of notices under section 143(2) as prescribed, leading to inadequate opportunity for the appellant to present their case. The appellant argued that the assessment order was illegal due to insufficient opportunity provided and the non-service of the draft assessment order before its passing.

3. The appellant challenged the reliance on assumptions and presumptions by the authorities without proper scrutiny of the appellant's submissions and evidence. The appellant sought a re-examination of the case based on the proper maintenance of books of accounts and audited records.

4. The CIT(A) upheld the assessment orders, determining the net profit at 4% for A.Y. 2015-16 and including interest and salary paid to partners for A.Y. 2017-18. The treatment of interest income separately as income from other sources was also contested by the appellant.

5. The appellant's arguments centered on the nexus between interest earned and interest paid in relation to the business activities. The appellant maintained that the interest paid should be adjusted with interest received and not separately assessable. The Tribunal partially allowed the appeal for A.Y. 2017-18 while dismissing certain grounds for A.Y. 2015-16.

6. The Tribunal found no infirmity in the CIT(A)'s orders, dismissing the appeal for A.Y. 2015-16 and partly allowing the appeal for A.Y. 2017-18. The judgment emphasized the importance of proper maintenance of records and the necessity for a fair and just assessment process.