2025 (1) TMI 444 - AT - Income Tax

Rejection of the books of accounts - Net profit determination - as argued comparables relied upon by the AO for computing the net profit at 5.59% are in the business of manufacturing speciality chemicals while the assessee is in the business of trading Bitumen and other bulk chemicals - HELD THAT - From the perusal of the record, it is evident that the assessee did not respond to the last two notices issued by the AO seeking various details in respect of the expenditure claimed by the assessee. We further find that before CIT(A) the assessee tried to explain the nature of the expenditure incurred by it during the year under consideration, however, the CIT(A) without pointing out any specific deficiency in such evidence upheld the conclusion of the AO in rejecting the books of account of the assessee. In light of the submissions of the assessee that all the bills and vouchers of the expenses are available with the assessee and the assessee can justify such expenses, we deem it appropriate to restore this issue to the file of the Jurisdictional AO for de novo adjudication after considering the submissions and details as may be filed by the assessee after granting opportunity of being heard to the assessee. The assessee is directed to furnish all the details/evidence as may be sought by the AO for complete adjudication of this issue and also duly cooperate in the assessment proceedings. With the above directions, the impugned order is set aside and the grounds raised by the assessee and the Revenue are allowed for statistical purposes.

1987 (2) TMI 61 - SC

1. ISSUES PRESENTED and CONSIDERED

The legal judgment addresses several core issues:

Whether the delay of 31 days in filing the appeal by the assessee should be condoned.
Whether the learned CIT(A) erred in confirming the rejection of the books of accounts by the Assessing Officer (AO) based on conjectures and surmises.
Whether the learned CIT(A) was justified in estimating the business income at 3.30% of the total turnover, as opposed to the AO's estimation of 5.59%.
Whether the learned CIT(A) erred in giving the benefit of doubt regarding the rejection of books due to non-genuine expenses.

2. ISSUE-WISE DETAILED ANALYSIS

Condonation of Delay

Relevant legal framework and precedents: The court referenced the Supreme Court's ruling in the case of Collector Land Acquisition, Anantnag Vs. MST Katiji, which emphasizes that procedural rules should not obstruct substantial justice.
Court's interpretation and reasoning: The Tribunal found that the reasons provided by the assessee for the delay were valid and aligned with the principles of substantial justice.
Conclusion: The delay of 31 days was condoned, allowing the appeal to be heard on its merits.

Rejection of Books of Accounts

Relevant legal framework and precedents: The AO rejected the books of accounts due to significant discrepancies in financial statements and non-compliance with notices.
Court's interpretation and reasoning: The Tribunal noted that the AO's rejection was based on the assessee's failure to justify transactions and the drastic increase in expenses. However, the CIT(A) partially disagreed with the AO's profit estimation.
Key evidence and findings: The assessee claimed that the change in business model justified the increased expenses, but the CIT(A) found some bills potentially in-genuine.
Application of law to facts: The Tribunal accepted that the assessee's business model change could account for increased expenses but required further verification.
Treatment of competing arguments: The Tribunal acknowledged the assessee's argument about business model changes and the need for further evidence to substantiate expenses.
Conclusion: The matter was remanded to the AO for re-evaluation, with the assessee directed to provide necessary documentation.

Estimation of Business Income

Relevant legal framework and precedents: The AO estimated the net profit based on comparable companies, which the assessee contested.
Court's interpretation and reasoning: The Tribunal found that the comparables used by the AO might not be appropriate due to differences in business activities.
Conclusion: The Tribunal directed the AO to reassess the net profit estimation after considering the assessee's submissions.

3. SIGNIFICANT HOLDINGS

Core principles established: Procedural delays should not impede justice when substantial reasons are provided. The accuracy of financial records and profit estimation must be grounded in verifiable evidence.
Final determinations on each issue: The delay was condoned; the rejection of books and profit estimation were remanded for further examination.

Conclusion: The Tribunal allowed the cross-appeals for statistical purposes, directing a re-evaluation of the financial records and profit estimation by the AO, with the assessee required to furnish comprehensive evidence.

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