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TMI Blog2018 (10) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the assessee on the basis of his personal knowledge. The kind of inquiry made for rejecting the book results must have lead to harbouring a belief that some higher element of income is involved in the case of the assessee. This has been re-appreciated by the ld.CIT(A). Formation of such estimated opinion ought not to be disturbed by the second appellate authority unless something very serious flaws are being pointed out or it has been established that such belief was formed by the ld.CIT(A) on some extraneous decision. No such situation has been brought to our notice, and hence, we do not wish to interfere in the discretion of the ld.CIT(A) on the estimated rate of profit required to be applied while computing the income of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against 5% adopted by the AO. The relevant discussion made by the ld.CIT(A) reads as under: Now coming to the estimation of profit, the AO has estimated the net profit at 5%. instead of 2.04% disclosed by the appellant. During appeal proceedings, appellant was directed to submit the details of net profit, gross profit for two preceeding and two subsequent assessment years. The details of net profit are as below: Ass.Year Contract Receipt Net Profit Net Profit % 2009-10 37986941.00 1147347.00 3.02% 2010-11 78105278.00 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of ₹ 14,73,440/-is sustained. Ground number 1 to 4 are accordingly, partly allowed. 4. The ld.counsel for the assessee submitted that profit rate at 3.02% and 2.23% shown by the assessee in the Asstt.Year 2009-10 and 2010-11 was accepted by the AO in scrutiny assessment. Similarly in subsequent years, the rates disclosed by the assessee were not disturbed by the department. Hence, the ld.CIT(A) is not justified in confirming the computation of income at the rate of 3.5% of the turnover. On the other hand, the ld.DR relied upon the orders of the AO. 5. We have considered rival submissions and gone through the record carefully. Section 145 of the Income Tax Act is the relevant provision for this issue therefore, it is pertin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in respect of any class of income. Thus, it indicates that income has to be computed in accordance with the method of accountancy followed by an Assessee i.e. cash or mercantile, such method has to be followed keeping in view the Accounting Standard notified by the Central Government from time to time. Sub clause 3 provides a situation, that is, if the Assessing Officer is unable to deduce the true income. On the basis of method of accountancy followed by an Assessee than he can reject the book result and the assessee s income according to his estimation or according to his best judgment. The Assessing Officer in that case is required to point out the defects in the accounts of Assessee and required to seek explanation of the Assessee qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided that such opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the assessment should not be completed to the best of his judgment : Provided further that it shall not be necessary to give such opportunity in a case where a notice under sub-section (1) of section 142 has been issued prior to the making of an assessment under this section.] [(2) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scretion in estimating income of the assessee. The ld.AO has estimated at the rate of 5% whereas ld.CIT(A) has substantially reduced the rate to 3.5%. To our mind 2nd appellate authority ought not to disturb the discretion exercised by the ld.CIT(A) simply for the reason that some minor variation on account of results shown by the assessee in earlier and subsequent year is possible to be made. The basic reason for this is that, the AO has an occasion to visualize about status of the assessee on the basis of his personal knowledge. The kind of inquiry made for rejecting the book results must have lead to harbouring a belief that some higher element of income is involved in the case of the assessee. This has been re-appreciated by the ld.CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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