The Appellate Tribunal addressed the issue of estimation of ...

Tribunal Upholds Logical Income Estimation Using Average Net Profit Rates; Partially Allows Revenue Appeal.

August 23, 2024

Case Laws     Income Tax     AT

The Appellate Tribunal addressed the issue of estimation of income and rejection of duly audited books of accounts of the assessee firm u/s 145(3) of the Act. It held that after rejecting the books of account, the Assessing Officer ought to have estimated the income on a logical basis. Since the income of the assessee firm for the preceding and succeeding five years had been framed u/s 143(3), the Tribunal opined that the average net profit rate of those years could safely be adopted as a yardstick for estimating its income for the year under consideration. This view was supported by the Allahabad High Court's decision in Dr. Prabhu Dayal Yadav's case. As the income disclosed by the assessee firm during the year was higher than the average net profit rate, and no incriminating material was found during the survey proceedings, the Tribunal was convinced that the average net profit rate could be used for estimating income. However, the Assessing Officer was directed to verify the net profit rates of the preceding and succeeding years while giving effect to the observations. The Tribunal set aside the CIT(Appeals) order concurring with the assessee's claim that books were not liable to be rejected but principally concurred with the acceptance of the returned income. The revenue's appeal was partly allowed.

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