2013 (3) TMI 176 - HC - Income Tax

High Court overturns ITAT decision, remands for new ruling on net profit rate.

The High Court set aside the ITAT's order and remanded the matter back for a decision on the appellant's contention regarding the application of the 2.5% ... Rejection of books of accounts - addition on bogus purchases - appellant challenged the application of net profit rate of 2.5% - ITAT dismissed the appellant's appeal in a summary manner - Held that:- ITAT has committed an error in dismissing the appellant's appeal merely by observing that while deciding the appeal of revenue the stand of the CIT (Appeal) has been upheld. The appellant's contention that the net profit at 2.5% could not have been applied by CIT (Appeal) was required to be decided by the ITAT and the appellant's appeal could not have been dismissed summarily on the basis of the decision in revenue's appeal without dealing with the appellant's contention. It is evident from the order of ITAT that while deciding revenue's appeal also the said question of applying of net profit rate at 2.5% was not dealt with by it - matter remanded back to the ITAT for deciding the appellant's contention that the CIT (Appeal) has wrongly applied the net profit at 2.5% - - in favour of the assessee by way of remand. Issues: Appeal dismissal by ITAT in summary manner, application of net profit rate at 2.5% by CIT (Appeal).Analysis:1. The appellant, engaged in trading of Soyabean, Maize, and Wheat, submitted an income tax return for the Assessment Year 2002-03 declaring total income at Rs.1,49,420. The Assessing Officer, through an order under Section 143(3) of the Income Tax Act, rejected the books of accounts and determined the total income at Rs.32,66,603, including an addition of Rs.30,61,183 for alleged bogus purchases.2. The appellant appealed to the CIT (A), who partly allowed the appeal by upholding the findings on bogus purchases but directing the application of a net profit rate of 2.5% on the disclosed turnover of Rs.7 Crores. Dissatisfied with this decision, the appellant and the revenue filed appeals before the ITAT.3. The ITAT, in a common order, dismissed both appeals. The appellant challenged the dismissal of their appeal concerning the application of the 2.5% net profit rate. The appellant argued that the ITAT's summary dismissal was arbitrary and unjustified, as it failed to address the discrepancy between the 2.5% rate applied by CIT (A) and the lower rates from previous years.4. The respondent supported the ITAT's decision, upholding CIT (A)'s application of the 2.5% net profit rate. The High Court found that the ITAT erred in summarily dismissing the appellant's appeal without addressing the specific contention regarding the net profit rate. The Court noted that the ITAT failed to address this issue in both the appellant's and revenue's appeals.5. Consequently, the High Court ruled in favor of the appellant, setting aside the ITAT's order and remanding the matter back to the ITAT for a decision on the appellant's contention regarding the application of the 2.5% net profit rate. The appeal was allowed with no costs awarded.