2019 (2) TMI 1811 - AT - Income Tax

Revenue's Appeals Dismissed for Lack of Evidence, CIT(A) Decision Upheld

DCIT, New Delhi Versus M/s Pearl Bottling Pvt.  Ltd. New Delhi

DCIT, New Delhi Versus M/s Pearl Bottling Pvt.  Ltd. New Delhi - TMI Issues Involved:1. Correctness of the CIT(A) order in law and on facts.2. Deletion of disallowance of increased profit after invoking section 145(2) of the I.T. Act, 1961.3. Rejection of books of accounts due to lack of documentary evidence for abrupt fall in net profit rate.4. Deletion of addition on grounds of non-following the principle of natural justice.5. Justification of including 'additional income' surrendered during search in the regular P&L account.Issue-wise Detailed Analysis:1. Correctness of the CIT(A) order in law and on facts:The appeals were filed by the Revenue against the CIT(A)'s orders, which were challenged on the grounds that the CIT(A) erred in deleting the additions made by the AO. The Tribunal examined the CIT(A)'s detailed findings and found them to be well-reasoned and supported by the evidence on record. The CIT(A) had elaborately discussed the issues, including the fall in net profit ratio and the reasons provided by the assessee for such a fall.2. Deletion of disallowance of increased profit after invoking section 145(2) of the I.T. Act, 1961:The AO had rejected the books of accounts under section 145(2) and recomputed the income based on the average net profit rate of the preceding three years. The CIT(A) found that the AO had not pointed out any specific defects in the books of accounts and that the fall in net profit ratio was due to increased costs of raw materials and financial charges. The Tribunal agreed with the CIT(A) that the mere fall in net profit ratio could not be a ground for rejecting the books of accounts and that the AO's action was not justified.3. Rejection of books of accounts due to lack of documentary evidence for abrupt fall in net profit rate:The AO had rejected the books of accounts on the basis that the assessee did not furnish documentary evidence to explain the fall in net profit rate. The CIT(A) found that the assessee had provided detailed explanations and supporting documents, which were not properly considered by the AO. The Tribunal noted that the AO had not issued any show-cause notice before rejecting the books of accounts and that the rejection was based on assumptions and conjectures without any concrete evidence.4. Deletion of addition on grounds of non-following the principle of natural justice:The AO had made additions without giving the assessee an opportunity to explain the fall in net profit ratio. The CIT(A) observed that the AO had not followed the principles of natural justice and had adopted a simplistic approach in completing the assessment. The Tribunal upheld the CIT(A)'s finding that the AO's action was in violation of the principles of natural justice and could not be sustained.5. Justification of including 'additional income' surrendered during search in the regular P&L account:The CIT(A) had accepted the assessee's explanation that the fall in net profit ratio was due to increased costs and financial charges. The Tribunal noted that the assessee group had honored their declaration of surrender of income made during the search and that the AO had not brought any adverse material on record. The Tribunal agreed with the CIT(A) that the surrendered income could be included in the regular P&L account and that the AO's action in rejecting the books of accounts was not justified.Conclusion:The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s orders. The Tribunal found that the AO had not provided any concrete evidence to justify the rejection of the books of accounts and that the CIT(A) had rightly deleted the additions made by the AO. The Tribunal emphasized the importance of following the principles of natural justice and noted that the AO's actions were based on assumptions and conjectures without proper consideration of the evidence provided by the assessee.