2019 (12) TMI 1475 - AT - Income Tax

Tribunal dismisses cross objection, upholds revenue appeal based on past GP rates and specific circumstances.

The ACIT, Circle – 1, Kota. Versus M/s. Shiv Edibles Limited.

The ACIT, Circle – 1, Kota. Versus M/s. Shiv Edibles Limited. - TMI Issues Involved:1. Maintainability of the cross objection filed by the assessee.2. Deletion of addition by the CIT (A) after rejecting the books of accounts under section 145(3).Issue-wise Detailed Analysis:1. Maintainability of the Cross Objection Filed by the Assessee:The first issue addressed is the delay of 144 days in filing the cross objection by the assessee. The assessee's representative argued that the delay was due to the Director's lack of awareness of the right to file a cross objection, believing no further action was required after succeeding in the first appeal. The representative cited the Supreme Court's decision in Collector Land Acquisition vs. Mst. Katiji & Others, 167 ITR 471 (SC), arguing that the delay was neither intentional nor willful and should be condoned.Conversely, the revenue's representative contended that the cross objection was an after-thought since the assessee was satisfied with the CIT (A)'s order. The Tribunal noted that the assessee filed the Power of Attorney and cross objection only after being proceeded ex parte. Despite multiple adjournments, the assessee did not take steps to set aside the ex parte order dated 4th November 2019. Consequently, the Tribunal was not convinced by the explanation for the delay and dismissed the cross objection as not maintainable and barred by limitation.2. Deletion of Addition by the CIT (A) After Rejecting the Books of Accounts under Section 145(3):The revenue challenged the CIT (A)'s decision to delete the addition of Rs. 1,88,80,279/- out of the total addition of Rs. 2,88,55,077/- made by the AO after rejecting the books of accounts under section 145(3). The AO had rejected the books due to the absence of a quality-wise stock register and unverifiable expenses. The AO estimated the income by applying an average GP rate of 3.03%, resulting in an addition of Rs. 2,28,55,077/-.The CIT (A) upheld the rejection of the books but did not accept the AO's GP rate estimation. Instead, the CIT (A) applied a GP rate of 2.65% (an addition of Rs. 39,74,797/-) based on discrepancies in the accounts, not on the overall GP rate decline. The revenue argued that the AO's estimation was reasonable, considering past GP rates, and the CIT (A) failed to justify the reasonableness of the declared GP.The Tribunal noted that the CIT (A) had not considered specific exceptional circumstances affecting the business results of the assessee. The Tribunal emphasized that the best judgment assessment should be based on past GP rates, which were significantly higher than the current year's GP. The Tribunal concluded that the CIT (A)'s general speculations were insufficient to justify the lower GP rate. Consequently, the Tribunal restored the AO's order, setting aside the CIT (A)'s decision.Conclusion:The Tribunal dismissed the cross objection filed by the assessee due to delay and lack of maintainability. It allowed the revenue's appeal, restoring the AO's order and rejecting the CIT (A)'s deletion of the addition. The decision emphasized the importance of past GP rates and specific circumstances in estimating income after rejecting books of accounts under section 145(3).