2019 (9) TMI 1075 - AT - Income Tax

Tribunal overturns profit estimation, finds rejection of books unjustified.

Shri Rudrapratap R Tripathi Versus ACIT, Circle-3, Thane

Shri Rudrapratap R Tripathi Versus ACIT, Circle-3, Thane - TMI Issues:- Justification of upholding the rejection of books of accounts and confirming the addition of net profit at 9% of total turnover on an estimated basis.Detailed Analysis:Issue 1: Justification of upholding the rejection of books of accounts and confirming the addition of net profit at 9% of total turnover on an estimated basis:The appeal in ITA No.3896/Mum/2017 for A.Y.2012-13 arose from the order of the ld. Commissioner of Income Tax (Appeals)-1, Aurangabad, against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 by the ld. Asst. Commissioner of Income Tax, Circle-3, Thane. The primary issue was whether the rejection of the books of accounts by the ld. CIT(A) and the addition of net profit at 9% of total turnover was justified. The assessee, engaged in land development and contracting, declared gross profit and net profit of &8377; 8,67,85,966/- and &8377; 6,33,25,718/- respectively on a total turnover of &8377; 41,66,23,189/-. The ld. AO rejected the books of accounts based on a survey operation that revealed undisclosed turnover of &8377; 5,62,00,000/-, leading to an estimated net profit of 9% on total receipts. The ld. CIT(A) upheld this action, resulting in an addition of &8377; 2,60,19,675/- towards net profit estimation.The Tribunal found that the ld. AO's rejection of books was unfounded as the declared profit had not actually declined. The undisclosed turnover was properly included in the total turnover for taxation, contradicting the ld. AO's conclusion of a drastic profit decline. The Tribunal noted that both gross profit and net profit had increased during the year, rendering the rejection of books unjustified. The assessee's consolidated financial statements provided a clear picture of business activities, and the direct income and maintenance income were rightly included in the total turnover. The Tribunal held that the ld. CIT(A)'s partial rejection of books and estimation of net profit at 9% were erroneous. Consequently, the addition of &8377; 2,60,19,675/- was directed to be deleted, and the book results of the assessee were accepted.In conclusion, the Tribunal allowed the appeal, emphasizing that the rejection of books and estimation of net profit were unwarranted based on the financial evidence presented and the lack of actual profit decline. The Tribunal directed the deletion of the additional net profit estimation and upheld the assessee's book results for the year in question.