2021 (4) TMI 502 - HC - Income Tax

High Court allows tax case appeals, overturns Tribunal decision, stresses record-keeping & cooperation during assessments.

R. Mathaiyan Versus Assistant Commissioner of Income Tax, Salem.

The High Court allowed the tax case appeals, ruling in favor of the appellant/assessee. The Tribunal's decision was overturned, and the Commissioner of ... Gross profit determination - Tribunal, applied the decision in A.Vajjiram & Bros [2008 (8) TMI 528 - MADRAS HIGH COURT] and fixed the gross profit at 8% - assessee did not cooperate in the assessment by producing certain labour registers, which was called for by the Assessing Officer and therefore, the AO, taking note of Section 44AD of the Act, which is a special provision for computing profits and gains of business on presumptive basis - assessment for A.Y. 2012-13 net profit was comutation at 3.21% of the Gross receipts - HELD THAT:- Before us, the appellant has filed a chart showing a comparison of the figures for the assessment years 2012-13 to 2019-20 and we find that the net profit ratio to turnover in percentage ranges between 2.86% and 3.42%. Further, from the assessment order for the year 2017-18, it is seen that the Assessing Officer adopted 3.16% and held the same to be reasonable and completed the assessment by order dated 21.12.2019. Thus, we find that the Tribunal committed an error in reversing the order passed by the CIT(A) and restoring the order of the Assessing Officer. The tax case appeals are allowed and the order passed by the Tribunal is set aside and the substantial questions of law are answered in favour of the appellant/assessee. Issues:Assessment based on net profit percentage, Rejection of books of accountsAssessment based on net profit percentage:The appeal under Section 260A of the Income Tax Act, 1961 challenged the order of the Income Tax Appellate Tribunal (ITAT) fixing the net profit at 8% of total receipts. The appellant questioned the Tribunal's decision, arguing that the earlier and subsequent returns filed by the assessee provided a clear picture of income. The appellant contended that despite consistent business nature and previous year's net profit calculation at 3.21%, the Tribunal erred in estimating the profit at 8%. The Tribunal justified its decision by relying on the case law Commissioner of Gift Tax Vs. A.Vajjiram & Bros., emphasizing the lack of cooperation from the assessee in providing necessary documents, leading to a best judgment assessment under Section 44AD of the Act.Rejection of books of accounts:The Tribunal upheld the rejection of the assessee's books of accounts due to non-cooperation and failure to produce essential documents like labour registers. The Commissioner of Income Tax (Appeals) considered the assessee's submissions and comparative data for previous years, fixing the gross profit at 3.5%. The Tribunal, however, reverted to the 8% estimation based on the A.Vajjiram & Bros. case law. The High Court analyzed the facts, noting the appellant's historical net profit ratios ranging from 2.86% to 3.42% and the Assessing Officer's previous reasonable estimation at 3.16%. Consequently, the High Court allowed the appeal, setting aside the Tribunal's order and restoring the CIT(A)'s decision, emphasizing the importance of maintaining accurate records and cooperation during assessments.In conclusion, the High Court allowed the tax case appeals, answering the substantial questions of law in favor of the appellant/assessee. The Tribunal's order was set aside, and the CIT(A)'s decision was reinstated, highlighting the significance of providing necessary documentation and maintaining accurate financial records during assessments.