2021 (11) TMI 262 - AT - Income Tax

Tribunal revises profit, remands for fresh hearing, upholds penalty deletion

The Tribunal partially allowed the assessee's appeal for AY 2013-14 by directing a revised gross profit estimation, reducing the addition. For AY 2014-15, ... Rejection of books of accounts u/s.145 - Addition on account of low gross profit - HELD THAT:- There is no doubt that assessee Gross Profit was estimated @10.31% in A.Y. 2010-11 to 2012-13. For the year under consideration, the assessee has declared Gross Profit @8.38%. The assessee claimed that in the immediately preceding year the Gross Profit percentage was Nil and the profit of assessee increase substantially and it should be accepted as it is - Gross Profit of the assessee has been consistently adjudged being estimated @10.31% in preceding years. There cannot be any consistent Gross Profit for several years. And on perusal of comparative chart of gross profit, we find that business of assessee in terms of turnover has increased from ₹ 14.64 crore in A.Y. 2012-13 to ₹ 19.87 crore in the year under consideration. The assessee claimed that incidental cost and cost of raw material is increased. We find that the assessee raised the similar plea before the AO - AO has not countered such fact. Considering the fact and circumstances of the case that turnover of the assessee is increased, the estimation of 10% Gross Profit will meet the possibility of Revenue leakage and would meet the end of justice, therefore, we direct the AO to estimate the Gross Profit @10%. Penalty u/s 271(1)(c) - HELD THAT:- There is no dispute that AO while passing the assessment order under section 143(3) on 16.02.2015, made addition by rejecting books of accounts and thereby made addition on estimation basis by estimating Gross Profit @10.31%. The AO levied penalty on the said estimated additions. We find that similar penalty were levied in earlier years i.e. 2009-10, 2010-11 and 2011-12. The same was deleted by the ld.CIT(A) and on further appeal before the Tribunal, the order of ld.CIT(A) was upheld. - Decided against revenue. Issues Involved:1. Rejection of books of accounts under Section 145 of the Income Tax Act.2. Addition on account of low gross profit.3. Ex-parte order by CIT(A) without proper opportunity to the assessee.4. Deletion of penalty under Section 271(1)(c) of the Income Tax Act.Detailed Analysis:1. Rejection of Books of Accounts under Section 145:The assessee, engaged in the business of dyeing and printing, filed its return for AY 2013-14 declaring Nil income after setting off business losses. The Assessing Officer (AO) noted discrepancies in the gross profit percentage compared to previous years and issued a show cause notice. The AO rejected the books of accounts due to the lack of day-to-day stock maintenance and inconsistencies in purchase vouchers. The AO estimated the gross profit at 10.31%, leading to an addition of Rs. 38,40,763/-. The CIT(A) upheld this decision. The Tribunal, however, noted that the AO did not counter the assessee's claims of increased turnover and raw material costs. Consequently, the Tribunal directed the AO to estimate the gross profit at 10%, reducing the addition.2. Addition on Account of Low Gross Profit:The AO's addition was based on the historical gross profit rate of 10.31%, despite the assessee showing a gross profit of 8.38% for the year under consideration. The Tribunal acknowledged the increase in turnover and incidental costs, directing a revised gross profit estimation at 10%, which partially allowed the assessee's appeal for AY 2013-14.3. Ex-parte Order by CIT(A) without Proper Opportunity:For AY 2014-15, the assessee appealed against the ex-parte order passed by the CIT(A), claiming a lack of adequate opportunity to present the case. The Tribunal found that the CIT(A) did not comply with Section 250(6) of the Income Tax Act, which mandates a detailed order addressing each ground of appeal. The Tribunal restored the appeal to the CIT(A) for a fresh decision on merits, directing the assessee to cooperate and provide necessary evidence without undue delay.4. Deletion of Penalty under Section 271(1)(c):For AY 2012-13, the AO imposed a penalty of Rs. 51,32,856/- under Section 271(1)(c) for furnishing inaccurate particulars of income, based on an estimated gross profit addition. The CIT(A) deleted the penalty, referencing similar deletions in earlier years (2009-10, 2010-11, 2011-12) upheld by the Tribunal. The Tribunal reiterated the legal position that no penalty is leviable on estimated additions, thus dismissing the Revenue's appeal.Conclusion:The Tribunal's consolidated order resulted in:- Partly allowing the assessee's appeal for AY 2013-14 by directing a revised gross profit estimation.- Allowing the assessee's appeal for AY 2014-15 for statistical purposes, remanding the case back to the CIT(A) for a fresh hearing.- Dismissing the Revenue's appeal for AY 2012-13, upholding the deletion of the penalty.Order Announced:The order was announced on 01, Nov, 2021, during a virtual court hearing.