Reopening of assessment and income estimation for milk business validated; AO directed to compute gross profit at 5% then net profit after deductions.

Validity of reopening was upheld: the tribunal found no successful challenge to initiation under the reassessment provision and treated the notice dated 30.03.2021 as validly issued, so ground 1(i) was dismissed. On estimation of income after rejection of books, the tribunal accepted that a reasonable estimate was required for the milk business; it rejected the assessee's proposal of 0.5% net profit as too low and directed theAssessing Officer to compute gross profit at 5% of declared gross receipts and then determine net profit after allowing eligible deductions. Appeals were partly allowed on estimation grounds.

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Issues: (i) Whether initiation of reassessment proceedings under section 147/148 of the Income-tax Act, 1961 was valid; (ii) Whether the books of accounts and evidence could be rejected and income properly estimated by adopting 20% of gross receipts, or whether a different reasonable estimate should be directed.

Issue (i): Validity of initiation of proceedings under section 147/148.

Analysis: The information available to the revenue under category NMS indicating substantial cash deposits and TDS/AIR entries, coupled with the Assessing Officer's recorded reasons and prior approval by the competent authority, were examined in the context of the statutory scheme for reopening assessment.

Conclusion: The notice issued under section 148 dated 30.03.2021 was validly issued. This issue is decided against the assessee.

Issue (ii): Whether books of account and evidence could be rejected and income estimated at 20% of gross receipts or whether a different reasonable estimate should be applied.

Analysis: The materials on record, including the audited accounts placed before the appellate authority and submissions about typical gross profit rates in milk retailing, were considered to determine a fair estimate where books were held not fully verifiable. The Tribunal evaluated comparative profit-rate material and the totality of facts to fix a reasonable gross profit percentage for computation, directing the Assessing Officer to allow eligible deductions when computing net profit.

Conclusion: The Tribunal partially allowed the appeal on this issue by setting aside the 20% ad hoc estimation and directing computation of gross profit at 5% of the declared gross receipts, with the Assessing Officer to compute net profit after allowing lawful deductions. This issue is decided in favour of the assessee to that limited extent.

Final Conclusion: The reassessment initiation under section 147/148 is sustained while the quantum determination by adopting 20% of gross receipts is revised; the appeal is partly allowed and remitted for computation in accordance with the Tribunal's directions.

Ratio Decidendi: Reopening is valid where independent information gives reason to believe income has escaped assessment; where books or supporting evidence are not fully verifiable, the Tribunal may direct a reasonable estimation of income and remit computation to the Assessing Officer with specific percentage guidance and allowance for lawful deductions.

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