TaxTMI 
TaxTMI 
2014 (11) TMI 289
X X X X Extracts X X X X
X X X X Extracts X X X X
....n return of the assessee for the Asstt. Year 1996-97, the authenticity of results declared by the assessee in this return is not reliable. 3. On the facts and in the circumstances' of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition made by disallowing the interest of Rs. 36,376/-. " 3. Briefly stated the fact; giving rise to this appeal are as under: "(i) Return declaring an income of Rs. 7,00,560/- was filed on 31.10.1997. Original assessment in this case was completed u/s 143(3) of the Income tax Act, 1961 on 16.03.2000 at an income of Rs. 1,49,24,236/- after making an addition of Rs. 1,42,23,676/- u/s 37 of the Income tax Act, 1961 on account of royalty debited to Trading Account. On appeal, the entire addition of Rs. 1,42,23,676/- was deleted by the Ld. Commissioner of Income Tax (Appeal), Faridabad, vide order dated 15.09.2000 for the preceding A. Yr. 1996-97. Against the order of Ld. CIT(A), the department preferred 2nd appeal before the Hon'ble ITAT, New Delhi on 17.11.2000 which was dismissed on 06.05.2005 in ITA No. 4559/Del/2000. (ii) In the meantime the assessment order dated 16.03.2000 passed by the then A.O. was cancelled by the then....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee. The AO made certain additions pertaining to income tax and penalty debited to P & L a/c, part disallowance, depreciation and interest and addition in regard to capital invested by partners. The AO finalize the assessment u/s 143(3) of the Act, in pursuance to order of ld. CIT(A), Faridabad u/s 263 of the Act at assessed income of Rs. 2,53,39,920/- as against returned income of Rs. 7,00,560/-. Aggrieved assessee preferred an appeal before ld. CIT(A) which was partly allowed by passing the impugn order, now the Revenue department is before this Tribunal in the second appeal with the grounds as mentioned hereinabove. Ground Nos. 1 & 2 5. Apropos ground nos. 1 & 2 of the Revenue, the ld. Departmental Representative (DR) submitted that the ld. CIT(A) has erred on facts and in law in restricting the addition at Rs. 10,99,631/- against the huge additions made by the AO after assuming 50% of the expenses claimed in the trading in the P & L a/c in spite of the fact that the assessee could not produce supporting bills, vouchers and other documents and details for examination and verification before the AO. 6. The ld. DR further contended that the ld. CIT(A) has erred in computi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not supported or supported by bogus vouchers. The Hon'ble Supreme Court in the case of K. Y. Pilliah and Sons (63 ITR 411), has held that once the books of account of the assessees were rejected and firm furnished no explanation at all as to why profit at the normal rate was not earned, it was open to the Income-tax Officer to estimate the gross profit at a rate at which profit was earned in similar business by other merchants. Further, it has been held by the Hon'ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd. vs. CIT (26 ITR 775) that the ITO is not entitled to make a pure guess and make an assessment without reference to any material or evidence. There must be something more than bare suspicion to support the assessment. It is also a well settled law that it is the actual real income earned which is to be taxed and the AO must ascertain actual real income of the assessee. He must not calculate the income of the assessee by forming a mathematical formula. The Hon'ble Supreme Court in the case of CIT v. Simon carves (105 ITR 205) has held that tax authorities would not be acting properly and judicially if they exercise their power in the manner most bene....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Taxman 40) has held that once net profit rate was applied on contract receipts of assessee for estimating income from contract work, no further addition was called for in respect of purchases and introduction of cash. Therefore, when the books of account are rejected and income is computed by applying the net profit rate, the same books of accounts cannot be made the basis for making disallowance of specific expenses." 10. Having heard in view of above, we are of the considered opinion that the ld. CIT(A) sustain the rejection of books of account by the AO and the ld. CIT(A) further proceeded to estimate the income of the assessee by taking G.P. rate of 11.22% of the assessee for immediately preceding year i.e. 1996-97 which was also accepted by the Department. The ld. CIT(A) rightly held that the assessee has shown gross profit of Rs. 59,98,881/- on the total sales of Rs. 6,33,79,579/- leading to G.P. rate of 9.47%. Hence, the ld. CIT(A) noticed decline in G.P. rate of 1.75% of the total sales during the year under consideration. We also in agreement with the conclusion of the ld. CIT(A) wherein the first appellate authority estimated the income of the assessee by taking G.P. rat....