Tabassum Vs ACIT (ITAT Lucknow)
ITAT: Profit Cannot Be Estimated Arbitrarily Merely Because Books Were Not Produced
The Lucknow ITAT set aside an addition of ₹2.25 crore made by estimating the assessee’s profit at 6% of turnover in a buffalo trading business. The assessee had declared a net profit of only 0.36%, and the Assessing Officer rejected the books of account under section 145(3) because the books could not be produced during assessment proceedings. He thereafter estimated profit at 6% of turnover and made a huge addition.
The Tribunal observed that while the Assessing Officer may have been justified in rejecting the books for non-production, rejection of books and estimation of profit are two separate exercises. Even after rejecting the books, the Assessing Officer was required to consider the assessee’s past results, comparable cases and prevailing profit margins in the same line of business before estimating income. Estimating profit without any such basis resulted in an addition having no nexus with the actual profits realizable in the trade.
The Tribunal also noted that the assessee had subsequently recovered her accounting data and was willing to produce the complete books of account, GST records, bank statements and other supporting material. It held that the CIT(A) ought to have adopted a more liberal approach and examined these records instead of mechanically confirming the addition. Accordingly, the matter was restored to the Assessing Officer for fresh examination, with directions to consider the books and evidence produced by the assessee and then decide the issue in accordance with law. The appeal was allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT LUCKNOW
