Method of accounting of the income tax act, 1961
Method of accounting – Estimation of profit -Net profit rate-Section 145 of the Income-tax Act, 1961
AO couldn’t disallow direct exp. without rejecting books if assessee had shown profit higher than earlier year. Where profit rate as declared was better than rate accepted in last year, amount of profit disclosed deserved to be accepted.-HIGH COURT OF PUNJAB & HARYANA –CIT v. Smt. Kailash Grover
Section 145 of the Income-tax Act, 1961 – Method of accounting – Estimation of profit -Net profit rate
The assessee was engaged in business of displaying of hoardings and wall painting. It declared gross receipt of Rs. 1.12 crore. Towards the said receipt, the assessee claimed expenses of Rs. 60.36 lakh on account of hoarding and flex structure and Rs. 21.64 lakh on account of painting. Thus the assessee showed a gross profit rate of 26.96 per cent.
The Assessing Officer, however, allowed an amount of Rs. 21.98 lakh by treating as genuine expenses and thus, assessed net income at Rs. 67.91 lakh giving net profit rate of 60.49 per cent.
The Tribunal taking a view that disallowance of 73.18 per cent out of total expenses was utterly unjust, set aside order passed by the Assessing Officer.
On revenue’s appeal, it was held by High Court:
It would not be out of place to mention here that the assessee had declared net profit in the previous assessment year i.e. 2006-07 against the gross receipt of Rs. 84,88,534 being direct expenses incurred on hoardings and painting were accepted by the revenue as the net profit in that assessment year was 3.56 per cent only. Whereas for the relevant assessment year 2007-08 the net profit rate was shown at 5.23 per cent which was better than the rate accepted in the last year and, thus, the disallowance made by the Assessing Officer was not justified. The Tribunal has also agreed with the contention of the assessee that its claim of having incurred expenses towards hoarding, flex structure and paints were a necessary part of business being direct expenses.
It is also a matter of record that the account books submitted by the assessee were not rejected by the Assessing Officer.
In view of above, the discretion exercised by the Tribunal is based on relevant consideration and does not suffer from any legal infirmity warranting interference by the Court.
In the result, revenue’s appeal is dismissed.
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