Categories: Direct TaxIncome Tax

Method of accounting of the income tax act, 1961

 

www.carajput.com; Income Tax

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

FACTS

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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact:   singh@carajput.com or call at 9555555480

Rajput Jain & Associates

Rajput Jain & Associates is a Chartered Accountants firm, with it's headquarter situated at New Delhi (the capital of India). The firm has been set up by a group of young, enthusiastic, highly skilled and motivated professionals who have taken experience from top consulting firms and are extensively experienced in their chosen fields has providing a wide array of Accounting, Auditing, Taxation, Assurance and Business advisory services to various clients and their stakeholders. Rajput jain & Associates, a professional firm, offers its clients a full range of services, To serve better and to bring bucket of services under one roof, the firm has merged with it various Chartered Accountancy firms pioneer in diversified fields. We have associates all over India in big cities. All our offices are well equipped with latest technological support with updated reference materials. We have a large team of professionals other than our Core Team members to meet the requirements of our prospective clients including the existing ones. However, considering our commitment towards high quality services to our clients, our team keeps on growing with more and more associates having strong professional background with good exposure in the related areas of responsibility.

Recent Posts

Major Relief : No Notices Below INR 10,000 & Halt on Arrests

Major Relief for Taxpayers: No Notices Below INR 10,000 & Halt on Arrests GST Relief Measures: Major Relief for Taxpayers… Read More

2 hours ago

E-Invoicing Introduced for RCM Self-Invoices

New GST Advisory 2026: E-Invoicing Introduced for RCM Self-Invoices The GST Network, based on the recommendations of the GST Council… Read More

1 week ago

Four Key IBBI Circulars Every Insolvency Professional Must Know

One Deadline Relaxed, Another Tightened: Four Key IBBI Circulars Every Insolvency Professional Must Know The Insolvency and Bankruptcy Board of… Read More

2 weeks ago

Direct Tax Collections FY 2026-27 (as on 14.10.2026) –Analysis

Direct Tax Collections FY 2026-27 (as on 14.10.2026) – Detailed Analysis The data compares Direct Tax collections up to 14… Read More

2 weeks ago

Commercial Courts Act: Transforming Commercial Litigation in India

Key Provisions, Jurisdiction, Mediation under Commercial Courts Act 2015 Introduction The Commercial Courts Act, 2015 marked a significant reform in… Read More

3 weeks ago

GST Council Proposes Major Measures to Simplify Compliance

GST Council Proposes Major Measures to Simplify Compliance The GST Council has recommended a series of reforms aimed at reducing… Read More

3 weeks ago
Call Us Enquire Now