Gujarat HC Upholds 0.22% Profit Estimate For Steel Trader, Rejects Revenue’s 7% Rate

The assessee, a trader in iron and steel, reported a loss for Assessment Year 2012–13.

The Assessing Officer rejected its books under Section 145(3) of the Income Tax Act, 1961, and estimated net profit at 7% of turnover.

The CIT(A) partly allowed the assessee’s appeal, and the Income Tax Appellate Tribunal dismissed the Revenue’s appeal, relying on its decision for Assessment Year 2010–11 and sustaining the lower profit estimate.

The Revenue appealed under Section 260A, proposing two substantial questions of law concerning the Tribunal’s decision not to uphold the Assessing Officer’s 7% estimate.

The High Court noted that the Revenue’s appeal concerning Assessment Year 2010–11 had already been dismissed by a coordinate Bench.

1. Whether the Tribunal was justified in upholding the CIT(A)’s order rather than the Assessing Officer’s estimate of net profit at 7%

2. Whether the Tribunal was justified in directing adoption of a net-profit rate of approximately 0.22% despite rejection of the assessee’s books under Section 145(3)

Section 145(3) of the Income Tax Act permits rejection of books of account where the statutory conditions for doing so are met; rejection of the books does not, by itself, establish that a particular profit rate must be applied.

Under Section 260A, the High Court’s appellate jurisdiction is directed to substantial questions of law.

In the coordinate Bench’s decision concerning the assessee’s Assessment Year 2010–11, the Court declined to interfere with the profit estimate because the authorities’ conclusions were factual and reasoned, while the Assessing Officer had not furnished comparative figures supporting the 7% rate.

The Tribunal had relied on its decision for Assessment Year 2010–11 and found no distinguishing facts in the present year.

The High Court noted that the coordinate Bench had already dismissed the Revenue’s appeal for that year, observing that the 7% estimate lacked supporting comparative figures and that the authorities’ profit-rate assessment was based on factual material.

As the present appeal arose on the same basis and the Revenue identified no ground warranting a different result, the Court answered the proposed questions in favour of the assessee.

and dismissed the Revenue’s tax appeal.