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Appeal to High court - Estimate of income
October, 06th 2007

CIT vs Aero Leather (P) Ltd.
Citation 163 Taxman 601
  199 Taxation 244 
Appeal to High court - Estimate of income
The assessee was mainly engaged in manufacturing and exporting shoes to USSR. On disintegration of USSR it sold shoes below cost price since shoes meant for USSR had no market in India. The CIT(A) estimated the income applying net profit rate of 4.73%. The Tribunal accepted assessees plea that it had suffered loss and so determined the income at nil. No substantial question of law arose.

High Court of Delhi

CIT vs Aero Leather (P) Ltd.

ITA No. 836 of 2005

Madan B. Lokur and V.B. Gupta, JJ

9 January 2007

P.L. Bansal with Vishnu Sharma, Advs. for the Appellant
V.P. Gupta with Basant Kumar, Advs. for the Respondent


The Revenue is aggrieved by an order dated 8th February, 2005 passed by the Income-tax Appellate Tribunal, Delhi Bench 'A' in ITA Nos. 2603/ DEL/04, 2643/DEL/04, 2644/DEL/04, 2645/DEL/04 and 2642/DEL/ 04 relevant for the assessment years 1994-95 to 1998-99.

It appears that the Assessee was engaged in the business of manufacture and sate of shoes and shoe uppers. Its predominant activity was export of these items to the USSR. After disintegration of the USSR, the Assessee claims that its business came to a standstill and, therefore, it did not file any return of income.

The Department then issued a notice to the Assessee under Section 148 of the Income-tax Act, 1961 (hereinafter referred to as the Act) pursuant to which the Assessee filed its return showing nil income. The return, was not accompanied by an audited balance sheet or profit and loss account but audited accounts were later filed by the Assessee.

The records show that the accounts book of the Assessee were seized by the police authorities on 25th March, 2000 but the process of auditing had begun much earlier and that is how the Assessee was able to file the audited accounts, which could not, however, be verified.

The Assessing Officer rejected the audited accounts because of certain discrepancies noted by him and assessed the income of the Assessee at Rs. 16 lakhs on the basis of the discrepancies and adjustments made by the Assessee under the Voluntary Disclosure of Income Scheme.

Feeling aggrieved, the Assessee filed an appeal before the Commissioner of Income-tax (Appeals). By an order dated 31st March, 2004, the Commissioner came to the conclusion that since some sales were made by the Assessee, its profit rate would come to 4.73% on the export sales and local sales as well as other income earned by the Assessee.

The Commissioner noted the contention of the Assessee to the effect that though it had made sales but they were below the cost price because the shoes manufactured by it were made for the USSR market and the shoes would not be saleable in the Indian market without substantial changes. The Commissioner tacitly accepted this contention and arrived at the net profit rate of 4.73% on the basis of exports made by a sister concern of the Assessee, M/s. Aero Traders Pvt. Ltd.

Feeling aggrieved with the assessment of the net profit rate made by the Commissioner, the Assessee filed an appeal before the Tribunal and the Tribunal allowed the appeal directing the Assessing Officer to determine the income of the Assessee at nil. It is against this order passed by the learned Tribunal that the Revenue has filed the present appeal under Section 260A of the Act.

The learned Tribunal has noted that it was common ground between both the parties that the income of the Assessee was liable to be determined on an estimate basis. The fact that the USSR had disintegrated and the fact that the predominant business of the Assessee was to export shoes and shoe uppers to the USSR was not in doubt. The Commissioner proceeded on the tacit basis that the Assessee made losses because of the disintegration of the USSR and this was accepted by the Revenue because it did not challenge the basis on which the Commissioner proceeded in his order.

This being so, the learned Tribunal noted that if the sales made by the Assessee were at below cost price, there is no question of estimating a net profit. We are unable to find any fault in this reasoning adopted by the learned Tribunal and are of the opinion that the impugned order does not ITA 836/2005 Page 4 of 5 raise any question of law much less any substantial question of law that would warrant our consideration.

Under the circumstances, we find no merit in this appeal and it is dismissed.

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