2015 (9) TMI 1561 - AT - Income Tax

N.P. rate determination - AO applying the net profit rate @ 12% instead of 7% on the gross receipts as declared by the appellant - Held that - CIT(A) has stated that in the nature of assessee s business the number of persons employed could not be large because otherwise the assessee would have been required to file statements to various State agencies administering various labour welfare laws. No muster roll was maintained. The assessee did not furnish information regarding number of persons employed and the name of the parties from whom consumables were purchased. In our considered view the authorities below were fully justified in applying the net profit rate of 12% on gross receipts which is in consonance with the judgement in the case of CIT v M/s Prabhat Kumar (2008 (11) TMI 356 - PUNJAB & HARYANA HIGH COURT) relied on by the Assessing officer. In case of estimation if the CIT(A) has passed an order by giving cogent reasons the Tribunal in an appeal either by Revenue or assessee is required to apply its mind and consider the reasons given by CIT(A). CIT(A) has passed a well reasoned order and therefore we do not see any ground to interfere with the order of CIT(A). Considering the nature of assessee s business net profit rate of 12% on gross receipts is reasonable. Accordingly we uphold the order of CIT(A) and dismiss the appeal of the assessee.

Summary

Issues:
- Dispute over the net profit rate applied by the Assessing officer on the gross receipts declared by the assessee for assessment years 2007-08 & 2008-09.

Analysis:
1. The appeals were filed by the assessee against the orders of CIT(A), Chandigarh for assessment years 2007-08 & 2008-09. The common ground of the appeals was that the CIT wrongly upheld the addition made by the Assessing officer by applying a net profit rate of 12% instead of 7% on the gross receipts declared by the appellant.

2. The Assessing officer observed that the assessee had made significant cash deposits in various bank accounts during the relevant financial years. The ITR filed by the assessee was considered invalid due to being filed beyond the specified time limits. The assessee failed to produce necessary financial documents during the assessment proceedings.

3. The Assessing officer concluded that the assessee had declared income on an estimated basis without proper evidence to justify claimed expenses. The assessee had not maintained books of account or provided any supporting documentation. The Assessing officer justified the enhancement of the net profit rate to 12% based on available information and the nature of the business activity.

4. The CIT(A) confirmed the addition made by the Assessing officer, emphasizing the lack of proper financial records and the nature of the assessee's business. The Tribunal upheld the CIT(A)'s order, stating that the net profit rate of 12% on gross receipts was reasonable considering the fabrication work carried out by the assessee and the absence of detailed financial records.

5. The Tribunal noted that the assessee's failure to maintain accounts, lack of information on employees and purchases, and the nature of the business justified the application of a higher net profit rate. The Tribunal found the CIT(A)'s order well-reasoned and upheld the decision to apply a net profit rate of 12% on gross receipts, in line with the judgment of the Jurisdictional High Court.

6. The Tribunal dismissed the appeals, stating that the nature of the assessee's business and the lack of proper financial documentation supported the application of a 12% net profit rate. The decision was based on the principle that in cases of estimation, if the CIT(A) provides valid reasons, the Tribunal should consider and uphold those reasons, which was done in this case.