2015 (7) TMI 445 - AT - Income Tax

Assessment of income of assessee at 2.24% of gross receipts - CIT(A) admitting additional evidences in the form of details of comparable cases without providing any opportunity of rebuttal to the A.O. under Rule 46A - Held that - In the case of ITO vs Radha Ballabh Nest Build Pvt. Ltd.(2015 (6) TMI 790 - ITAT DELHI), the Tribunal, on identical set of facts and circumstances, has upheld the order of the CIT(A) and the addition made by the AO has been deleted by upholding the order of the CIT(A) which adopted rate of 2.24% of the gross receipts from M/s PACL India Ltd. for estimation of net profit in a peculiar situation when the conclusion of rejection of books of accounts by the AO has been upheld by the CIT(A). The Tribunal has also upheld the conclusion of the CIT(A) in this regard and we are unable to see any valid reason to take a different view on the similar issue. We also respectfully hold that the benefit of the ratio of the decisions relied by the revenue is not available for the revenue as the facts and circumstances of these cases are clearly distinguishable from the factual matrix of the present case. Therefore, we hold that the present case of the assessee is squarely covered in favour of the assessee by the order of the Tribunal in the case of Radha Ballabh Nest Build Pvt. Ltd. (supra). - Decided against revenue.

Summary

Issues Involved:
1. Violation of Rule 46A of the Income Tax Rules 1962.
2. Estimation of net profit at 2.24% of gross receipts.
3. Applicability of decisions related to estimation of net profit rate.

Analysis:

1. Violation of Rule 46A of the Income Tax Rules 1962:
The appeal was filed by the Revenue against the order of CIT(A)-IX, New Delhi. The Revenue contended that the CIT(A) erred in directing the Assessing Officer (AO) to adopt the income of the assessee at 2.24% of gross receipts by admitting additional evidence without providing an opportunity of rebuttal to the AO under Rule 46A. However, upon scrutiny, it was found that the assessee did not file any additional evidence during the first appellate proceedings, and the CIT(A) did not admit any additional evidence in contravention of Rule 46A. Therefore, the legal objection of the Revenue was deemed unsustainable.

2. Estimation of Net Profit at 2.24% of Gross Receipts:
The assessee company, engaged in land development work, had its books of accounts rejected by the AO, who estimated the income at Rs. 3,74,17,210, disallowing 75% of claimed land development expenses. The CIT(A) upheld the rejection of books but directed the AO to adopt the income at 2.24% of total gross receipts. The Revenue challenged this decision, arguing for a higher net profit rate based on other comparable cases. The Tribunal referred to a previous case where a net profit rate of 2.24% was upheld, dismissing the Revenue's appeal. The Tribunal found no reason to interfere with the CIT(A)'s order, as the comparable cases supported the 2.24% net profit rate determination.

3. Applicability of Decisions on Net Profit Rate Estimation:
The Revenue cited various decisions to support a higher net profit rate estimation, but the Tribunal distinguished those cases from the present one. In one case, the High Court held that a perverse and arbitrary net profit rate would be illegal, leading to a re-determination by the AO. Another case involving individual taxpayers was deemed inapplicable to a company with a turnover of Rs. 5,00 crores. The Tribunal also noted a case where a net profit rate of 8% was approved by the High Court due to lack of contrary data. However, in the present case, the Tribunal found the 2.24% net profit rate to be justifiable based on comparable cases and upheld the CIT(A)'s decision. The Tribunal concluded that the Revenue's appeal lacked merit and dismissed it accordingly.

In conclusion, the Tribunal upheld the CIT(A)'s decision to adopt a net profit rate of 2.24% of gross receipts for the assessee, based on comparable cases and deemed the Revenue's appeal devoid of merit.