2015 (9) TMI 1616 - AT - Income Tax

Revision u/s 263 - estimating the profit at 2.5% of the total turnover - business of sale of IMFL - Held that - AO has called for books of account of the assessee but the assessee had failed to produce the same. - AO had estimated the income of the assessee at 2.5% of the turnover. CIT wants the same to be estimated at 5% of the total turnover because the Tribunal in the case of an assessee carrying on the same business of sale of IMFL has estimated the income at 5% of the turnover. This, in our view, is not justified as held by the Coordinate Bench of this Tribunal. The uniform net profit cannot be adopted in each and every case of similar business. Estimation of net profit must be on the basis of facts involved in each and every case. Therefore, in our view, there is no error committed by the AO in estimating the profit at 2.5% of the total turnover. Status of the assessee being AOP or a firm - Held that - Assessee fairly admitted that the same has not been verified by the AO during the assessment proceedings. Therefore, according to him, the assessment order is erroneous to that extent. As rightly pointed out by the CIT, the AOP attracts the maximum marginal rate of tax and therefore, non verification of the same also makes the assessment order erroneous as well as prejudicial to the interests of the Revenue. In view of the same, we reject the ground of appeal No.4.

Summary

Issues:
1. Estimation of income at 2.5% of turnover by AO vs. CIT's directive to estimate at 5%.
2. Discrepancy in the status of the assessee as AOP or a firm.

Analysis:
1. The appeal involved the dispute over the estimation of income for the assessment year 2010-11. The assessee, engaged in the sale of Indian Made Foreign Liquor, filed its return but failed to produce books of account during the assessment proceedings. The AO estimated income at 2.5% of turnover due to non-compliance. However, the CIT, upon review, found the estimation erroneous compared to a similar case where 5% was applied. The CIT issued a notice under section 263, directing a re-assessment at 5% of turnover. The Tribunal held that the AO's estimation was valid, emphasizing that a uniform profit rate cannot be applied universally. The Tribunal allowed the appeal on this ground.

2. Another issue was the discrepancy in the assessee's status as a registered firm in the return of income but claimed as an AOP in the Audit report. The CIT highlighted this inconsistency and directed the AO to re-examine and determine the correct status. The Tribunal acknowledged the error in verifying the status during assessment, noting that AOP status attracts a higher tax rate. Consequently, the Tribunal rejected the appeal on this ground, affirming the need for proper verification. The appeal was partly allowed, maintaining the AO's income estimation but emphasizing the importance of verifying the assessee's status for accurate assessment.