2018 (2) TMI 1824 - AT - Income Tax

N.P. rate determination - Held that - The assessee is also engaged in civil construction business however the AO has not considered that the assessee is operating in remote areas of Srinagar where the profit margins are very low due to hard weather conditions and intermittent stoppage of work due to one or other reasons leading to the higher cost of input and labour. AO was under obligation to apply the comparative cases of the similar other assessee s in similar business on the similar location therefore CIT(A) has considered the case of M/s Shivam Constructions Engineers Srinagar (2012 (5) TMI 762 - ITAT AMRITSAR) in which the net profit rate was directed to be applied @7% subjected to no further allowances. Therefore in our considered opinion CIT(A) is right in granting relief to the assessee. Addition on account of suppression of receipts by the assessee - Held that - CIT(A) rightly held that no separate addition is called for as the net profit rate @ 7% has already been taken into consideration undisclosed receipt for the purpose of computing the total income hence for ground Nos.2 & 3 also stand dismissed. The order passed by the Ld. CIT(A) is based on the logical reasoning and does not suffer from any illegality perversity and impropriety therefore does not require to be any interference. - decided against revenue

Summary

Issues:
1. Estimation of income and rate of profit by the Assessing Officer
2. Deletion of addition made by Assessing Officer on account of suppression of receipts
3. Failure to appreciate suppression of receipts as an infraction of law

Estimation of income and rate of profit by the Assessing Officer:
The Revenue Department appealed against an order passed by the Ld. CIT(A), challenging the acceptance of the estimation of income and the disturbance in the rate of profit estimated by the Assessing Officer. The Assessing Officer had found that the assessee, a contractor, suppressed receipts by an amount not explained by the assessee due to the destruction of books of account in floods. The Assessing Officer relied on a judicial precedent to estimate income at 8% of gross receipts. However, the Ld. CIT(A) applied a net profit rate of 7% without further allowances, considering the assessee's engagement in civil construction in remote areas with low profit margins. The Tribunal upheld the Ld. CIT(A)'s decision, dismissing the Revenue Department's appeal.

Deletion of addition on account of suppression of receipts:
The Assessing Officer had made an addition on account of suppression of receipts by the assessee, which the Ld. CIT(A) deleted. The Tribunal supported the Ld. CIT(A)'s decision, stating that the net profit rate of 7% had already considered the undisclosed receipts for computing the total income. Therefore, the Tribunal dismissed the Revenue Department's grounds related to this issue.

Failure to appreciate suppression of receipts as an infraction of law:
The Revenue Department contended that suppression of receipts is an infraction of the law that should not be clubbed with other issues. However, the Tribunal found that the Ld. CIT(A)'s decision, based on logical reasoning, did not suffer from any illegality, perversity, or impropriety. Consequently, the Tribunal dismissed the Revenue Department's appeal, upholding the Ld. CIT(A)'s order.

In conclusion, the Tribunal upheld the Ld. CIT(A)'s order, emphasizing the application of a 7% net profit rate and considering the unique circumstances of the assessee's business operations in remote areas. The Tribunal found no reason to interfere with the Ld. CIT(A)'s decision, leading to the dismissal of the Revenue Department's appeal.