2020 (2) TMI 1673 - AT - Income Tax

Estimation of income - Undisclosed sale - assessing income @60% of the profit rate - HELD THAT - We notice that this assessee is a cloth merchant and proprietor of M/s Geeta Tex Fabrics. Case file suggests that the learned lower authorities have assessed her income derived from cloth trading @0.75% profit rate. That being the case, we are of the opinion that the CIT(A) s impugned action assessing 60% profit rate is neither based on the assessee s corresponding books of accounts nor that adopted in preceding and succeeding assessment years. We therefore conclude that a lumpsum profit rate @7.5% of the rates in issue, already double than that accepted @0.75%, would be just and proper keeping in mind the peculiar facts and circumstances involved herein. Necessary computation to follow as per law. It is made clear that our instant estimation shall not be treated as a precedent in other assessment year(s). Assessee s appeal is partly allowed.

Summary

Issues:
1. Addition of profit element in un-reconciled sale amount.
2. Determination of income based on profit rate.
3. Correct computation of assessed income.

Analysis:

Issue 1: Addition of profit element in un-reconciled sale amount
The appellant contested the addition of Rs. 13,38,314 on account of profit embedded in un-reconciled sales amounting to Rs. 22,30,523. The appellant argued that only the profit element in the alleged sale should be taxed, not 60% of the unreconciled sales. The CIT(A) upheld the addition, considering the lack of clarity regarding corresponding expenses or purchases. The Tribunal found the CIT(A)'s action excessive, noting that the appellant's income from cloth trading was previously assessed at 0.75% profit rate. The Tribunal concluded that a lumpsum profit rate of 7.5% would be appropriate, double the previous rate, to address the unique circumstances. The decision was not to set a precedent for future assessments.

Issue 2: Determination of income based on profit rate
The primary focus was on the estimation of profit rate, with the Tribunal emphasizing the need for a fair and just assessment based on the appellant's trading history. The Tribunal highlighted the inconsistency in applying a 60% profit rate when the appellant's historical profit rate was significantly lower. By adjusting the profit rate to 7.5%, the Tribunal aimed to strike a balance between the appellant's actual trading practices and the tax liability.

Issue 3: Correct computation of assessed income
The appellant raised concerns about the computation of assessed income, arguing for a correction from Rs. 390,646 to Rs. 1,40,646. While the Tribunal did not address this specific discrepancy in detail, it focused on the overarching issue of profit rate determination. The partial allowance of the appeal reflected the Tribunal's acknowledgment of the need for a more reasonable and consistent approach in assessing the appellant's income.

In conclusion, the Tribunal's decision centered on rectifying the excessive profit rate applied to the appellant's income assessment. By adjusting the profit rate to 7.5%, the Tribunal aimed to provide a fair resolution based on the appellant's trading history and the specific circumstances of the case.