2019 (6) TMI 1713 - AT - Income Tax

Rejecting the books of accounts - estimating the net profit of the assessee for both the years at 8% - assessee is a Government Contractor performing civil jobs viz. construction of roads, culverts etc. in the remote areas of North Bengal including national and international border areas - main plea of the assessee is that the net profit of 8% is very high and relied on certain decisions of the Tribunal wherein lesser net profit has been accepted by the Tribunal in the cases of Contractors - HELD THAT - CIT(A) has given notice to the assessee vide order sheet dated 15.05.2017 wherein he conveyed his desire to reject the books of accounts based on the discrepancies noted therein and his intention to estimate net profit at 8%. Pursuant to which, the assessee pleaded that the estimate of net profit should be determined at 5%. We note that the CIT(A) has estimated the income at 8% instead of 5.79% declared by the assessee (excluding material supplied by the Government) and also it was made clear by the CIT(A) that assessee will get deduction at Rs. 7,23,906/- and Rs. 53,543/- which were added by the AO though not contested by the assessee. We note that the Ld. CIT(A) has not taken into consideration any comparable cases similar to that of assessee to determine net profit at 8%. We note that from the assessee s own performance and net profit declared from A.Y. 2011-12 to 2014-15, an estimate of 6.75% on the contractual turnover of the assessee could be just, fair and reasonable and we order accordingly. Likewise for A.Y. 2014-15, we direct the estimation of the net profit at 6.75% on the contractual turnover of the assessee. Appeal of the assessee is partly allowed.

Summary

Issues: Appeal against rejection of books of accounts and estimation of net profit at 8%.

Analysis:
1. The assessee, a government contractor engaged in civil jobs, appealed against the CIT(A)'s order rejecting the books of accounts and estimating net profit at 8% for the Assessment Years 2011-12 and 2014-15. The AO had made additions under sections 69C, 40(a)(ia), and 40A(3) for unexplained expenditure and violations. The CIT(A) deleted these additions but estimated the net profit at 8%, which the assessee contested.

2. The Tribunal noted the assessee's timely filing of returns, disclosing net profits of 5.48% and 4.55% for the respective assessment years. The AO conducted a survey and made disallowances under sections 40(a)(ia) and 40A(3) along with additions under section 69C. The CIT(A) upheld the deletions but estimated net profit at 8%, which the assessee found excessive compared to previous years' profits.

3. The Tribunal analyzed the net profit percentages declared by the assessee for the years 2011-12 to 2014-15. The CIT(A) proposed an 8% net profit, while the assessee argued for 5%. The Tribunal found 6.75% to be a just, fair, and reasonable estimate based on the assessee's historical performance, ordering the net profit to be calculated at 6.75% for both assessment years.

4. The Tribunal observed that the CIT(A) did not consider comparable cases in determining the 8% net profit estimate. By analyzing the assessee's past performance, the Tribunal found 6.75% to be a more appropriate figure, considering the nature of the contractor's business and the turnover. Consequently, the appeal was partly allowed, and the net profit was directed to be estimated at 6.75% for both assessment years.

5. In conclusion, the Tribunal's decision balanced the CIT(A)'s estimation with the assessee's historical profits, providing a fair and reasonable outcome. The Tribunal's detailed analysis of the net profit percentages and consideration of the nature of the business led to a more accurate estimation, ensuring justice for the appellant.