2016 (7) TMI 954 - AT - Income Tax

Estimation of income - Held that - As regards the estimation made by the Assessing Officer at the rate of 6% on the turnover, no basis of whatsoever kind has been provided by the Assessing Officer and the same is made on the basis of surmises and conjectures and cannot be upheld. Accordingly, Revenue s appeal is dismissed. Out of the average gross profit of 16.94%, if the gross profit declared by the assessee at 16.50% is reduced, the difference comes to 0.44% which has been directed by the Ld. CIT(A) to adopt on the total turnover. While estimating the income, the Ld. CIT(A) has committed an error that cost of material amounting to ₹ 24,39,40,964 and the cost of shuttering materials at ₹ 5,05,85,544/-, Kerala VAT at ₹ 1,12,17,821/-, Goa VAT at ₹ 3,95,726/- and other expenses where no profit element has been involved, were not excluded which totals to ₹ 31,07,29,889/-. Therefore, the said amount of ₹ 31,07,29,889/- included in the turnover, has to be essentially excluded while estimating the income and accordingly, the Assessing Officer is directed to apply the gross profit rate of 0.44% after excluding the said turnover of ₹ 31,07,29,889/- at ₹ 59,45,76,475/-. It is ordered accordingly. Thus, assessee gets the part relief and appeal of the assessee is partly allowed.

Summary

Issues:
1. Dispute over addition to income by Deputy Commissioner of Income Tax
2. Disagreement on estimation method for gross profit
3. Appeal against CIT(A)'s order by both Assessee and Revenue

Analysis:
1. The dispute in this case revolves around the addition of ?1,75,00,000 made by the Deputy Commissioner of Income Tax to the returned income for the assessment year 2010-11, which was later reduced to ?39,83,347 by the Commissioner of Income Tax (Appeals). The Assessee contested this addition, seeking its cancellation.

2. The Assessee and Revenue disagreed on the estimation method for the gross profit. The Commissioner of Income Tax (Appeals) based the estimation on the average percentage gross profit for the assessment years 2009-10, 2010-11, and 2011-12, which was 16.94%. The Assessee argued that certain expenses without a profit element, totaling ?31,07,29,889, should be excluded from the turnover while calculating income. The Tribunal found the Assessing Officer's estimation of 6% on turnover to lack basis and upheld the Commissioner's estimation of 0.44% on the gross turnover after excluding the specified expenses.

3. The Tribunal dismissed the Revenue's appeal, noting the lack of basis for the Assessing Officer's estimation. It partially allowed the Assessee's appeal by directing the exclusion of specified expenses from turnover and applying a gross profit rate of 0.44% on the adjusted turnover of ?59,45,76,475. The final decision partially favored the Assessee, leading to the partial allowance of the Assessee's appeal and the dismissal of the Revenue's appeal.