2017 (4) TMI 570 - AT - Income Tax

Determining the profit of the assessee @ 8% of the gross receipts - Held that - We find that the nature of the work of the assessee has not been doubted and in the similar facts and circumstances various Hon ble courts have held that a reasonable percentage of profit can be worked out. Thus we are inclined to direct the lower authorities to work out the taxable net profit from the business @ 6.0% approx of the gross receipts. Therefore we are inclined to reverse the order of authorities below. Hence the grounds of appeal raised by the assessee are partly allowed.

Summary

Issues:
1. Excessive profit determination by Assessing Officer.
2. Rejection of books of account and estimation of profit.
3. Applicability of Section 44AD.
4. Deductions and allowances in profit estimation.

Issue 1: Excessive profit determination by Assessing Officer:
The appellant contested that the profit determination by the Assessing Officer @ 8% of gross receipts was excessive and unreasonable. The AO rejected the books of account due to lack of supporting expense details and estimated the net profit at 8% of gross receipts. The AO allowed deductions for interest, remuneration, and depreciation, resulting in taxable business income. The CIT(A) upheld the AO's decision, citing Section 44AD as a basis for profit determination. However, the appellant argued that the 8% profit estimation was excessive, referencing various court cases where lower profit rates were applied in similar circumstances. The Tribunal, considering precedents, directed the authorities to calculate the taxable net profit at around 6.0% of gross receipts, thereby partially allowing the appeal.

Issue 2: Rejection of books of account and estimation of profit:
The appellant challenged the rejection of books of account and the subsequent profit estimation by the AO. Despite providing account books and vouchers, the AO invoked Section 145(3) and estimated profit at 8% of gross receipts. The appellant argued that internal vouchers should be considered as evidence, and the profit estimation was unreasonable based on evidence submitted. The Tribunal, after reviewing similar cases, directed a lower profit rate of approximately 6.0% for calculating taxable net profit, thereby partially allowing the appeal.

Issue 3: Applicability of Section 44AD:
The CIT(A) justified the profit determination based on Section 44AD of the Income-tax Act, 1961. The appellant contested this, stating that the provision was incorrectly applied, contrary to the view of the Hon'ble Patna High Court. Despite the CIT(A)'s decision, the Tribunal, following established principles from previous court judgments, directed a lower profit rate for calculating taxable net profit, thereby partially allowing the appeal.

Issue 4: Deductions and allowances in profit estimation:
The appellant raised concerns regarding the failure to allow deductions for sales tax and other expenses made by the employer from the total contract price. Additionally, the appellant argued that the profit estimation of 8% was excessive compared to precedents where lower profit rates were applied. The Tribunal, considering various court cases and principles, directed the authorities to calculate the taxable net profit at approximately 6.0% of gross receipts, thereby partially allowing the appeal.

This detailed analysis of the judgment highlights the key issues raised, the arguments presented, and the Tribunal's decision based on legal precedents and established principles.