2018 (2) TMI 1362 - AT - Income Tax

Estimation of income - profit @ 8% as done by CIT-A OR made by the Ld. AO at 40% - Held that - Assessee has stated that the contract activity was carried out for the first time during the year under appeal and hence, no past history of the same was available with the Income Tax Department. In these circumstances, the only recourse available to the revenue is to take shelter from the provision of Section 44AD of the Act which enables the revenue to bring to tax at 8% of gross receipts on presumptive basis as the net profit of the assessee. This is provided in section 44AD of the Act which has been rightly relied upon by the Ld. CIT(A) even though no specific reference was made to this section by the Ld. CIT(A) in his order. We hold that the addition made by the ld. AO at 40% of gross receipts is unachievable and cannot be sustained - Decided against revenue Estimating the net profit at 1.25% of disputed purchases - Held that - the assessee had made total sales of ₹ 24.87 crores which has been credited in the profit and loss account. The entire sales of ₹ 24.87 crores has been accepted by the Revenue . We are inclined to accept the stand taken by the Ld. CIT(A) that only profit percentage should be brought to tax in the subject mentioned transaction. Thus the estimation of net profit at 1.25% of the disputed purchases by the Ld. CIT(A) does not call for any inference. Accordingly, grounds raised by the revenue are dismissed.

Summary

Issues:
1. Estimation of profit on undisclosed contractual receipts.
2. Estimation of net profit on disputed purchases.

Estimation of profit on undisclosed contractual receipts:
The appeal by the Revenue challenges the estimation of profit at 8% of undisclosed contractual receipts by the Ld. CIT(A), instead of the 40% estimated by the Ld. AO. The Ld. CIT(A) relied on Section 44AD of the Income Tax Act, 1961, even though not explicitly mentioned in the order, due to lack of past history of such receipts. The Revenue contended that profit should be estimated on total gross receipts, not just the service rendered. The Tribunal held that the Ld. CIT(A) rightly estimated profit at 8% of gross receipts, dismissing the Revenue's appeal.

Estimation of net profit on disputed purchases:
The dispute involved the estimation of net profit at 1.25% of disputed purchases amounting to a significant sum. The Ld. AO treated the purchases as bogus based on a statement by the supplier, which the assessee contested with supporting documents. The Ld. CIT(A) upheld the estimation of net profit at 1.25% of the disputed purchases, considering the nature of the business and the lack of evidence to deem the entire purchase as bogus. The Tribunal found the Ld. CIT(A)'s decision reasonable, citing previous judicial precedents and upheld the estimation, dismissing the Revenue's grounds of appeal.

In conclusion, the Tribunal upheld the decisions of the Ld. CIT(A) in both issues, regarding the estimation of profit on undisclosed contractual receipts and net profit on disputed purchases, dismissing the Revenue's appeal in its entirety.