2018 (4) TMI 983 - AT - Income Tax

Estimation of sales and net profit - filing return u/s 44AD - non maintenance of books of accounts - Held that - Assessee filed its return of income under section 44AD and therefore, is not required to maintain any books of accounts qua his proprietary business done by M/s. Riddhi Sidhi Textiles as the total sales were less than ₹ 18,61,745/-. The assessee also filed the bank statements before the authorities below and the authorities below have failed to bring anything on record which proved that the assessee has actually made the sales of ₹ 86,71,625/- though the profit in the immediately preceding year was much higher. AO also failed to rebut the contentions of the assessee that the said stock was duly showed in the subsequent years and also the sales thereof. When no books of accounts are maintained by the assessee and return is filed under section 44AD of the Act, we are not in a position to sustain the order of Ld. CIT(A) estimating the sales which has no basis at all. Moreover, the AO has also not brought on record any evidences that assessee s income was more than 8% during the year. - Decided against revenue.

Summary

Issues:
1. Applicability of section 44AD to the assessee's case
2. Estimation of sales and net profit by the AO and CIT(A)

Issue 1: Applicability of section 44AD to the assessee's case

The assessee filed the return under section 44AD, claiming that the provisions were applicable to their case as the total sales were below a certain threshold. However, during assessment, the AO noted that the assessee had not maintained proper books of accounts. The AO estimated sales at a higher amount based on the presence of closing stock in the audited balance sheet of the preceding year. The CIT(A) partly allowed the appeal, estimating income at 10% of the sales. The Tribunal observed that the assessee's case was covered under section 44AD, and the estimation of sales by the CIT(A) lacked a reasonable basis. The Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition, ultimately allowing the assessee's appeal.

Issue 2: Estimation of sales and net profit by the AO and CIT(A)

The AO estimated sales at a significantly higher amount than declared by the assessee, based on the absence of closing stock in the tentative balance sheet for the current year. The AO also calculated net profit at a substantial figure and added it to the assessee's income. The CIT(A) upheld the sales estimation but reduced the net profit to 10% of the sales figure. The Revenue challenged the profit restriction, citing a higher profit offered by the assessee in the previous year. The Tribunal found that no evidence was presented to support the actual sales amount of the assessee, and the profit estimation lacked a rational basis. Consequently, the Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, directing the deletion of the addition made by the AO.

In conclusion, the judgment primarily focused on the applicability of section 44AD to the assessee's case and the estimation of sales and net profit by the AO and CIT(A). The Tribunal concluded that the estimation lacked a reasonable basis and directed the deletion of the addition, ultimately allowing the assessee's appeal and dismissing the Revenue's appeal.