2018 (8) TMI 972 - AT - Income Tax

Estimation of Income - Low Gross Profit (GP) rate - assessee expressed inability to furnish all supporting bills for purchase of materials and complete address and details of sundry creditors and also assessee failed to furnish supporting bills and vouchers in respect of transportation charges and wages. - Held that - rate of net profit at 5. 35%, 5. 16% and 5. 15% has been accepted by the department in the case of the assessee itself for the preceding assessment years 2007-08, 2008-09 and 2009-2010. In the assessment year under consideration, the assessee has shown net profit rate at 5. 07%. - there is force in the arguments of ld A. R. of the assessee that net profit for the year under consideration should be estimated at 6% of the gross turnover. We modify the order accordingly. Thus, the grounds of appeal taken by the assessee are partly allowed.

Summary

Issues:
Estimation of income at 8% per annum by Assessing Officer confirmed by CIT(A) - Grievance of the assessee regarding the estimation of income.

Analysis:

1. The appeal was filed by the assessee against the order of the CIT(A)-1, Bhubaneswar for the assessment year 2010-2011, challenging the estimation of income at 8% per annum by the Assessing Officer. The Assessing Officer rejected the books of account maintained by the assessee under section 145(3) of the Act and estimated the income at 8% of the total turnover, resulting in a higher figure compared to the net profit shown by the assessee at 5.07%.

2. The CIT(A) upheld the Assessing Officer's decision based on the low net profit shown by the assessee. However, the assessee argued that in previous assessment years, the net profit percentages were higher than the estimated 8% for the current year. The assessee contended that the estimation of income at 8% was excessive, and a net profit rate of 6% should be applied based on past results.

3. The Tribunal noted that both the Assessing Officer and the CIT(A) did not provide a basis for applying the 8% rate for estimating income. Citing legal precedents, the Tribunal emphasized that a best judgment assessment should not be arbitrary or vindictive, but based on a fair and reasonable estimate. The Tribunal referred to a previous case where a net profit rate of 4% was deemed appropriate after rejecting the books of account.

4. Considering the past accepted net profit rates of 5.35%, 5.16%, and 5.15% for the preceding assessment years, the Tribunal concluded that estimating the net profit at 6% for the current assessment year would be just. The Tribunal modified the order accordingly, partially allowing the grounds of appeal raised by the assessee regarding the estimation of income.

5. Another issue raised in Ground No. 6 of the appeal pertained to the addition of a specific amount to the business income, which the assessee argued should be deleted. The Tribunal observed that the CIT(A) did not address this issue in the order. Therefore, the Tribunal remanded this ground back to the CIT(A) for proper adjudication after providing a reasonable opportunity of hearing to the assessee.

6. In conclusion, the Tribunal partly allowed the appeal of the assessee for statistical purposes, modifying the estimation of income and remanding another issue back to the CIT(A) for adjudication. The order was pronounced on a specified date.