2020 (1) TMI 448 - AT - Income Tax

N.P. Determination - assessee was into the business of selling of vegetables both from the dealers as well as farmers - Bifurcation of business categories - HELD THAT - Assessee himself had contended before the AO that his trading activities are to be bifurcated into two categories i.e. selling vegetables on behalf of farmers and on behalf of dealers and retailers. CIT(A) seems to have mis-read the Note given by the assessee as he has recorded that the assessee has not stated that he has sold vegetables on behalf of farmers. The assessee in his Note has mentioned farmers who are also known as agriculturists. However, I also find that the assessee has failed to bifurcate the sales and also in estimating of profit from such sales. Therefore, no discrepancy in CIT(A) s adopting the same rate of net profit declared by assessee on the declared turnover to the undisclosed turnover as well. However, in the peculiar circumstances of the case, the net profit can be reduced to do justice to the assessee. Therefore, direct the AO to adopt 6.5% as net profit on the entire turnover of the assessee. However, make it clear that this finding shall be effective only for the relevant A.Y. and cannot be adopted as precedent for any other A.Y. - Assessee s appeal is partly allowed.

Summary

Issues:
Assessment completed ex-parte u/s 144 of the Act, Proper opportunity not provided before AO, Determination of turnover and profit percentage, Charging of interest u/s 234A and u/s 234B of the Act.

Assessment completed ex-parte u/s 144 of the Act:
The Assessing Officer (AO) conducted assessment proceedings under section 143(3) of the Income Tax Act, 1961. The AO issued notices to the assessee under sections 143(2) and 142(1) of the Act. The assessee's Authorized Representative appeared but failed to furnish information on cash deposits into the bank account. Subsequently, the assessment was completed ex-parte u/s 144 of the Act. The AO observed undisclosed turnover and estimated income thereon at 8%, bringing it to tax. The assessee contended before the CIT(A) that proper opportunity was not given before the AO, but the CIT(A) proceeded to consider the appeal on merits.

Proper opportunity not provided before AO:
The assessee argued that he was not provided with a proper opportunity before the AO. However, the CIT(A) rejected this contention and considered the appeal on its merits. The CIT(A) directed the AO to adopt a net profit rate of 7.43% on the entire turnover, both disclosed and undisclosed, as the assessee had failed to identify specific cash withdrawals and corresponding deposits. The CIT(A) also noted that the assessee himself offered a net profit rate of 7.43% on the reported sales.

Determination of turnover and profit percentage:
The assessee, engaged in the business of trading in vegetables, contended that the profit on the sale of vegetables on a commission basis should not be uniformly adopted at 7.43%. The Tribunal found that the assessee's trading activities should be bifurcated into selling vegetables on behalf of farmers and dealers. While the CIT(A) adopted the same net profit rate for both disclosed and undisclosed turnover, the Tribunal reduced the net profit to 6.5% on the entire turnover to provide justice to the assessee for the relevant assessment year.

Charging of interest u/s 234A and u/s 234B of the Act:
The assessee raised grounds against the charging of interest under sections 234A and 234B of the Act. The Tribunal partly allowed the appeal, directing the AO to adopt a reduced net profit rate of 6.5% on the entire turnover for the relevant assessment year only. The Tribunal clarified that this decision would not set a precedent for other assessment years.

In conclusion, the Tribunal partially allowed the assessee's appeal, reducing the net profit rate to 6.5% on the entire turnover for the relevant assessment year, addressing the issues of proper opportunity, turnover determination, and interest charges under the Income Tax Act.