2020 (5) TMI 133 - AT - Income Tax

Estimation of profit - rejection of books of accounts - AO estimated net profit @ 10% as against 5% declared by assessee also confirmed by CIT-A - HELD THAT - Drawing inference from provision of section 44AD and looking to the fact that assessee is not engaged in business of plying, hiring or leasing goods carriages and also not maintaining regular books of accounts, are of the considered view that applying of 8% of net profit rate on the undisputed total business turnover disclosed by the assessee shall be justified and fair to both the parties. - Decided partly in favour of assessee.

Summary

Issues:
1. Addition of net profit @ 10% on total turnover challenged by the assessee.
2. Application of net profit @ 10% as against the 5% declared by the assessee.
3. Interpretation of provisions of section 44AD of the Income Tax Act.

Issue 1: Addition of Net Profit @ 10% on Total Turnover
The appeal filed by the assessee pertains to the Assessment Year 2014-15 against the orders of the Ld. Commissioner of Income Tax (Appeals) and the ACIT,2(1) Ujjain. The assessee, engaged in the business of Civil Contractor, declared income of &8377; 41,38,987/- but failed to maintain regular books of accounts despite gross receipts amounting to &8377; 7,97,27,381/-. The Assessing Officer estimated net profit @ 10% instead of the 5% declared by the assessee, resulting in an assessed income of &8377; 79,72,738/-. The Ld. CIT(A) confirmed this action, citing the non-maintenance of books of account and deliberate avoidance of statutory requirements. The Tribunal sustained the addition of &8377; 39,86,369/-, dismissing the appeal on this ground.

Issue 2: Application of Net Profit @ 10%
The sole ground of appeal before the Tribunal challenged the Ld. CIT(A)'s confirmation of the application of net profit @ 10% on the total turnover, contrary to the 5% declared by the assessee. The Tribunal considered the facts that the total turnover of the assessee as a civil contractor was &8377; 7,79,27,381/-, and regular books of accounts were not maintained. While provisions of section 44AD did not directly apply due to turnover exceeding the prescribed limit, the Tribunal inferred that applying 8% net profit rate on the total turnover disclosed by the assessee would be justified and fair. The Tribunal directed the revenue to sustain the addition only to the extent of applying a net profit rate of 8% on total turnover, resulting in a sustained addition of &8377; 23,91,821/-.

Issue 3: Interpretation of Provisions of Section 44AD
The Tribunal interpreted the provisions of section 44AD, which provide for a presumptive basis for computing profits and gains of business. While these provisions did not directly apply to the case at hand due to the turnover exceeding the prescribed limit, the Tribunal applied the 8% net profit rate on the total turnover as fair and justified in the absence of maintained regular books of accounts. The Tribunal emphasized that this decision should not be considered as a binding precedent for other cases, as the application of net profit rate may vary depending on the specific facts and circumstances of each case.

In conclusion, the Tribunal partly allowed the appeal of the assessee, sustaining the addition of &8377; 23,91,821/- by applying a net profit rate of 8% on the total turnover, as opposed to the 10% applied by the authorities.