2021 (10) TMI 784 - AT - Income Tax

Estimation of income due to non availability of the information at the time of assessment - addition of 8% of the total turnover as the business income of the appellant - case was selected for scrutiny under CASS - HELD THAT - In the given case, the assessee has dealt with the trading only through banking channel. It is not proved anything against the assessee that it has involved any bogus transaction or any other activities involving suppression of profit. Merely because the profit declared is less, the authorities cannot resort to estimation. We direct the Assessing Officer to estimate the profit based on the previous assessment year s actual profit, which was accepted by the Revenue. The assessee has declared 0.62% in assessment year 2010 11 and 0.42% in assessment year 2011 12. The average profit declared by the assessee in the above assessment year is 0.52%. The Assessing Officer can estimate 0.52% as the profit for this assessment year since the assessee has already declared 0.08%, the balance 0.44% can be added to the profit for this assessment year. We direct the Assessing Officer to estimate the income as per above direction considering the fact that the profit has to be assessed based on the actual and in case, it is forced to estimate, it has to be based on past declared profit, which the Revenue has accepted. Therefore, the grounds no.1 and 2 raised by the assessee are partly allowed. Penalty u/s 271(1)(c) - HELD THAT - In the given case, we noticed that the AO himself estimated the income @ 8% and the same was sustained by the Ld. CIT(A). The assessee filed quantum appeal and in that we have directed the AO to restrict the profit earned by the assessee which was declared and accepted by the Revenue based on earlier assessment years, thus penalty levied by the AO estimating the income is not sustainable. Accordingly, we direct the AO to delete the penalty levied by the AO.

Issues Involved:
1. Confirmation of addition of 8% of total turnover as business income.
2. Disallowance of deduction claimed under Chapter VI-A of the Income Tax Act.
3. Charging of interest under sections 234A, 234B, 234C, and 234D.
4. Initiation of penalty proceedings under section 271(1)(c).
5. General grounds of appeal.

Issue-wise Detailed Analysis:

1. Confirmation of Addition of 8% of Total Turnover as Business Income:
The assessee challenged the addition of ?2,21,54,561, which was 8% of the total turnover of ?27,69,32,010, as business income. The Assessing Officer (AO) had estimated this net profit due to the absence of detailed information about the assessee's business activities. The AO observed that the assessee declared a net profit of only ?2,29,142, which was 0.083% of the turnover. The learned Commissioner of Income Tax (Appeals) [CIT(A)] sustained this estimation, noting that the assessee's own submissions revealed that the business activities were managed by a third party, Mr. Amarchand Sharma, and involved circular trading. The CIT(A) also pointed out that in subsequent years, the assessee had declared business income at 8% of the turnover, which was accepted by the AO. The Tribunal, however, directed the AO to estimate the profit based on the previous assessment years' actual profit, which averaged 0.52%. Thus, the AO was instructed to add the difference between the declared profit (0.08%) and the average profit (0.52%), i.e., 0.44%, to the assessee's income for the assessment year.

2. Disallowance of Deduction Claimed Under Chapter VI-A:
The assessee did not present any arguments regarding the disallowance of the deduction claimed under Chapter VI-A amounting to ?81,984. The Tribunal directed the AO to verify the claim and allow it if it is permissible under the law.

3. Charging of Interest Under Sections 234A, 234B, 234C, and 234D:
The issue of charging interest under sections 234A, 234B, 234C, and 234D was considered consequential by the Tribunal and hence dismissed.

4. Initiation of Penalty Proceedings Under Section 271(1)(c):
The Tribunal found that the penalty proceedings initiated under section 271(1)(c) were premature and dismissed this ground.

5. General Grounds of Appeal:
The general grounds of appeal were considered by the Tribunal as not requiring separate adjudication.

Penalty Appeal:
The assessee also appealed against the penalty levied by the AO on the estimated income. The Tribunal noted that penalties cannot be levied on income based on estimation. Since the AO estimated the income at 8%, which was sustained by the CIT(A), and the Tribunal directed a reassessment based on past profits, the penalty was deemed unsustainable. The AO was directed to delete the penalty.

Conclusion:
The appeal filed by the assessee was partly allowed with respect to the addition of 8% of the total turnover, directing a reassessment based on past profit ratios. The disallowance of the deduction under Chapter VI-A was to be verified by the AO. The charging of interest and initiation of penalty proceedings were dismissed. The penalty levied on estimated income was directed to be deleted.

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