2022 (4) TMI 963 - AT - Income Tax

Reasonable profit estimation on commission income/commission agents - Computation of profits and gains of business on presumptive basis on Section 44AD by applying profit rate @ 8% of total turnover - counsel stated that the net profit or agency commission earned by commission agents dealing in agricultural produce is at 2% - HELD THAT - Profit rate as mentioned in the provisions of Section 44AD of the Act, cannot be applied to commission agents who are doing business of agency commission or earning commission income only in view of provisions of Section 44AD(6)(iii) of the Act. Hence, as canvassed by ld.counsel for the assessee, a reasonable profit can be estimated. Accordingly, we estimate the profit at the rate of 4% of total credits determined by the AO at ₹ 1,58,01,195/-, after deducting sweep transfers. The AO will recompute the income accordingly. Appeal filed by the assessee is allowed for statistical purposes

Summary

Issues:
- Computing profits and gains of business on presumptive basis under Section 44AD of the Income Tax Act, 1961.

Analysis:
The appeal before the Appellate Tribunal ITAT Chennai arose from the order of the Commissioner of Income Tax (Appeals) confirming the action of the Assessing Officer in computing the profits and gains of business on a presumptive basis under Section 44AD of the Income Tax Act, 1961. The assessee, an individual engaged in commission agency business of agricultural produce, had filed the return of income admitting taxable income. The Assessing Officer computed the profit and gains of business on a presumptive basis by applying a profit rate of 8% of the total turnover. The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's action, leading to the appeal before the Tribunal.

During the proceedings, the assessee argued that the provision of Section 44AD of the Act should not be applied to commission agents dealing in agricultural produce, as their net profit or agency commission is typically at 2%. The Tribunal acknowledged that Section 44AD(6)(iii) specifically excludes persons carrying on agency business from the applicability of the section. Therefore, the profit rate mentioned in Section 44AD cannot be applied to commission agents engaged in agency business. Consequently, the Tribunal estimated the profit at the rate of 4% of the total credits determined by the Assessing Officer, and directed the AO to recompute the income accordingly.

In conclusion, the Tribunal allowed the appeal filed by the assessee for statistical purposes, emphasizing that a reasonable profit estimate should be made for commission agents dealing in agricultural produce, in line with the provisions of Section 44AD(6)(iii) of the Income Tax Act. The order was pronounced on 8th April, 2022, at Chennai.