2022 (11) TMI 816 - AT - Income Tax

Revision u/s 263 - AO in determining the net rate of profit on estimation basis - no enquiry by the Assessing Officer - contention of the ld. counsel that section 44AD was not applicable as the gross receipts of the assessee were more than the prescribed limit for applicability of provision of section 44AD to determine the income on presumptive basis - HELD THAT - We find that the AO estimated the net profit @5% on gross receipts without any basis and without consulting any records either of the assessee s income in the earlier years or income returned by the other persons having same type of business as that of assessee. AO has not given any basis or reasoning for assessing the net profits of the assessee @5% of the gross receipts on pure estimation basis. There was absolutely no effort to collect information or data by the Assessing Officer for estimating the net profits/income of the assessee. No enquiry was made by the AO in this respect. PCIT, however, observed that the data was available to show that in the earlier years, the assessee has returned net profit @15% and 18% in assessment year 2015-16 and assessment year 2016-17 respectively. The ld. PCIT also considered that even in the case of no accounts and presumptive income on ad hoc basis, the minimum net profit should have been determined @8% on gross receipts u/s 44AD of the Act. In this case, the LD. PCIT has not directed the Assessing Officer to determine profits of the assessee as per provision of section 44AD - PCIT has just taken note of the provisions of section 44AD to observe that even in the case of no accounts, if the gross receipts are less than the prescribed limit as mentioned under the provisions of section 44AD, even then the minimum net profit should be determined @8% of the gross receipts/turnover. However, the ld. PCIT has restored the matter to the AO to frame the assessment afresh after conducting necessary enquiries and even after giving opportunity to the assessee to present his case. Even, as contended by the ld. counsel that the gross receipts are more than the prescribed limit as provided u/s 44AD, the assessee was supposed to maintain his accounts. However, in this case, the assessee has not furnished any details, information/account before the AO. The assessee, therefore, cannot be allowed to take benefit of his own wrong Since it was a case of no enquiry by the Assessing Officer and even the assessee has failed to furnish the required information to the Assessing Officer for estimation of net profits , therefore, we do not find any reason to interfere with the aforesaid revision order passed by the ld. PCIT. There is no merit in the appeal of the assessee and the same is accordingly hereby dismissed.

Issues:
1. Condonation of delay in filing appeal
2. Estimation of net profit by Assessing Officer
3. Revision order passed by Principal Commissioner of Income Tax (PCIT)
4. Jurisdiction under section 263 of the Income Tax Act
5. Applicability of section 44AD for determining income on presumptive basis

Condonation of Delay:
The appellant filed an appeal against the order of the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, which was time-barred by 5 days. The appellant filed a separate application for condonation of delay, which was considered and the delay was condoned, allowing the appeal to proceed.

Estimation of Net Profit by Assessing Officer:
The Assessing Officer estimated the net profit of the assessee at 5% of gross receipts without any basis or consultation of relevant records. The PCIT, in the revision order under section 263, observed that the Assessing Officer failed to make necessary enquiries before assessing the net profit. The PCIT set aside the assessment order as erroneous and prejudicial to the interest of Revenue, directing the Assessing Officer to conduct necessary enquiries and frame the assessment afresh.

Revision Order by PCIT and Jurisdiction under Section 263:
The PCIT, in exercising revision jurisdiction under section 263, found the Assessing Officer's calculation of net profit to be without basis. The PCIT referred to earlier profits disclosed by the assessee and stated that the net profit for the relevant assessment year could not have been less than 8% on gross receipts. The PCIT held that the Assessing Officer failed to make required enquiries and set aside the assessment order, directing a fresh assessment after necessary enquiries.

Applicability of Section 44AD:
The appellant contended that section 44AD was not applicable due to gross receipts exceeding the prescribed limit. However, the PCIT did not direct the Assessing Officer to determine profits under section 44AD but noted that even in the absence of accounts, a minimum net profit of 8% on gross receipts should be determined. The PCIT ordered a fresh assessment, considering the lack of cooperation and information provided by the assessee.

In conclusion, the appeal by the assessee was dismissed as the court found no merit in challenging the revision order passed by the PCIT. The court upheld the PCIT's decision to set aside the initial assessment order due to lack of enquiries and non-cooperation from the assessee, emphasizing the importance of conducting necessary investigations before determining net profits.

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