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2023 (8) TMI 911 - AT - Income TaxRejection of books of accounts - estimated net profit @ 15% on Turnover - HELD THAT - We note that comparable cases and instances discussed by ld CIT(A) in his order state that net profit ratio ranges between 6% to 15% in similar business. However, we note that ld CIT(A) took highest net profit ratio at 15% which is unreasonable. Based on the factual position narrated we are of the view that estimation made by ld CIT(A) is not based on sound reasoning in comparison with the past results as well as comparable cases - Hence, we are of the view that for assessment years 2013-14 and 2014-15, the net profit ratio on turnover should be at 11% and 14% before remuneration and interest to partners, respectively, on turnover, would be fair and reasonable. Therefore, we direct the assessing officer to estimate the net profit on turnover for assessment years 2013-14 and 2014-15, at the rate of 11% and 14%, respectively, before remuneration and interest to partners.
Issues Involved:
1. Rejection of the method of accounting employed by the appellant. 2. Estimation of net profit at 15% of turnover by the CIT(A). 3. Admittance of additional evidence by CIT(A) without a remand report. 4. Separate estimation of unexplained cash deposits. Summary: Issue 1: Rejection of Accounting Method The assessee's grounds of appeal included the claim that the CIT(A) erred in rejecting the method of accounting regularly employed by the appellant. The Tribunal did not specifically address this issue as it focused on the estimation of net profit. Issue 2: Estimation of Net Profit at 15% The CIT(A) estimated the net profit at 15% of turnover, rejecting the assessee's books of accounts. The assessee argued that this estimation was excessive and unreasonable, and that the receipts from customers during the year should not be treated as part of the turnover. The Tribunal agreed with the assessee, noting that the CIT(A) included advance receipts from customers in the turnover, which led to double addition. The Tribunal directed that the net profit ratio should be 11% for AY 2013-14 and 14% for AY 2014-15, before remuneration and interest to partners. Issue 3: Admittance of Additional Evidence The Revenue contended that the CIT(A) admitted additional evidence without calling for a remand report, violating Rule 46A of the Income Tax Rules. The Tribunal found that the CIT(A) used the turnover figure from the audit report, which was already available during the assessment stage, and thus there was no violation of Rule 46A. Issue 4: Separate Estimation of Unexplained Cash Deposits The Revenue argued that unexplained cash deposits of Rs. 1,84,97,600/- should be considered separately and not merged with the turnover. The Tribunal, citing the Karnataka High Court judgment in Bahubali Neminath Muttin, held that once the books of accounts are rejected, there should not be separate line-by-line additions, except for the estimation of profit. Conclusion: The Tribunal dismissed the appeals filed by the Revenue and partly allowed the appeals filed by the Assessee, directing the Assessing Officer to estimate the net profit at 11% for AY 2013-14 and 14% for AY 2014-15, before remuneration and interest to partners.
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