2024 (5) TMI 823 - AT - Income Tax

Estimation of Net profit - assessee failed to prove the source of cash deposits and that such deposits are only from the business confirmed the addition - HELD THAT - The figures establish that at no point of time the net profit from the line of business of the assessee is as high as 10%. The accepted figures show that it is from 0.5% to 8%. In these circumstances estimate of net profit at 10% is too high and on the face of the figures disclosed by the assessee net profit at 0.5% is too low. Taking a pragmatic view we consider the net profit at 5% is reasonable and will meet the ends of justice and therefore accept the contention raised by AR. AO is accordingly directed to estimate the net profit at 5% of the total sales. Appeal of the assessee is allowed in part.

Summary

Issues Involved:
- Estimation of net profit for assessment year 2017-18 based on bank deposits.

Summary:
The case involved an appeal by the assessee against the estimation of net profit for the assessment year 2017-18 by the Assessing Officer. The assessee, a proprietor of M/s. Sarda & Co., declared an income of Rs. 3,74,760/-, but the Assessing Officer estimated the net profit at 10% on the gross receipts of Rs. 1,43,11,623/- due to certain deposits in the bank account. The assessee challenged this estimation before the CIT(A) who upheld the addition, leading to the appeal.

The assessee argued that the 10% estimation was too high compared to similar businesses, citing the example of another individual, Mr. Jai Singh, whose net profit was accepted at 0.5% and 0.57% for previous years. The assessee requested the net profit to be accepted at 5%. The Revenue, however, contended that the assessee had previously shown varying net profits ranging from 1.8% to 8% for different assessment years.

Upon review, it was observed that the assessee's net profit had never been as high as 10%, with figures ranging from 0.5% to 8%. Considering the facts presented, it was deemed that 5% was a reasonable net profit estimation. Therefore, the appeal was allowed in part, directing the Assessing Officer to estimate the net profit at 5% of the total sales for the assessment year 2017-18.

This judgment highlights the importance of reasonable net profit estimations based on the specific circumstances of the case and comparable businesses in the same industry.