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2024 (12) TMI 309 - AT - Income TaxEstimation of net profit - Determination of taxable income based on net profit rate - appeal was migrated to NFAC, who estimated the profit margin @4% as against 8% estimated by the AO, by holding that the profit margin of 8% taken by the AO seemed to be on the higher side - HELD THAT - It is true that the assessee had neither filed his return of income in terms of section 139(1) of the Act nor had produced/uploaded the Audited Balance Sheet and Profit and Loss Account within the prescribed time limit or even before the NFAC. Therefore, the claim of the assessee that the net profit rate @ 0.59% was the actual profit earned by the assessee during the year under consideration is not verifiable. Also considered the prayer of the Ld. A.R. that direction may be given to complete the assessment by applying the net profit rate of 1% and the prayer of the Ld. Sr. D.R. that the file may be restored to the office of the AO. However, find that in the absence of comparative data, even the rate of 1% remains unverifiable and no useful purpose will also be served by setting aside the file to the office of the AO. Interest of justice would be served, if the net profit of 2% of the gross sales is applied. We direct the AO to complete the assessment and compute the tax liability thereon by applying the net profit rate of 2% and make no further addition.
Issues:
Assessment of total income based on turnover estimation, Penalty proceedings under various sections, Delay in filing appeal before the Tribunal, Discrepancy in net profit estimation between AO and NFAC, Request for amendment of grounds of appeal, Verifiability of net profit rate, Determination of taxable income based on net profit rate. Assessment of Total Income based on Turnover Estimation: The appeal was filed against the assessment order passed by the ld. Commissioner of Income Tax for the Assessment Year 2017-18. The assessee, engaged in selling e-top ups of mobiles, had not filed the return of income. The Assessing Officer (AO) estimated net profit at 8% based on the turnover, adding it to the income of the assessee. Subsequently, the NFAC estimated the profit margin at 4%, considering it more reasonable for the business. The Tribunal, after hearing both parties, set aside the NFAC's order and directed the AO to compute the tax liability by applying a net profit rate of 2%, ultimately allowing the appeal partly for statistical purposes. Penalty Proceedings under Various Sections: The AO had initiated penalty proceedings under sections 270A, 272A(1)(d), and 271F of the Income Tax Act. However, the focus of the appeal was primarily on the assessment of total income based on turnover estimation rather than the penalty proceedings. Delay in Filing Appeal Before the Tribunal: The appeal before the Tribunal was filed with a delay of 377 days. The assessee sought condonation of delay, attributing it to the failure of the advocate responsible for filing the appeal within the prescribed time limit. The delay was deemed unintentional, and both parties, including the ld. D.R., had no objection to condoning the delay. The Tribunal, considering the circumstances, condoned the delay and admitted the appeal for hearing. Discrepancy in Net Profit Estimation between AO and NFAC: The dispute arose from the variance in net profit estimation between the AO, who assessed it at 8%, and the NFAC, which reduced it to 4%. The assessee contended that a net profit rate of 1% was more appropriate, citing industry standards. The Tribunal, after evaluating the arguments, decided to apply a net profit rate of 2% for computing the tax liability, setting aside the NFAC's order. Request for Amendment of Grounds of Appeal: The assessee requested permission to amend the grounds of appeal or raise fresh grounds. However, the focus of the appeal primarily revolved around challenging the estimation of total income based on turnover, and no amendments were made to the grounds of appeal during the proceedings. Verifiability of Net Profit Rate and Determination of Taxable Income: Both the ld. A.R. and ld. Sr. D.R. presented arguments regarding the verifiability of the net profit rate claimed by the assessee and the appropriateness of restoring the appeal to the AO for fresh determination of taxable income. The Tribunal, considering the lack of comparative data and the overall circumstances, decided to apply a net profit rate of 2% for computing the tax liability, emphasizing the interest of justice. This detailed analysis covers the issues involved in the legal judgment comprehensively, highlighting the key aspects of the case and the Tribunal's decision on each matter.
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