2016 (4) TMI 507 - AT - Income Tax

Estimation of income at 17% of gross receipts against the additions made on specific grounds - Held that - CIT(A) directed the AO to adopt a profit percentage of 17% which will take care of the shortage of cash in the cash book and the disallowance u/s.14A. It will also take care of the various other shortcomings in maintenance of books of account. We do not find any infirmity in the order of the CIT(A) on this issue. Admittedly, there are certain defects in the books of account such as non-maintenance of subsidiary ledgers, goods inward and outward register, stock register etc. Therefore, the books of account are not amenable to proper verification. At the same time, if the approach adopted by the AO is accepted, then the construction business gives a profit percentage of more than 64% which is not possible in this line of business especially when the assessee has undertaken construction work for private parties. The Various Benches of the Tribunal are considering profit rate of 8% to 15% in construction business as reasonable. Since the Ld.CIT(A) in the instant case has directed the AO to adopt profit percentage of 17%, therefore, in our opinion, such profit percentage under the facts and circumstances of the case is reasonable and does not call for any interference. We accordingly uphold the order of the CIT(A) - Decided against revenue

Summary

Issues:
Estimation of income at 17% of gross receipts against specific additions made by AO.

Analysis:
The appeal filed by the Revenue against the order of CIT(A)-II, Nashik for Assessment Year 2010-11 raised the issue of estimating income at 17% of gross receipts. The Assessee, engaged in various businesses, faced scrutiny by the AO who made additions based on discrepancies in accounts. The AO added amounts under various heads, including excess labour charges, material consumption, and deficit cash balance. The CIT(A) directed the AO to adopt a profit rate of 17% of gross receipts, considering it sufficient to address the identified issues. The Revenue challenged this decision, arguing that the AO's additions were based on factual evidence and should be upheld. However, the Authorized Representative supported the CIT(A)'s decision, highlighting the reasonableness of the profit percentage estimation. The Tribunal analyzed the arguments, emphasizing the defects in the Assessee's accounts and the impracticality of a profit rate exceeding 64%. Considering the circumstances and industry standards, the Tribunal upheld the CIT(A)'s order to adopt a 17% profit percentage, dismissing the Revenue's appeal.

In conclusion, the Tribunal upheld the CIT(A)'s decision to estimate income at 17% of gross receipts, addressing the identified discrepancies and defects in the Assessee's accounts. The Tribunal deemed the profit percentage reasonable given the nature of the business and industry standards, leading to the dismissal of the Revenue's appeal.