2021 (1) TMI 464 - AT - Income Tax

Estimation of profit - Assessee submitted he is not maintaining the books of accounts and that the AO should have estimated the income at reasonable percentage which is about 6% - HELD THAT - CIT(A) without examining the profit percentage in the years before the A.Y. 2012-13 and without giving any reasons has estimated the profit percentage at 7% of gross receipts. In view of the same, we deem it fit and proper to remand the issue to the file of AO with a direction to re-consider the issue and accordingly estimate the income de-novo.

Summary

Issues:
1. Delay in filing the Revenue's appeal and the assessee's Cross Objection.
2. Assessment of income based on gross receipts and claimed expenses.
3. Reasonableness of profit percentage estimation.
4. Application of ITAT decision in previous years to the current case.
5. Remand of the issue to the AO for re-estimation of income.

Issue 1: Delay in filing the Revenue's appeal and the assessee's Cross Objection

The Revenue's appeal was filed with a delay of 2 days, which was condoned based on reasons provided by the ACIT. On the other hand, the assessee's Cross Objection was filed with a delay of 169 days. The assessee explained the delay stating that the order was sent to his native place while he was residing in a different city, resulting in the delay. The Tribunal, considering the reasonableness of the explanation, condoned the delay.

Issue 2: Assessment of income based on gross receipts and claimed expenses

The case involved an individual deriving income from contract works who did not maintain proper books of accounts. The AO, during assessment, observed gross receipts of ?28,64,74,792 but found no supporting evidence for claimed expenses. Consequently, the AO treated the entire gross receipts as income. The CIT(A) partially allowed the appeal, estimating a reasonable profit percentage of 7% of gross receipts. The Revenue contested this decision, arguing that without evidence, the entire receipts should be taxed.

Issue 3: Reasonableness of profit percentage estimation

The Revenue contended that without supporting details, the CIT(A) erred in estimating income at 7% of gross receipts. The assessee's counsel supported the CIT(A)'s decision, citing a previous ITAT ruling where 6% was accepted as a reasonable profit percentage. The Tribunal noted the previous decision but found the CIT(A) did not provide reasons for choosing 7%. Consequently, the Tribunal remanded the issue to the AO for re-estimation.

Issue 4: Application of ITAT decision in previous years to the current case

The Tribunal referred to a previous ITAT decision for AY 2006-07 and 2007-08 where a 6% profit percentage was deemed reasonable based on the facts of those years. However, in the current case for AY 2012-13, the CIT(A) did not adequately consider the previous years' profit percentages and arbitrarily chose 7%. As a result, the Tribunal directed a re-consideration by the AO.

Issue 5: Remand of the issue to the AO for re-estimation of income

In conclusion, the Tribunal treated both the Revenue's appeal and the assessee's Cross Objection as allowed for statistical purposes. The Tribunal ordered the issue to be remanded to the AO for a fresh assessment of income based on the directions provided in the judgment.

This detailed analysis of the judgment covers the issues of delay in filing, assessment of income, reasonableness of profit percentage estimation, application of previous decisions, and the remand of the issue for re-estimation, providing a comprehensive overview of the legal aspects involved in the case.