2021 (6) TMI 342 - AT - Income Tax

Estimation of income - Computation of Net profit - CIT (A) estimating the income @ 10% as the assessee is engaged in Real Estate Business and not as Civil Contractor - HELD THAT - It is apparent that the assessee has grossly erred by not maintaining the particulars of its business. The assessee has also failed to produce the books of accounts and any relevant document concerning the same before Revenue Authorities. Assessee is engaged in the real estate business where the profit is lucrative - if the assessee had earned commission from purchase and sale of immovable asset then the expenditure towards the same will be minimal ie., not beyond 40% of the turnover thus the net profit will be over 50%. The profit margin will be high with respect to purchase and sale of immovable property. Moreover, gross turnover of the assessee is as high as ₹ 16.5 Crs therefore, the provisions of presumptive tax U/s. 44AD of the Act will not at all be applicable nor any positive inference can be drawn from the same in the case of the assessee which the Ld.CIT(A) has relied upon. We are of the view that the order of the Ld. CIT (A) does not have much merit - estimation of net taxable income @ 18% of the turnover would suffice in the case of the assessee. Accordingly, we hereby sustain the Order of the Ld.AO to that extent - Appeal of the Revenue is partly allowed.

Summary

Issues:
- Estimation of income at 10% for a firm engaged in Real Estate Business instead of Civil Contractor.
- Application of presumptive tax provisions under section 44AD of the Act.
- Assessment based on best judgment due to failure to file the return of income.

Estimation of Income at 10% for Real Estate Business:
The appeal was filed by the Revenue against the order of the Ld. CIT (A) regarding the estimation of income at 10% for a firm engaged in Real Estate Business instead of being classified as a Civil Contractor. The Revenue contended that the Ld. CIT (A) erred in estimating the income at a lower rate, considering the nature of the business. The Tribunal referred to a decision of ITAT, Hyderabad in a similar case where it was held that estimation of profits should be based on reasonable information related to similar business activities. The Tribunal concluded that in the absence of specific data on profit rates for similar businesses, adopting the presumptive rate under section 44AD of the Act (8%) would be appropriate. However, due to lack of evidence to support a profit rate of less than 8%, the Tribunal upheld the estimation of income at 10% of gross receipts.

Application of Presumptive Tax Provisions under Section 44AD:
The Tribunal analyzed the applicability of presumptive tax provisions under section 44AD of the Act in the case of the firm engaged in Real Estate Business. The Revenue argued that the profit margin for real estate transactions would be substantially higher, justifying the estimation of net profit at 25% of turnover. However, the Tribunal noted that the gross turnover of the assessee was significant, rendering the provisions of section 44AD inapplicable. The Tribunal further emphasized that the lack of documentation and failure to maintain business records by the assessee contributed to the difficulty in accurately estimating the income. Ultimately, the Tribunal decided to estimate the net taxable income at 18% of the turnover, deviating from both the Revenue's and the Ld. CIT (A)'s positions.

Assessment Based on Best Judgment:
The Tribunal addressed the issue of assessment based on best judgment due to the assessee's failure to file the return of income and provide necessary documentation. The Tribunal observed that the assessee's lack of record-keeping and failure to produce relevant documents hindered the accurate assessment of income. Considering the nature of the Real Estate Business and the lack of concrete evidence to support a lower profit rate, the Tribunal decided to sustain the Ld. AO's order to estimate the net taxable income at 18% of the turnover. The Tribunal partially allowed the Revenue's appeal based on these considerations.

In conclusion, the Tribunal's judgment in the appeal involved a detailed analysis of the estimation of income, application of presumptive tax provisions, and assessment based on best judgment for a firm engaged in Real Estate Business, ultimately resulting in a decision to estimate the net taxable income at 18% of the turnover.