2022 (11) TMI 548 - HC - Income Tax

Estimation of income - ITAT applied the progressive rate of estimated profit for 5 years from 10% to 25% - Assessee sought Net profit rate to the entire receipts both disclosed and undisclosed - separate addition of the gross amount of undisclosed receipts to the taxable income - whether the assessing officer was justified in applying the order passed by the tribunal only in respect of the disclosed income? - HELD THAT - As mentioned manner in which the order of the tribunal is to be interpreted has been rightly interpreted by the learned tribunal in its order dated 20th February, 2015 by observing that profit has to be decided for turn-over in its entirety. If that be the case, then the contention raised by the appellant needs to be accepted. As could be seen from the giving effect to order passed by the assessing officer assessing officer had given effect to the order of the tribunal by understanding as if the tribunal directed the net profit estimation only in respect of the disclosed income. The tribunal having clarified that the profit has to be estimated in its entirety, the view taken by the assessing officer in its order is incorrect. Thus, for the above reasons, the assessee is entitled to succeed. - The assessing officer is directed to apply the net profit rate as ordered by the tribunal in its order therein to the entire receipts of the appellant/assessee both disclosed and undisclosed.

Issues:
1. Estimation of profit by the tribunal for assessment years 2004-05 to 2008-09.
2. Clarification sought by the assessee regarding the application of net profit rate to entire receipts.
3. Dismissal of miscellaneous applications by the tribunal.
4. Correct interpretation of the tribunal's order regarding profit estimation.

Estimation of Profit by the Tribunal:
The appeal was filed under Section 260A of the Income Tax Act, 1961 against the order passed by the Income Tax Appellate Tribunal for the assessment years 2004-05 to 2008-09. The tribunal estimated the profit for each assessment year at varying rates, considering the challenges faced by the assessee in the initial years of operation. The tribunal's decision was based on the understanding that profit rates may differ for different years due to market establishment and operational challenges.

Clarification Sought by the Assessee:
The assessee raised a substantial question of law regarding the application of the net profit rate estimated by the tribunal to the entire receipts, both disclosed and undisclosed. The assessee contended that the tribunal should have directed the application of the net profit rate to all receipts to avoid separate addition of undisclosed receipts to taxable income. The tribunal dismissed the miscellaneous applications seeking clarification, stating that the profit for the assessment year should be decided for the turnover in its entirety.

Dismissal of Miscellaneous Applications:
The tribunal dismissed the miscellaneous applications filed by the assessee, which sought clarification on the application of the net profit rate to all receipts. The tribunal held that seeking clarification amounted to a review of the order, and as no error was found in the original order, the applications were dismissed. The tribunal's decision was based on the premise that the profit for the assessment year should be determined for the turnover in its entirety.

Correct Interpretation of the Tribunal's Order:
The High Court analyzed the tribunal's orders dated January 17, 2014, and February 20, 2015. The court noted that the tribunal agreed that profit for the assessment year should be decided for the entire turnover. The court found the assessing officer's interpretation incorrect, as the tribunal's order directed the application of the net profit rate to all receipts, both disclosed and undisclosed. Consequently, the court allowed the appeal, directing the assessing officer to apply the net profit rate ordered by the tribunal to the entire receipts of the appellant within a specified timeframe.

In conclusion, the High Court allowed the appeal, answered the substantial question of law in favor of the assessee, and directed the application of the net profit rate to all receipts as per the tribunal's order.

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