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2023 (1) TMI 1211 - AT - Income TaxEstimation of income - Deposits in the bank accounts - undisclosed turnover - Addition made @ 8% of the undisclosed turnover by applying the provisions of Section 44AD - As argued prevailing margin ranges from 0.75% to 1% of the turnover - HELD THAT - We note that the assessee is doing the business of jute bag trading. We have also examined the Annual Report for 2018-19 of M/S Ludlow Jute Specialties Ltd wherein the net profit margin was only 0.42% in 31.03.2019 vis- -vis 0.53% in 31.03.2018. We also note that in the current year, the assessee s profit margin on sale was also around 1%. Therefore we deem it fit and reasonable to apply the rate of 1.25% on the undisclosed turnover of the assessee. We accordingly set aside the order of Ld. CIT(A) and direct the AO to apply the rate of 1.25% on undisclosed turnover instead of 8%. Accordingly the appeal of the assessee is partly allowed.
Issues:
1. Delay in filing the appeal 2. Addition of undisclosed turnover by AO 3. Application of profit rate @8% Issue 1: Delay in filing the appeal The assessee appealed against the order of the Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi for the AY 2017-18, citing a delay of 95 days in filing the appeal due to health reasons. The assessee submitted an affidavit affirming illness and incapacity during the period of delay. The Appellate Tribunal, after considering the reasons for the delay, condoned the delay and admitted the appeal for adjudication. Issue 2: Addition of undisclosed turnover by AO The AO observed cash deposits during the demonetization period in the assessee's bank accounts, leading to an assessment of undisclosed turnover. The AO added Rs. 42,08,115/- to the income of the assessee under Section 44AD of the Act, applying a profit rate of 8% to the undisclosed turnover of Rs. 5,26,01,438/-. The Ld. CIT(A) upheld the AO's decision, emphasizing the lack of proper records and evidence from the assessee to support lower profit margins claimed. Issue 3: Application of profit rate @8% The only contention in the appeal was against the application of the profit rate at 8%, deemed higher than the prevailing profit margins in the assessee's trade. The Appellate Tribunal noted that the assessee's business of jute bag trading typically had profit margins ranging from 0.75% to 1%. Considering the industry standards and the assessee's profit margins, the Tribunal set aside the Ld. CIT(A)'s order and directed the AO to apply a profit rate of 1.25% on the undisclosed turnover instead of 8%, partially allowing the appeal. In conclusion, the Appellate Tribunal partially allowed the appeal, adjusting the profit rate applied to the undisclosed turnover based on industry standards and the assessee's profit margins, while condoning the delay in filing the appeal due to genuine health reasons.
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