2023 (10) TMI 365 - AT - Income Tax

Estimation of net profit - estimating the profit @ 10% of the turnover without rejecting books of accounts of assessee - HELD THAT - We find that the assessee is a partnership firm engaged in the business of trading in jute, fertilizers, seeds etc. In the preceding past two financial years, net profit declared was 0.22% and 0.19% arrived at after claiming of incidental expenses including the interest in remuneration paid to partners. The preceding two financial years are on the basis of audited financial statement and the same has not been controverted by the revenue authorities. So far as the year under consideration is concerned, we notice that better net profit rate i.e. 0.49% has been declared. As per judicial precedence, normally average of 3 years profit rate / gross profit rate is adopted to estimate the income. However, since the assessee did not appear before the lower authorities, we estimate the net profit @ 0.50% and applying the same on the turnover of the assessee, the net profit will amount to Rs. 10,83,808/- and accordingly, the income shall be calculated and remaining addition stands deleted. Thus, ground no. 6 7 are partly allowed. Addition of interest income - As we notice that the said interest income is duly disclosed in the books of account and the net profit rate of 0.49% is after considering the said interest income and since we have held to apply net profit rate of 0.50%, it inter alia will take care of interest income of Rs. 1,55,791/- and, therefore, no separate additions is required to be sustained at Rs. 1,55,791/-. Thus, ground of assessee s appeal is allowed.

Summary

Issues involved:
The appeal against the order dated 20.12.2022 passed by the ld. Commissioner of Income-tax Appeals, NFAC, Delhi raised multiple grounds, including the assessment order being bad in law, ex-parte decision by the Ld. CIT (A), failure to decide issues ground-wise, arbitrary net profit rate determination, and addition of interest income without proper reasoning.

Assessment Order and Appeal:
The assessee declared a net profit of Rs. 10,68,769/- against a turnover of Rs. 21,67,61,571/- for the assessment year 2014-15. The assessing officer framed an assessment order by making an addition of Rs. 1,73,40,926/- from the business, calculated at 8% of the total turnover. The appeal before the ld. CIT(A) was dismissed, leading to further appeal before the Tribunal.

Core Issue - Net Profit Determination:
The core issue in the appeal centered around the determination of net profit at 8% of the net turnover without rejecting the books of accounts. The assessee contended that the addition made by the AO was unsustainable as the books of account were not rejected, citing previous years' net profit rates of 0.22% to 0.19%. The Tribunal noted the regular audit of the accounts and decided to adjudicate the issue.

Tribunal Decision - Net Profit Estimation:
The Tribunal observed that the net profit rate declared for the year under consideration was 0.49%, higher than the preceding years. Considering the audited financial statements of the past two years, a net profit rate of 0.50% was estimated, resulting in a net profit of Rs. 10,83,808/-. Consequently, the remaining addition was deleted, partially allowing grounds no. 6 & 7.

Interest Income Addition:
The Tribunal noted that the disclosed interest income of Rs. 1,55,791/- was already considered in the net profit rate calculation. With the revised net profit rate of 0.50%, the interest income was accounted for, leading to the allowance of ground no. 8 in the assessee's appeal.

Conclusion:
The Tribunal partly allowed the appeal of the assessee, modifying the net profit estimation and addressing the addition of interest income. The remaining grounds of appeal were deemed general and consequential, not requiring adjudication.