2024 (7) TMI 641 - AT - Income Tax

Estimation of net profit - assessee is engaged in the business of commission agent for prawn seeds - HELD THAT - Neither the AO nor the ld. CIT(A) has considered any comparative case for the purpose of determination of the rate of profit disclosed by the assessee. Normally, the best comparison to determine the net profit by the assessee would be earlier or the subsequent assessment years of the same assessee. In the present case, the impugned assessment year is the first year of assessee s business. A perusal of the facts also clearly shows that the assessee has shown the highest rate of net profit for the impugned assessment year. This being so, and considering the fact that the income of the assessee has been estimated, we are of the view that in the interest of justice, net profit of the assessee is liable to be estimated @2.75% on the total turnover of the assessee after reduction of the airport rent cost, thormocol sheet cost and truck rent cost as there is no possibility of assessee earning any income out of the said expenses. AO is directed to estimate the income of the assessee @2.75% on the total turnover of the assessee after reduction of the expenses regarding airport rent, thormocol sheet and truck rent, respectively. Appeal of the assessee is partly allowed.

Summary

Issues:
1. Estimation of net profit for assessment year 2015-2016.
2. Challenge against addition representing bank interest.

Estimation of Net Profit:
The appeal involved a dispute regarding the estimation of net profit for the assessment year 2015-2016. The assessee, engaged in the business of commission agent for prawn seeds, had its return revised under section 263 of the Act. The Principal CIT directed the AO to reassess the profit and tax interest income not previously declared. The AO estimated income at 8% of turnover under Section 44AD and taxed undisclosed interest income. The CIT(A) deleted the Section 44AD reference but upheld the addition. The assessee, not contesting the bank interest addition, argued for acceptance of the disclosed net profit of 2.23%. The tribunal observed the lack of comparative analysis by the AO and CIT(A) and noted the highest net profit disclosed by the assessee for the first business year. In the interest of justice, the tribunal directed the AO to estimate income at 2.75% of total turnover after deducting certain expenses, allowing the appeal in part.

Challenge against Bank Interest Addition:
The assessee chose not to contest the addition representing bank interest. The tribunal dismissed the ground raised by the assessee challenging the bank interest addition as withdrawn, accepting the decision.

The tribunal's judgment addressed the issues of net profit estimation and bank interest addition for the assessment year 2015-2016. It highlighted the lack of comparative analysis in determining net profit and directed the AO to estimate income at 2.75% of turnover after deducting specific expenses. The decision emphasized fairness and justice in estimation while acknowledging the assessee's disclosed net profit. The challenge against the bank interest addition was withdrawn by the assessee, leading to its dismissal by the tribunal.