2024 (7) TMI 894 - AT - Income Tax

Estimating the Net Profit - applying NP rate of 5% on Estimated Gross Receipts against net Profit as per Audited Profit Loss Account - second round of litigation HELD THAT - Since the dispute relates to the estimation of profit, we have considered the certificate of Chartered Accountant produced, wherein the profit rate is certified based on the records already available in the form of audited accounts for A.Y 2009-10 to 2014-15. The year under dispute relates to A.Y 2013-14, the previous two years net profit declared are more or less similar to the year under consideration. As it is seen that in the A.Y 2012-13, net profit was @ 1.10% whereas in the year under consideration, turn over has increased and net profit shown by the assessee @ 1.19%. Since in the case of the assessee for past years i.e. A.Y 2011-12 2012- 13, the profit declared by the assessee was accepted considering the similar set of facts. As it is evident from the first round of litigation that the directors were ill and were passing through severe financial crunch and were not in a position to pay the self assessment tax and thereby the non-compliance and the assessment completed based on estimation of profit. The assessee subsequently when the proceedings were pending before the ld. CIT(A) and that of ITAT paid the taxes and matter was set aside and in that profit in this year profit was estimated @ 5 %. But looking to the past history of profit and assessee s nature of business estimation of profit @ 5 % is on higher side and at the same time since the assessee has not provided the details in assessment proceeding we deem it fit in the interest of justice to considered higher disclosed by the assessee @ 1.33% in the Assessment Year 2011-12, which should be considered as basis for estimating the net profit for the year under consideration. Based on these observations, the ground No. 1 raised by the assessee is partly allowed. Separate Addition towards Income from Interest and commission and Income from Rent - submission of additional evidences - HELD THAT - We allow that additional evidence and direct the ld. AO to verify whether the assessee has disclosed the income towards the interest and commission and rent and thereby the profit is offered no separate addition is called for. Based on these observations, ground Nos. 2 3 raised by the assessee are allowed for statistical purposes.

Summary

Issues Involved:
1. Estimation of Net Profit by applying a Net Profit rate.
2. Separate addition towards Income from Interest and Commission.
3. Separate addition towards Income from Rent.
4. Admission of Additional Evidence under Rule 46A(1)(c) of the Income Tax Rules, 1962.

Issue-wise Detailed Analysis:

1. Estimation of Net Profit by Applying a Net Profit Rate:
The assessee did not file an Income Tax Return (ITR) and was listed as a non-filer under NMS Priority-1. The Assessing Officer (AO) issued a notice under Section 148 of the Income Tax Act, 1961, and subsequently under Section 142(1), but the assessee did not comply. The AO estimated the gross receipts at Rs. 36,00,00,000 and applied a Net Profit (NP) rate of 8%, determining the net profit at Rs. 2,88,00,000. The Commissioner of Income Tax (Appeals) [CIT(A)] reduced the NP rate to 5%, estimating the net profit at Rs. 1,70,95,760. The Tribunal considered the past profit rates of the assessee, which were around 1.33% and 1.10% for the preceding years, and deemed a 5% NP rate to be on the higher side. The Tribunal decided to apply a 1.33% NP rate, consistent with the assessee's historical performance, and partly allowed the appeal on this ground.

2. Separate Addition towards Income from Interest and Commission:
The AO added Rs. 3,17,048 towards income from interest and commission over and above the estimated business income. The CIT(A) upheld this addition, stating that the nature of the commission and interest received was not explained, and no expenses were allowed against these incomes. The Tribunal directed the AO to verify whether the assessee had disclosed this income in its books and, if so, to avoid a separate addition. This ground was allowed for statistical purposes.

3. Separate Addition towards Income from Rent:
The AO added Rs. 2,21,800 towards income from rent over and above the estimated business income. The CIT(A) upheld this addition. The Tribunal directed the AO to verify whether the assessee had disclosed this income in its books and, if so, to avoid a separate addition. This ground was also allowed for statistical purposes.

4. Admission of Additional Evidence under Rule 46A(1)(c) of the Income Tax Rules, 1962:
The assessee claimed that it was prevented by sufficient cause from producing evidence during the assessment proceedings due to the illness of the Director and financial hardships. The CIT(A) rejected the application for additional evidence, stating that no proof of illness was provided, and the financial statements were not acknowledged as filed with the Registrar of Companies. The Tribunal noted that the assessee had filed the tax audit report on the portal and provided audited financial statements. The Tribunal allowed the additional evidence and directed the AO to verify the disclosed incomes, thereby partly allowing the appeal on this ground.

Consolidated Order:
Both appeals, ITA No. 343/JP/2024 and ITA No. 344/JP/2024, were heard together as the issues involved were identical. The Tribunal's decision in ITA No. 343/JP/2024 was applied mutatis mutandis to ITA No. 344/JP/2024. As a result, both appeals were partly allowed. The Tribunal emphasized the need for a fair estimation of income based on historical data and directed the AO to verify the disclosed incomes to avoid separate additions. The order was pronounced in the open court on 10/07/2024.