2024 (9) TMI 636 - AT - Income Tax

Determination of Net profit rate - adopt profit at 15% on the undeclared turnover - HELD THAT - Net profit rate subsequent to the FAA s Order is at 20.5% after taking into consideration the declared income of Rs. 7,25,000/-. It is an admitted fact (which is also noted by the AO) that for Assessment Years 2014-15 and 2018-19 in assessee s case, income was declared on a presumptive basis under section 44AD of the Act (8% of the gross receipts). For Assessment Year 2017- 18, on a gross turnover of Rs. 1,32,55,955/- assessee had declared a net profit of Rs. 10,93,391/- i.e., @ 8.24%. For Assessment Year 2017-18, the books of accounts were audited under section 44AB of the Act. Therefore, the figures for Assessment Year 2017-18 are more dependable and can be relied on. Assessee was carrying on the same line of business and was having gross receipts more or less of the same range for the relevant Assessment Year as well as in the Assessment Year 2017-18. Taking into account the expenses incurred for hiring transport of vehicle from others for the assessee s business of transportation of goods, net profit rate of 8.24% declared in the return of income and accepted by the AO for Assessment Year 2017-18 needs to be adopted in this year also. Accordingly, direct the AO to adopt a net profit rate of 8.24% on the gross receipts for the relevant Assessment Year. Appeal filed by the assessee is partly allowed.

Summary

Issues:
1. Discrepancy in profit estimation between the assessee and the assessing officer.
2. Application of profit rate on undeclared turnover by the National Faceless Appeal Centre.
3. Reasonableness of the profit percentage adopted by the assessing officer.
4. Comparison of profit rates declared in previous assessment years.

Analysis:
1. The appeal concerns the disagreement over the profit and gain from business declared by the assessee and the assessing officer for the Assessment Year 2016-17. The assessing officer added an amount to the income declared by the assessee, citing discrepancies in the turnover figures.

2. The National Faceless Appeal Centre directed the assessing officer to adopt a profit rate of 15% on the undeclared turnover of Rs. 96,40,912, differing from the 6.8455% declared by the assessee. The issue revolves around the reasonableness of this adjustment and whether it aligns with the provisions of the Income Tax Act, 1961.

3. The CIT(A) partially allowed the appeal by reducing the profit rate to be adopted to 15% from the assessing officer's 30%. The CIT(A) emphasized the requirement for auditing accounts under Section 44AB for businesses exceeding Rs. 1 crore in sales, suggesting that the assessee's declared profit percentage was below the standard.

4. The Tribunal reviewed the facts and submissions, considering the consistency of profit rates declared in previous assessment years. The Tribunal found the net profit rate of 8.24% declared by the assessee for the Assessment Year 2017-18 to be reasonable and applicable to the current year as well. Therefore, the Tribunal directed the assessing officer to adopt a net profit rate of 8.24% on the gross receipts for the relevant Assessment Year, partially allowing the appeal.

This detailed analysis showcases the progression of the case, highlighting the key arguments, decisions, and legal considerations involved in the judgment.