2025 (2) TMI 575 - AT - Income Tax

Estimation of net profit on the alleged purchases made in cash by the assessee - HELD THAT - All the details of books of account and ledger account have been provided to the AO however he has not rejected the book results prior to estimation. Assessee has contended that estimation of profit without rejecting the book results in itself vitiates the assessment proceedings and the impugned addition deserves to be deleted. Although ld. AO has not specifically mentioned about the rejection of book results and has not mentioned section 145(3) of the Act however in the assessment order AO has made certain observations which questions the correctness of books and Net Profit estimated by the assessee. So far as this plea of the assessee that books of account not being rejected will result into deletion of the impugned addition I do not find any merit. After considering the details filed by the assessee financial statements for the years under appeal and considering the net profits offered by the assessee in subsequent years showing the turnover of Livestock/Poultry products equal to the amounts of goods brought from VHPL on behalf of his clients and the assessee adds back the profit which is normally the commission per kg basis and declares the sales the activity of business of Livestock and earning commission per kg basis for transporting Livestock from VHPL to the retailers of Dhule District remain proved but the AO has estimated the profit as applicable to retailer traders which is not applicable to assessee since he is engaged in the business of transportation of Livestock and is not a retailer. Income earned on the alleged transaction of purchases referred in the assessment order - Net profit offered in the past and in subsequent period and also considering the fact that assessee is mainly involved in transporting of livestock and poultry products and the income is in the nature of Commission which is earned on per kg basis deem it proper to apply the net profit rate of 1.50% on the turnover of Rs. 2, 85, 94, 760/- referred in the assessment order and calculate the profit at Rs. 4, 28, 921/-. However since the assessee has already offered the profit of Rs. 3, 50, 828/- in the income-tax return the excess amount of profit at Rs. 78, 093/- is sustained in the hands of assessee. Finding of ld.CIT(A) is set aside and grounds of appeal raised on merits by the assessee is partly allowed.

Summary

The issues presented and considered in the judgment are as follows:1. Whether the assessment order issued without a Document Identification Number (DIN) is null and void in law.2. Whether the addition of Rs. 19,36,753 by estimating net profit at 8% on total sales of livestock is justified.3. Whether the assessee was engaged in wholesale trading business of livestock and if the addition made by estimating net profit at 8% was justified.The detailed analysis of the identified issues is as follows:Issue 1:The relevant legal framework and precedents were not explicitly mentioned in the judgment. The Court dismissed the legal issue raised by the assessee regarding the absence of a DIN in the assessment order as "Not Pressed."Issue 2:The Court considered the argument that the addition of Rs. 19,36,753 by estimating net profit at 8% on total sales of livestock was not justified. The Court analyzed the evidence presented by the assessee, including financial statements and submissions. The Court noted that the assessee was involved in transporting livestock on a commission basis, not wholesale trading. The Court found that the assessment made by the AO at 8% net profit was high and not based on a proper basis. The Court determined a net profit rate of 1.50% on the turnover and adjusted the profit amount accordingly.Issue 3:The Court examined whether the assessee was engaged in wholesale trading business and if the addition based on the 8% net profit estimation was justified. The Court considered the nature of the assessee's business as a transporter of livestock and not a retailer. The Court found that the net profit rate of 1.50% was more appropriate for the assessee's business activities. The Court applied this rate to calculate the profit for both assessment years, resulting in adjustments to the income declared by the assessee.Significant Holdings:The core principle established in the judgment is that the estimation of net profit should be based on the nature of the assessee's business activities. The Court determined that the assessee, engaged in transporting livestock on a commission basis, should be assessed at a lower net profit rate than that applied to wholesale traders. The final determinations on each issue led to the partial allowance of the assessee's appeals, with adjustments made to the assessed income based on the more appropriate net profit rate of 1.50%.Overall, the Court's analysis focused on the nature of the assessee's business, the evidence presented, and the proper application of net profit rates to determine the correct taxable income for the assessment years in question.