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TMI Blog2024 (11) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... ared in the range of 1.5% to 2% is thus claimed by the assessee to be a fair estimate. However, it is the duty of the assessee to support the claim of profits in such narrow and low range. The assessee itself is to blame for not doing so. The estimation in the vicinity of such profits of 2 % or thereabout proposed on behalf of the assessee thus cannot be accepted. Section 44AD of the Act provides for statutory presumptions whereby the sum equal to 8% of the total turnover or gross receipts of the assessee in a previous year on account of the business by the eligible assessee is deemed as profit and gains of such business chargeable to tax. Impliedly such statutory estimations at 8% of the total turnover are based on empirical studies and data gathered with the Legislature. Such statutory estimations of profits thus may serve as useful guide for the purposes of estimations. Guided by the rules of justice, equity and good conscience, we thus consider it just and expedient to adopt the rate of 8% of the gross turnover receipts as fair estimation of taxable income and more so in the light of comparable data placed for lower profit margin earned by other assessee in same business. We th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee in an unjust and arbitrary manner. It was inter-alia submitted before the Ld.CIT(A) that statute provides only for levy of tax on income component and not on gross receipts. It is common knowledge that earning of such income is associated with corresponding expenditure and what is chargeable to tax under the Income Tax Act is income and not the gross receipts. It was also submitted that contract receipts arise after incurring expenditure. The only business of the assessee is of advertisements. The assessee has got no plant machinery for building, and as such the question of rental receipts on plant machinery etc. does not arise. The assessee thus broadly pleaded for a fair assessment of income. 6. The Ld.CIT(A) examined the issues raised and observed that the additions of gross sum of receipts is not justified. The Ld.CIT(A), on analysis of the facts and submissions, observed that a benign approach needs to be adopted in the facts of the present case. The ld. CIT(A) accordingly considered it fit and proper to estimate the profit percentage @ 12.5% considering the average profit margin earned in such business based on market and industry data. The Ld.CIT(A) accordingly, appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to be determined at Rs. 3,72,00,432 as an alternate submission of the appellant. The appellant has also relied on a number of judicial decisions in support. 5.5. I have carefully considered the facts of the case, the submission of the appellant and evidences on record. I find that the AO added the entire gross receipts as the appellant failed to declare the income received. The appellant submitted that the only business of the appellant is of advertisements and it has got no plant and machinery or buildings, as such, the question of rental receipts on plant and machinery etc. does not arise. The appellant submitted that in form No. 26AS, the sections under which TDS has been made, i.e. 194H, 194 I (a), 194 1 (b) and 194 J have been wrongly quoted and the nature of entire receipts is one and the same, i.e. contractual receipts. 5.6. In the case of Commissioner of Income Tax Vs. Williamson Financial Services Ors (SLP(C) 2275/2007, the Hon'ble Supreme Court has held as under :- It is important to bear in mind that under section 4 the levy is on total income of the assessee computed in accordance with and subject to the provisions of the Income Tax Act. What is chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r buildings. Therefore, its net profit cannot be estimated @ 8% only as its expenses would also be minimum compared to other business which has maintain buildings, plant and machineries etc. I find that the average profit margin from advertisement business can vary depending on a number of factors, such as the size of the agency, the services it offers, and the industry it operates in. However, based on market and industry data, normally the average profit margin for such business was around 10-15%. Therefore, in the absence of any records and evidences in support of its claims, the submission of the appellant for estimating the net profit @ 8% is not acceptable. I find that to meet the ends of justice, it will be reasonable to estimate the profit percentage @ 12.5% considering the average profit margin for such business based on market and industry data available. Therefore, the net profit of the appellant is worked out to 12.5% on the gross receipts of Rs. 46,50,05,403, which comes to Rs. 5,81,25,675.37. the AO is directed to restrict the addition to Rs. 5,81,25,675.37. The appeal on Ground No.3, 4, 5, 6 7 are treated as partly allowed. 6. Ground No 8 is directed against the AO i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of a peer firm engaged in the same business of advertising namely, M/s. Shakun Advertising Pvt. Ltd. [PAN-BBACS9742H] wherein, in the comparing turnover of INR 79.61 crores, the net profit derived by that assessee in Assessment Year 2015-16 was declared at INR 1.34 crores as per Row No.40 of the Tax Audit Report of that assessee. The Ld. Counsel for the assessee pointed out that the M/s. Shakun Advertising Pvt. Ltd. has earned net profit rate @ 1.69% in the current Assessment Year 2015-16 whereas reported net profit ratio stood at 1.05% in Assessment Year 2014-15 as noted in the Tax Audit Report. The Ld. Counsel for the assessee thus, submitted that applying 12.5% net profit ratio on the gross receipts as estimated income, is highly improbable and defies the grounds realties of advertising business. The Ld. Counsel for the assessee thus, urged for suitable relief and modification in the first appellate order by scaling down the estimations made by L.CIT(A) in the range of 2-3% of the turnover/ receipts. 13. We have carefully considered the submissions of rival parties and also perused first appellate order and assessment order. The material referred to and relied upon in the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the assessee. One is wholly unable to subscribe to the view that unless those authorities exercise the power in a manner most beneficial to the Revenue and consequently most adverse to the assessee, they should be deemed not to have exercised it in a proper and judicious manner . 16. For determination of taxable income, involvement of some guesswork would be indispensable in the absence of requisite financial data. The Ld.CIT(A) however, while resorting to estimations, has applied 12.5% to be estimated profits from receipts derived in advertisement and other activities carried out by the assessee. The CIT(A) has not provided reference to any material to weigh 12.50% to be a fair estimate. The assessee on the other hand has given reference to profits derived by the other party in the same business. The profits declared in the range of 1.5% to 2% is thus claimed by the assessee to be a fair estimate. However, it is the duty of the assessee to support the claim of profits in such narrow and low range. The assessee itself is to blame for not doing so. The estimation in the vicinity of such profits of 2 % or thereabout proposed on behalf of the assessee thus cannot be accepted. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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