What did the Tribunal hold?

The Tribunal found no merit in the Revenue's argument that the 5% estimation was lenient. It directed the AO to adopt the average of the assessee's declared profits from preceding assessment years.

The assessee, engaged in textile manufacturing, did not appear before the Assessing Officer (AO) or produce books of account. The AO estimated income at 5% of gross sales, which was upheld by the CIT(A).

What were the issues?

Whether the estimation of income at 5% of gross sales by the lower authorities was justified without considering the assessee's past profit declarations.

Shiva Shankthi Textile Industries… vs ITO | ITAT Hyderabad 2021

Income Tax Appellate Tribunal, HYDERABAD BENCHES “A” : HYDERABAD

Before: SHRI S.S.GODARA & SHRI LAXMI PRASAD SAHU

O R D E R PER S.S.GODARA, J.M. :

This assessee’s appeal for AY.2014-15 arises from the CIT(A)-3, Hyderabad’s order dated 19-07-2017 passed in case No.0448/CIT(A)-3, Hyd/2016-17, in proceedings u/s.143(3) r.w.s.144 of the Income Tax Act, 1961 [in short, ‘the Act’]. Heard both the parties. Case file perused.

Coming to the assessee’s sole substantive grievance that both the learned lower authorities have erred in law and on facts in estimating 5% as income element on gross sales of Rs.22,91,79,791/-, we notice that the CIT(A)’s detailed discussion affirming the Assessing Officer’s action reads as under:

5. Grounds of appeal relates to estimation of income @ 5% on gross sales of Rs.22,91,79,791/-. The statement of facts, grounds of appeal and assessment order have been perused. As seen from the assessment order, the appellant was engaged in the business of manufacturing of textiles / garments and the gross receipts as per P&L A/c was Rs.22,91,79,791/-. In order to verify the correctness of income returned, the Assessing Officer issued notices to the appellant. The appellant neither appeared nor produced books of account, bills and vouchers and failed to utilise the opportunities given by the Assessing Officer. In the absence of books of account bills and vouchers, the Assessing Officer completed the assessment u/s. 143(3) r.w.s. 144 by estimating the income from the business of the appellant at 5% on gross sales of Rs.22,91,79,791/- which works out to Rs. 1,14,58,989/-. In the instant easel the appellant neither appeared nor submitted any documentary evidence before the Assessing Officer or in appeal. 6.3 Considering the submissions filed by the appellant at the time of filing of appeal, there is no reason to interfere with the order of the Assessing Officer and the same is upheld as the estimation of income @ 5% on total sales of Rs.22,91,79,971/- is fair and reasonable. Hence, Grounds of appeal made by the appellant are dismissed.

Both the learned representatives reiterated their respective stands against and in support of the impugned 5% income estimation on assessee’s gross turnover in textile manufacturing business.

Learned departmental representative’s vehement contention particularly is that both the lower authorities have already adopted a very lenient approach in assessing its gross turnover at such a minimal profit rate. We find no merit in the Revenue’s instant argument per se since the impugned estimation has neither been guided by the profit rates declared and accepted at the assessee’s behest in preceding nor in succeeding assessment years. There is also no comparable case quoted in the very line of business as well.

Learned counsel has invited our attention to the assessee’s detailed paper book running into 83 pages containing auditor’s report etc., for AYs.2010-11 to the impugned AY.2014-15 before us.

Faced with this situation, we deem it appropriate to direct the Assessing Officer to adopt average of the assessee’s profits declared in the AYs.2010-11 to 2013-14 in the impugned AY.2014-15. It is made clear that the instant direction shall not be treated as a precedent in any other case. Necessary computation to follow as per law.

This assessee’s appeal is treated as allowed for statistical purposes in above terms.

Order pronounced in the open court on 11th June, 2021

SHIVA SHANKTHI TEXTILE INDUSTRIES PRIVATE LIMITED,HYDERABAD vs. INCOME TAX OFFICER, WARD-3(1), HYDERABAD

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