RATHINAM SENTHILKUMAR,NAMAKKAL CHENNAI vs. ITO WORLD 2 NAMAKKAL, NAMAKKAL

The only issue in this appeal of assessee is as regards to the order of CIT(A) (NFAC, Delhi) i.e., CIT(A), Salem confirming the action of the AO in applying profit rate @ 8% as against declared by the assessee i.e., average percentage of profit at 3.11% for assessment year 2019- 20 to 2020-21. For this, assessee has raised various grounds which are argumentative and hence, need not be reproduced.

The brief fats are that the assessee is engaged in the business of poultry farming during the relevant financial year 2016-17 relevant to this assessment year 2017-18. The assessee filed his return of income for assessment year 2017-18 on 19.09.2017 and accordingly, assessee’s case was selected for scrutiny assessment for the reason, “cash deposit during the year”. The AO during the course of assessment proceedings noticed that there are cash deposits and other credits appearing in assessee’s bank account maintained with Canara Bank, Pillanallur, Namakkal i.e., total cash credit of Rs.2,31,04,621/-. The AO noted that the assessee has admitted income of Rs.4.2 lakhs from poultry business but has not maintained any books of accounts or has not got the accounts audited u/s.44AB of the Act as the assessee’s turnover exceeds Rs.2,31,04,621/-. Accordingly, the AO estimated the profit rate at 8% of the total credit of the total credit of Rs.2,31,04,621/- and assessed the business income at Rs.18,48,370/-, after allowing set off of income already declared of Rs.4,20,000/- the - 3 - AO added the estimated income at Rs.14,28,370/-. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) also confirmed the action of the AO. Aggrieved, assessee came in appeal before Tribunal.

I have heard rival contentions and gone through facts and circumstances of the case. I noted that the assessee has engaged in the business of poultry farming and he has total credits or gross receipts of Rs.2,31,04,621/- during the financial year 2016-17 relevant to this assessment year 2017-18. The AO estimated profit rate at 8% based on the provisions of section 44AD of the Act. Admittedly, the provisions of section 44AD of the Act do not apply to the case of the assessee and some estimation has to be done but reasonable estimation has to be done. I have gone through the decision of Hon’ble Gujarat High Court in the case of PCIT vs. Kandla Steel (P) Ltd., [2023] 149 taxmann.com 224, wherein Hon’ble Gujarat High Court upheld the Tribunal’s order of upholding the estimation of net profit at 0.5% by observing in para 10 as under:- “10. We find that both the CIT (Appeals) and the Tribunal have concurrently held estimating the net profit at 0.05 % of the assessee company. While so doing, it had also confirmed the act of rejection of books under Section 145 of the IT Act. At the same time, there has been equitable balance struck by the authorities when it found that the Assessing Officer had not given any internal or external comparitive figures of sector of the assessee's business while arriving at the GP/NP ratio of 7%. The business is of trading of steel items. The manufacturing activities had almost stopped. The NP ratio of 7% being impractical and completely unacceptable and as most of the trading concerns have been operating C/TAXAP/675/2022 ORDER DATED: 03/01/2023 at the GP ratio of 0.5%

- 4 - 1%, when both the authorities have deemed it appropriate to apply 0.5% ratio, no indulgence is necessary. These are all essentially and predominantly the factual aspects analysed based on the material adduced before these authorities and that also by giving cogent and sound reasons, in absence of any question of law, much less any substantial questions of law for the court to admit this matter, this appeal is dismissed.”

In the result, the appeal filed by the assessee is partly-allowed.