What did the Tribunal hold?

The Tribunal acknowledged the volatility in the rubber business and the year-to-year fluctuation in profit margins. It considered the Assessing Officer's estimation reasonable but reduced it slightly to 0.20% of the gross turnover.

The Assessing Officer estimated the assessee's business income at 0.25% of the gross turnover due to a lack of proper vouchers for expenses, suggesting potential inflation. The CIT(A) sustained this estimation, finding the assessee's explanation for low net profit insufficient.

What were the issues?

Whether the estimation of net profit by the Assessing Officer and sustained by the CIT(A) was justified, considering the nature of the business and the availability of vouchers.

Sri.Mohammed Sajas, Kottayam vs ITO | ITAT Cochin 2019

Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN

For Appellant: Shri Iype John, CA

For Respondent: Smt. A.S. Bindhu, Sr. DR

Hearing: 15/01/2019Pronounced: 15/01/2019

Per CHANDRA POOJARI, AM:

This appeal filed by the assessee is directed against the order of the CIT(A),

Kottayam dated 18/06/2018 and pertains to the assessment years 2011-12.

The assessee has raised the following grounds:

The order of the Commissioner of Income Tax (Appeals) is opposed to law, facts and circumstances of the case.

The Commissioner of Income Tax (Appeals) has erred in sustaining the Net Profit at 0.25% of the gross turnover without any basis or material.

The Commissioner of Income Tax (Appeals) ought to have found that the Assessing Officer had raised no objections on the books of accounts produced but made the addition stating that the Net Profit ratio is low as compared to the previous year.

The Commissioner of Income Tax (Appeals) ought to have found that the Assessing Officer has merely stated that "as the assessee was not maintaining proper vouchers for many expenses, there is a possibility of inflated expenditure which can result in low Net Profit", without pointing out any such voucher or possibility .

For the above and other grounds that may be advanced at the time of hearing it is respectfully submitted that the order of the Commissioner of Income Tax (Appeals) be set aside.

The facts of the case are that the Assessing Officer estimated the income

from business at 0.25% of the gross turnover of Rs.55,32,80,611/- i.e. at

Rs.13,83,203/- on the ground that no proper vouchers were maintained by the

assessee for many expenses such as travelling charges, miscellaneous expenses,

shop expenses, etc. According to the Assessing Officer in the absence of proper

vouchers, the assessee was able to inflate the expenditure which resulted in low

net profit. Hence, the Assessing Officer estimated the net profit at .25% of the

gross receipts.

On appeal, the CIT(A) observed that the net profit shown by the assessee

for the AY 2011-12 was abysmally low compared to the previous years.

According to the CIT(A), the Assessing Officer had given opportunity to the

assessee to explain the reasons for such low profit but, the assessee was not

able to substantiate the reasons for the low profit except stating that he had maintained proper books of account. It was noticed that there were certain

mistakes in the vouchers produced by the assessee in support of the expenditure

incurred. Hence, the CIT(A) held that the net profit estimated by the Assessing

Officer at 0.25% of the gross receipts was reasonable.

Against this, the assessee is in appeal before us. The Ld. AR reiterated the

submissions raised before the CIT(A). The Ld. DR relied on the order of the

CIT(A).

We have heard the rival submissions and perused the material on record. The

assessee disclosed the income at .15% during this year as against the income

.48% earned during the earlier year from the business in raw rubber. The

Assessing Officer estimated the income at .25% of the gross turnover as the

assessee was not maintaining vouchers for expenses like travelling expenses,

miscellaneous expenses, shop expenses etc. He was of the opinion that there is

every chance of inflating the expenditure incurred and there is wide gap between

the percentage of income of the present assessment year and the earlier

assessment year. The assessee explained that there was wide fluctuation of the

profit margin from year to year on account of volatileability in the rubber

business. The assessee also thrust upon the point that it is not possible to have

uniform rate of profit margin year to year. There should be change of

percentage of profit and the average rate of profit cannot be applied. It was also submitted that the estimation of income at .25% of the gross turnover was

on a higher side and prayed to reduce the same. Considering the above

estimation by the Assessing Officer and volatileability in the rubber business of

the assessee, we consider it reasonable to estimate the income at .20% of the

gross turnover instead of .25% as estimated by the Assessing Officer.

In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on this 15th January, 2019.

sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 15th January, 2019 GJ Copy to: 1. Shri Mohammed Sajas, Kalarickal House, Kanjirappally P.O., Kottayam. 2. The Income Tax Officer, Ward-3, Kottayam. 3. The Commissioner of Income-tax(Appeals), Kottayam. 4. The Pr. Commissioner of Income-tax, Kottayam. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin

SRI.MOHAMMED SAJAS,KOTTAYAM vs. THE ITO,WD-3, KOTTAYAM

What did the Tribunal hold?

What were the facts?

What were the issues?

Which sections of the Income-tax Act were involved?

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