DCIT-C-1(1), MYSORE vs. YERMUL VASU SHETTY SATISH SHETTY, MYSORE

Page 4 of 6 not maintain books of accounts or get them audited. The assessee has been consistently declaring net profit ranging from 4.93% to 10.8% in earlier and later years.

7.1 We find force in the argument of the learned AR for the assessee that the profit declared by the assessee over the period and accepted by the revenue should be taken for estimating the profit for the year under consideration. As such, in our considered view, the estimation made by the lower authorities was not based in scientific manner. The learned CIT(A) while estimating the profit has not considered the comparable cases and furthermore, ignored the profit declared and accepted by the Revenue in the own case of the assessee in earlier and later years. In our considered the view, the average profit declared by the assessee in the earlier and later years can be adopted as the parameter for determining the income of the assessee in the absence of books of accounts. In holding so, we draw support and guidance from the judgment of Hon’ble Gujarat High Court in case of CIT versus Kiran Industries Private Ltd in tax appeal No. 449 of 2011. Having perused the documents on record with the assistance of the learned counsel for the revenue, we notice that the Tribunal had though confirmed the view of the revenue authorities with respect to the rejection of the books of accounts of the assessee did not accept the re-computation of higher rate of gross profit on the premise that the average gross profit rate of last three years immediately preceding the year under consideration came to 14.79%. On such basis, the Tribunal found that the claim of gross profit rate @ 15.27% cannot be stated to be low. On such basis, the assesee’s appeal was allowed.

We are of the opinion that the findings of the Tribunal are based on evidence on record and are purely factual in nature. The Tribunal after taking into account relevant materials, came to the conclusion that a certain rate of gross profit presented by the assessee was acceptable.

7.2 The details of the average profit of the assessee in the earlier and later years is available on page 8 of the paper book. Considering the rate of profit declared by the assessee in the earlier and later years, the profit shown by the assessee in the year under consideration at 8.04% of the gross turnover is reasonable and sufficient to cover any revenue leakage. Therefore, there cannot be any further addition made by the authorities below. On perusal of the order of the authorities below, nothing was found out whether there was any change in the facts and circumstances of the year under consideration viz a viz in the earlier and later years. There was no change in the business activity of the assessee. As such, for the relevant assessment year, the assessee declared income at 8.04%, which falls within the accepted range of profit declared by the assessee over the different assessment years. The ld. CIT(A) rightly noted that disallowing all expenses and taxing gross receipts would be contrary to the intent of the Income Tax Act. However, the estimation at 20% is excessive considering results and the nature of business. No material evidence has been brought by the Revenue to justify higher profit estimation than 8.04% of the turnover. The 8.04% rate declared by the assessee reasonably covers any possible leakage due to lack of books and serves the interest of justice. Therefore, we hold that income should be estimated at 8% of the gross turnover. The action of the ld. CIT(A) estimating profit at 20% is unjustified and liable to be reversed. Hence, the grounds of appeal of the assessee are allowed whereas the grounds of appeal of the Revenue are dismissed.