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Facts
The assessee filed an appeal against the order of the Ld.CIT(A) for AY 2018-19. There was a significant delay in filing the appeal before the tribunal, which the assessee attributed to a change in email ID and a subsequent lack of awareness of the Ld.CIT(A)'s order. The primary dispute revolved around the estimation of the net profit at 29.1% of sales by the AO. The assessee's business is manufacturing fabricated metal products.
Held
The tribunal condoned the delay in filing the appeal. Regarding the net profit estimation, the tribunal found that the AO's calculation errors led to an incorrect estimation. Considering the assessee's concession and the calculated net profit ratio, the tribunal decided to estimate the net profit at 6% of sales. The addition on account of increase in capital was deleted as it was covered by the returned income and estimated net profit. The disallowance of depreciation was also directed to be deleted as it was subsumed in the net profit.
Key Issues
Whether the tribunal should condone the delay in filing the appeal. Whether the net profit estimation by the AO at 29.1% is justified. Whether the addition for increase in capital and disallowance of depreciation are sustainable when net profit is estimated.
Sections Cited
147, 148, 143(3)
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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI M. BALAGANESH & SHRI S.S. VISWANETHRA RAVI
सुनवाईकीतारीख/Date of Hearing : 15.10.2025 घोर्णाकीतारीख/Date of Pronouncement: 16.10.2025 आदेश /O R D E R
PER M. BALAGANESH, AM :
This appeal by the assessee is filed against the order of the learned Commissioner of Income Tax (Appeal), NFAC, Delhi, (in short Ld.CIT(A) for the assessment year 2018-19, vide order dated 11.09.2024.
ITA. No:1988/Chny/2025 2.0 At the outset, we find that there is a delay in filing of appeal by the assessee by 228 days before us. The assessee submitted that last response was filed before the Ld.CIT(A) on 18.01.2024. This response was filed pursuant to the notice of hearing sent to email Id mentioned in Form-35. Later the assessee had changed the email Id for all correspondences and accordingly, the subsequent notice from the office of Ld.CIT(A) had gone to the new email Id which stood non-complied by the assessee. Ultimately, the order of Ld.CIT(A) was passed on 11.09.2024 and only when the penalty order dated 25.06.2025 was passed, the assessee came to know about the order dated 11.09.2024 passed by the Ld.CIT(A). Immediately, an appeal before this tribunal was filed on 16.07.2025 with a delay of 228 days. Considering the reason adduced in the condonation petition, in the interest of substantial justice, we deem it fit to condone the delay and admit the appeal of the assessee for adjudication.
3.0. The ground nos. 2 to 5 raised by the assessee are challenging the estimation of net profit at 29.1% of sales.
3.1. We have heard the rival submissions in the light of material available on records. The assessee is a proprietor having trade name
ITA. No:1988/Chny/2025 “Deepan Metal Works” and engaged in the business of manufacturing of fabricated metal products. The return of income for the AY-2018-19 was filed by the assessee on 31.10.2018 declaring a total income of Rs.12,49,170/-. The assessee had enclosed the tax-audit report with its annexure along with return of income. The Ld.AO sought to reject the book results of the assessee and proceeded to estimate the net profit of the assessee’s business at 29.1% of sales based upon average net profit of previous five assessment years and made an addition of Rs.30,71,342/-. While estimating the net profit at 29.1%, the Ld.AO made calculation errors. The Ld.AR before us furnished the correct calculation of net profit ratio and average of the five years net profits works out to 4.96%. The assessee has shown 5.4% in its return for the year under consideration. However, the Ld.AR stated that the assessee has not produced any books of accounts before the Learned AO and accordingly came forward to determine the net profit of the assessee for the year at 6% to take care of the deficiencies, if any. Admittedly, the assessee had not furnished the books of accounts before the Ld.AO. The rejection of book results by the Ld.AO is not in dispute before us. The only dispute is determination of percentage of net profit to be estimated. Considering the above facts and the concession given by the Ld.AR, we are inclined to estimate the net profit of the business of the assessee at 6% of sales for the year under consideration with a rider
ITA. No:1988/Chny/2025 that the same shall not act of a precedent for future years and for other assesses. Accordingly, the ground nos. 2 to 5 raised by the assessee are partly allowed.
4.0 The ground nos. 6 to 8 raised by the assessee are challenging the addition of Rs.9,30,578/- made on account of increase in capital for the year under consideration.
4.1 We have heard the rival submissions in the light of material available on records. We find that the Ld.AO had determined the income of the assessee taking into account the returned income of Rs.12,49,170/- and had further made estimation of net profit from business. This estimation of net profit had been decided at 6% in the previous grounds. We find that the returned income and estimation of net profit at 6% is duly explains the source for increase in capital to the extent of Rs.9,30,578/-. Hence, the benefit of telescoping shall be available to the assessee. Hence, no separate addition on account of increase in capital is warranted. The ground nos. 6 to 8 are allowed.
5.0 The ground no.9 raised by the assessee is challenging the disallowance of depreciation of Rs.2,85,000/- after resorting to estimation of net profit.
ITA. No:1988/Chny/2025 5.1 We have heard the rival submissions in the light of material available on records. The Ld.AO having resorted to estimate the net profit from business, ought not to have made separate disallowance on account of depreciation on assets as it gets subsumed in the net profit. Hence, separate disallowance of depreciation of Rs.2,85,000/- is directed to be deleted. Hence, the ground no.9 is allowed.
6.0 The ground no.10 raised by the assessee was stated to be not pressed by the Ld.AR at the time of hearing. The same is reckoned as statement made from the BAR and accordingly, the ground no.10 raised by the assessee is dismissed as not pressed.
7.0 The ground nos.11 to 17 raised by the assessee are general in nature and does not require any specific adjudication.