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Facts
The assessee filed its return of income, which was processed under Section 143(1). Subsequently, the case was selected for scrutiny, and statutory notices were issued. However, there was no compliance from the assessee. The Assessing Officer (AO) estimated the net profit at 5% of turnover, resulting in an addition to the total income.
Held
The Tribunal, considering the submissions and material on record, found that a net profit rate of 2% would be reasonable. Accordingly, the AO was directed to restrict the estimation to 2% of turnover, and the remaining addition was directed to be deleted.
Key Issues
Whether the net profit rate estimated by the AO at 5% was excessive and arbitrary, and whether a lower rate of 2% would be fair and justified based on comparable cases and the assessee's past performance.
Sections Cited
143(1), 143(2), 142(1), 133(6), 144, 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘SMC” BENCH KOLKATA
Before: Shri Sonjoy Sarma & Shri Rakesh Mishra
Assessment Year: 2010-11 Binod Kumar Burnwal…….……...……..…………………....Appellant C/o Ghanashyam Burnwal, Banagram, Nutandanga, Gogla, Burdwan – 713383. [PAN: AIZPB0692A] vs. ITO, Ward-2(1), Durgapur…………………..………………….…..... Respondent Appearances by: Shri Manoj Tiwari, Advocate, appeared on behalf of the appellant. Shri Kallol Mistry, JCIT, Sr. DR, appeared on behalf of the Respondent. Date of concluding the hearing : July 29, 2025 Date of pronouncing the order : July 31, 2025 आदेश / ORDER
Per Sonjoy Sarma, Judicial Member:
This appeal by the assessee is directed against the order dated 18.03.2025 passed by the NFAC [in short CIT(A)] under section 250 of the Income-tax Act, 1961.
Brief Facts of the case are that the assessee filed its return of income declaring total income of ₹2,89,094, which was processed under Section 143(1) of the Income-tax Act, 1961. Subsequently, the case was selected for scrutiny under CASS with prior approval of the competent authority. Statutory notices under Sections 143(2) and 142(1) were issued, but there was no compliance from the assessee or his authorised representative. In the absence of proper books of account or supporting documents, the Assessing Officer (AO) collected copies of audited financial statements from the assessee’s Chartered Accountant. It was observed that during the year under consideration, the assessee Binod Kumar Burnwal debited ₹2,61,28,804.25 under the head “Purchase”. The AO initiated verification of purchase transactions by issuing notices to the respective parties under Section 133(6) and examining records from earlier scrutiny assessments. Total purchases of ₹27711502/- were reported from M/s. Dishnet Wireless Ltd. However, due to non-availability of books of accounts and supporting invoices, the AO could not verify the genuineness of the transactions in full. Given the non-compliance and incomplete verification, the AO proceeded to frame the assessment under Section 144 (best judgment assessment). The gross receipt as per the profit and loss account was ₹2,70,53,606 and the assessee had declared a net profit of ₹2,89,093.62, reflecting a net profit rate of 1.06% on turnover. Deeming the declared profit rate to be too low and not reflective of the business reality, the AO estimated net profit at 5% of turnover, resulting in an estimated net profit of ₹13,52,680. Accordingly addition of the total income of Rs.10,63,586.38 (Rs.13,52,680/- - Rs.2,89,093.62) was added in the hands of the assessee.
Dissatisfied with the above order assessee went in appeal where appeal of the assessee was dismissed by upholding the order of the AO.
Aggrieved by the above order assessee is appeal before this Tribunal. The assessee contended that the application of 5% profit rate was excessive and arbitrary in comparable cases involving similar line of business, net profit was estimated at 2% of turnover. The turnover and financials were not fully disputed; therefore, a lower net profit rate would be fair and justified. The AR furnished a comparative table of net profit and gross profit percentages earned in five years which is in following manner:
I.T.A. No.1154/Kol/2025 Binod Kumar Burnwal
We after considering the submission of parties and after considering the submission and material on record, we find that a net profit rate of 2% would be reasonable under the facts of the case and accordingly directed the AO to restrict the estimation to 2% of turnover, i.e., ₹2,70,53,606, which comes to ₹5,41,072. The remaining addition was directed to be deleted. Accordingly, addition of Rs.2,51,978.38 (Rs.541072 – Rs.289093.62) is sustained.
In the result, the appeal of the assessee is partly allowed. Kolkata, the 31st July, 2025.