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Facts
The assessee, a fruit vendor, did not maintain books of account or file income tax returns. The Assessing Officer estimated the income at a 10% net profit rate, despite proposing an 8% rate in the show-cause notice issued under Section 142(1). The assessee challenged this, relying on prior tribunal decisions that suggested a lower profit margin for perishable goods.
Held
The Tribunal dismissed grounds 3 to 5 as not pressed by the assessee. For the remaining grounds, the Tribunal found the AO's estimation of 10% net profit was unsustainable, as it contradicted the 8% proposed in the show-cause notice. Citing a precedent where a 4% profit margin was deemed reasonable for similar businesses, the Tribunal directed the AO to re-estimate the income at a 5% net profit rate.
Key Issues
Whether the Assessing Officer was justified in estimating the assessee's income at a 10% net profit rate, particularly when the show-cause notice proposed an 8% rate, given that the assessee did not maintain books of account.
Sections Cited
142(1), 44AD, 148
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Income Tax Appellate Tribunal, Hyderabad ‘ SM-A ‘ Bench, Hyderabad
Before: Shri Vijay Pal Rao, Vice-Shri Manjunatha, G.
(िनधा�रण वष�/Assessment Year: 2015-16) Shri Syed Vazeer Ali Vs. Income Tax Officer Hyderabad Ward 7(1) PAN:AOQPA1112H Hyderabad (Appellant) (Respondent) िनधा��रती �ारा/Assessee by: C.A GD Upadhyay राज� व �ारा/Revenue by:: Shri S. Mookambikeyan Sr.AR सुनवाई की तारीख/Date of hearing: 17/06/2025 घोषणा की तारीख/Pronouncement: 19/06/2025 आदेश/ORDER Per Vijay Pal Rao, Vice President
This appeal filed by the assessee is directed against the order dated 13/01/2025 of the learned CIT (A)-NFAC Delhi, for the A.Y.2015-16.
2. The assessee has raised the following grounds of appeal: “1. The Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.814221/- to the total income
Page 1 of 6 which was arbitrarily estimated by the Assessment Unit, Income Tax Department @10% of Turnover at abnormally high rate of Net Profit and even higher than the Net Profit percentage prescribed u/s.44AD of the Income Tax Act, 1961.
The Commissioner of Income Tax (Appeals), failed to observe that the appellant is dealing in perishable commodity in which it is not possible to earn such higher Net profit percentage as estimated by the Assessment Unit, Income Tax Department.
The Commissioner of Income Tax (Appeals) erred in confirming the amount of Interest charged by the Assessment Unit, Income Tax Department under section 234A Rs.150930/- 234B of Rs.162540/ and 234C of Rs.510/-.
4. The aforesaid grounds are alternative and without prejudice to one another.
5. The appellant seeks the leave to add, alter, modify amend or delete any or all, as the case may be, the grounds of appeal.”
3. At the time of hearing, the learned AR of the assessee has submitted that the assessee does not press Ground Nos. 3 to 5 and therefore, the same may be dismissed as not pressed.
The learned DR has no objection, if the Grounds 3 to 5 are dismissed as not pressed. Accordingly, Ground Nos. 3 to 5 of the appeal are dismissed being not pressed.
In Ground Nos. 1 & 2, the assessee has challenged the estimation of income by the Assessing Officer by adopting the net profit rate @ 10%. The learned AR of the assessee has submitted that the assessee is a Fruit Vendor which is a perishable
Page 2 of 6 commodity and therefore, the profit in this line of business is very low. The assessee does not maintain any books of account. He has pointed out that the Assessing Officer in the show cause notice issued u/s 142(1) of the Act has proposed the estimation of the income by adopting the net profit @ 8% u/s 44AD of the Act, however, while passing the impugned order, the Assessing Officer has estimated the income of the assessee by adopting the net profit @ 10%. Thus, the order of the Assessing Officer is contrary and beyond the scope of the show-cause notice issued by the Assessing Officer. He has relied upon the decision of the Coordinate Bench of this Tribunal dated 10/05/2013 in the case of Income Tax Officer vs. Shri Y. Jaya Prakash Tripathi in for the A.Y 2009-10 and submitted that the Tribunal has held that in the business of purchase and sale of fruits and vegetables, the profit margin @ 4% is reasonable and proper instead of 8% adopted by the Assessing Officer. Thus, the learned AR of the assessee has submitted that the income of the assessee may be estimated by adopting the net profit @ 4%.
On the other hand, the learned DR has submitted that the assessee is a non-filer of return of income as no return of income was filed by the assessee. Even the assessee has not filed any Tax Audit Report despite having the turnover of Rs.1,21,88,627/-. In the return of income filed by the assessee in response to the notice u/s 148 of the Act, the assessee has declared Rs.4,04,642/- which comes to 3.32% of the total
Page 3 of 6 turnover. However, the assessee has not filed any documentary evidence either before the Assessing Officer or before the learned CIT (A) in support of the claim of the income declared as Rs.4,04,642/-. The assessee has even not filed any sales or purchase bills as well as details and documentary evidence to substantiate the claim of direct and indirect expenditure. Thus, the learned DR has submitted that the Assessing Officer has rightly estimated the income of the assessee at 10% of the turnover.
We have considered the rival contentions as well as the relevant material available on record. We find that the assessee has not filed any return of income nor maintained any books of account. Thus, except estimating the income of the assessee by taking some reasonable and proper net profit rate, the Assessing Officer was not having any other course of computation of income. The assessee has even not furnished any details about the business transactions or any expenditure incurred by the assessee. Therefore, the turnover of the assessee was taken as per the amount deposited in the bank account of the assessee which is also not disputed by the assessee as the turnover of the assessee. Accordingly, in the facts and circumstances of the assessee when the assessee is not maintaining any books of account as well as any other record in support of any business transaction of purchase and sale of fruits as well as the other expenditure claimed by the assessee, the income of the assessee
Page 4 of 6 was required to be assessed at best judgment basis and the Assessing Officer ought to have estimated the income by taking some reasonable and proper guidance of net profit rate in the business of fruit vendor. The Assessing Officer in the notice issued u/s 142(1) of the Act has proposed to estimate the income by adopting the net profit rate at 8% as per section 44AD of the Act, however, while framing the assessment order, the Assessing Officer has estimated the income by applying the net profit at 10% of the turnover which is contrary to the show-cause notice issued by the Assessing Officer. Thus, estimation of income by adopting 10% as net profit is not sustainable in law when the Assessing Officer himself has proposed in the show cause notice to estimate the income by adopting the net profit at 8%. The assessee has relied upon the decision of the Coordinate Bench of this Tribunal in the case of ITO vs. Shri Y. Jaya Prakash Tripathi (Supra) wherein the Tribunal has estimated the net profit at 4% as reasonable and justified. Accordingly, in the facts and circumstances of the case and in view of the earlier decision of this Tribunal, we direct the Assessing Officer to apply the net profit at 5% which is, in our view, is proper and reasonable for estimation of the income of the assessee when the assessee is not maintaining any books of account or any other record in respect of his business transactions.
In the result, appeal filed by the assessee is partly allowed.