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Income Tax Appellate Tribunal, ‘A’ BENCH, KOLKATA
Before: Sri J. Sudhakar Reddy & Sri S.S. Viswanethra Ravi
Date of concluding the hearing : April 25th, 2019 Date of pronouncing the order : May 10th ,2019 O R D E R Per J. Sudhakar Reddy :- This appeal by the assessee directed against the order of the ld. Commissioner of Income Tax (Appeals), Durgapur (hereinafter the ‘ld. CIT (A)’), passed u/s 250 of the Income Tax Act, 1961 (the ‘Act’), dated 29.05.2018 for Assessment Year 2011-12.
The assessee is an individual and is in the business of wholesale and retail trading in eggs. He filed his return of income on 14.02.2012 declaring total income of Rs.4,94,482/-. The Assessing Officer passed an order u/s 143(3) r.w.s. 263 of the Act determining total income at Rs.1,14,62,350/-, inter alia, estimating the profit of the assessee at 8% of total turnover of Rs.2,05,01,331/- consisting of disclosed sale of Rs.1,82,18,394/- and undisclosed sale of Rs.22,82,937/-. He further made a disallowance u/s 40A(3) of the Act of Rs.91,63,883/-. A small investment in RD account with OBC, Bankura Branch was also added.
Sri Ajit Prasad Dey 3. Aggrieved, the assessee carried the matter in appeal. The first appellate authority while confirming the disallowance u/s 40A(3) of the Act, reduced the estimated profit to 5.37% of the undisclosed purchases. He granted part relief.
Further aggrieved, the assessee is in appeal. The ld. Counsel for the assessee submitted that no separate disallowance can be made u/s 40A(3) of the Act once the profits of the assessee are estimated as percentage of gross turnover for the year. For this proposition, he relied on the judgment of the Hon’ble Supreme Court in the case of M/s Pradeep Singh Wazir vs. CIT & Anr. reported in 2017(3) TMI 1268(SC). He also relied on the decision of the Kolkata ‘C’ Bench of this Tribunal in the case of Barh Jewellers vs. ITO in order dated 03.04.2019, which had followed this decision of the Hon’ble Supreme Court.
On Ground no.2, he submitted that the percentage of net profit earned by the assessee in its regular trading in eggs as per the books of account is 1.59% and estimation of the gross percentage made by the ld. CIT(A) is excessive and arbitrary. He pleaded that net profit + percentage should be added as income in the place of gross profit.
The ld. DR on the other hand relied on the orders of the authorities below.
After hearing rival contentions, perusing the papers on record and the orders of the authorities below, we hold as follows.
On the issue of estimation of profits, the ld. CIT(A) at Para 7 and 7.1 held as follows: “7. From the reconciliation statement furnished by the appellant the payments made to Vinayak Egg to the tune of Rs.3,50,221 has been reconciled. However, payments made to Shree Lakshmi Ganpatroy of Rs.3,50,922 and of Rs.14,20,152 made to Sankrail Agro Poultries have not been reconciled. These payments are stated to have been made by the appellant towards purchase. The A.O has estimated GP at 8% on the undisclosed purchases. However, he has not given any reason or any fact for estimating the GP at 8%. The appellant case does not fall u/s 44AD, therefore, estimating at 8% without any fact or basis is uncalled for. The appellant’s GP percentage for the AYs 2010-11, 2011-12 and 2012-13 is as under:
Sri Ajit Prasad Dey Assessment Year Gross Turnover GP NP GP% 2012-13 13100792/- 555598/- 99155/- 4.24% 2011-12 18218394/- 979577/- 218741/- 5,37% 2010-11 17100905/- 880684/- 272603/- 5.14% 7.1 Since the purchases made from Shree Lakshmi Ganpatroy at Rs.3,50,221 and of Rs.14,20152 could not be reconciled by the appellant, the same will have to be treated as undisclosed purchase, income on which can be estimated by calculating the GP on these undisclosed purchases. Since there is nothing on record that would indicate that the GP disclosed by the appellant is not correct, I feel, the best way of estimating the GP would be to take the GP percentage disclosed by the appellant for the instant Assessment Year which is 5.37%. Therefore, the A.O is directed to delete the addition towards undisclosed purchase made from Vinayak Egg and estimate the GP at 5.37% on undisclosed purchase of Rs.3,50,922 and of Rs.14,20,152 from SankrailAgro Poultry and calculate the income accordingly. This ground of appeal
, therefore, is partly allowed.”
9. We find that the ITAT in such cases has been directed the A.O to estimate the income by applying the net profit percentage not the gross profit percentage.
The assessee has submitted following comparative statement of net profit/turnover: F.Y Asstt. Year Turnover Net profit Percentage of NP 2008-09 2009-10 316,24,291.00 580,980.00 1.84 2009-01 2010-11 171,00,905.00 272,603.00 1.59 2010-11 2011-12 182,18,394.00 218,741.00 1.20 2011-12 2012-13 131,00,792.00 99,155.00 0.76
The ITAT in the assessee’s own case for the Assessment Year 2012-13 in order dated 05.09.2018 has directed the adoption of net profit percentage of 2.50% of the turnover. The percentage of net profit derived by the assessee is less than that estimated by the ITAT.
Consistent with the view taken by the coordinate Bench, we direct the Assessing Officer to adopt net profit at 2.50% of the total turnover.
Coming to the disallowance made u/s 40A(3), the Hon’ble Supreme Court in the case of M/s Pradeep Singh Wazir vs. CIT & Anr. (supra) held as follows:
“In the process the High Court has failed to notice that even that aspect of not filing Form No.15J is kept aside, in the present case, the income of the assessee on the total contract receipts of Rs.74,81,106/- had been reached at by applying the net rate of profit after reduction and, thus, no further addition could be made u/s 40(a)(ia) of the Act. This is the reason which is rightly ascribed by the Commissioner of Income Tax(Appeals) to the order.”
Sri Ajit Prasad Dey 14. Respectfully following the same, we delete the disallowance made u/s 40A(3) of the Act as the income of the assessee is determined by estimating as a percentage of turnover. Hence this ground of the assessee is allowed. 15. In the result, the appeal of the assessee is allowed in part.