Loading judgment…
Facts
The assessee challenged the Ld.CIT(A)'s order sustaining a best judgment assessment made u/s 144 for AY 2015-16. The Assessing Officer had estimated net profit at 8% on gross turnover, citing non-response to notices, non-production of books/vouchers, and implausible stock register maintenance. The assessee contended that Section 44AD, used for the 8% estimation, was inapplicable as its turnover exceeded Rs. 1 crore.
Held
The Tribunal held that Section 44AD was incorrectly applied by the AO as the assessee's turnover exceeded Rs. 1 crore. Taking into account all facts, the Tribunal directed the Assessing Officer to re-compute the income by estimating the net profit at 5% of the gross turnover, instead of the 8% previously applied.
Key Issues
Whether the Assessing Officer was justified in applying a net profit rate of 8% under Section 44AD in a best judgment assessment when the assessee's turnover exceeded Rs. 1 crore, making the section inapplicable, and what would be the appropriate rate for income estimation.
Sections Cited
Section 144, Section 44AD
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “SMC” NEW DELHI
Before: SHRI CHALLA NAGENDRA PRASAD
सुनवाईक�तारीख/ Date of hearing: 02.07.2024 29.08.2024 उ�ोषणाक�तारीख/Pronouncement on आदेश /O R D E R
This appeal is filed by the assessee against the order of the Ld.CIT(Appeals), Moradabad dated 10/12/2018 for the AY 2015-16. In the grounds of appeal the assessee challenged the order of the Ld.CIT(A) in sustaining the assessment made u/s 144 of the Act by applying the net profit rate at 8% on gross turnover.
Ld. Counsel for the assessee submits that the assessee firm was closed down in 2016 and later partner was passed away. Ld. Counsel submits that the assessee has shown average GP at 5.03%
I.T.A.No.1129/Del/2019 and average net profit at 0.08% for the assessment years 2014-15 to 2016-17 and, therefore, there is no justification in estimating the profit at 8% applying section 44AD of the Act. Ld. Counsel further submitted that the turnover of the assessee is more than one crore and therefore provisions of section 44AD have no application to the assessee. Alternatively Ld. Counsel submits that the Assessing Officer should have allowed at least the indirect expenses.
Ld. DR strongly supported the orders of the authorities below.
Heard rival submissions, perused the orders of the authorities below. On perusal of the assessment order it is noticed that assessment was completed u/s 144 of the Act as the assessee could not respond to the notices. Best judgment assessment was made under 144 of the Act as assessee could not file the requisite details.
The assessee contends that the action of the AO for estimating the income at 8% of turnover as per provisions of section 44AD since the provisions of section 44AD are not applicable on the assessee having turnover more than 1 crore. It is also the contention of the assessee that non maintenance of stock register cannot be the only basis for rejecting the books and estimating the profits at 8%. The turnover shown by the assessee for the assessment year under consideration is Rs.2,14,36,475/- and, therefore, the AO could not 2
I.T.A.No.1129/Del/2019 have applied provisions for 44AD and estimated profit at 8%. It is also the finding of the AO that since the books and vouchers were not produced before him the income was estimated especially as stated by the auditor in column no.5 in 3CB report that maintenance of stock register is not plausible. Therefore, taking the totality of facts and circumstances into consideration to meet the ends of justice the AO is directed to estimate the income at 5% of gross turnover as against 8% and re-compute the income accordingly.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 29/08/2024