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Income Tax Appellate Tribunal, DELHI “G” BENCH,
Before: SHRI R.K. PANDA & SMT. BEENA A. PILLAI
PER R.K. PANDA, ACCOUNTANT MEMBER:-
This appeal filed by the assessee is directed against the order dated 16.11.2012 of the CIT(A), Rohtak relating to A.Y. 2009-10.
The assessee, in the grounds of appeal has challenged the order of the ld. CIT(A) in directing the A.O to estimate the profit @ 5% of the gross receipts excluding service tax.
Facts of the case, in brief, are that the assessee is an individual and engaged in the business of supply of labour. He filed his return of income on 29.09.2009 declaring total income of Rs. 2,91,620/-. During the course of assessment proceedings, the A.O observed that the assessee, on a gross receipts of Rs. 1,79,18,998/- has shown net profit of Rs. 3,13,042/-. Since despite repeated opportunities given by him, the assessee did not produce the books of accounts and supporting documentary evidence, the A.O rejected the book results shown by the assessee u/s 145(3) of the Income- tax Act, 1961. From the balance sheet, the A.O noted that no documentary evidence in respect of liabilities under various heads including wages, service tax, etc. amounting to Rs. 24,11,764/- was furnished and, therefore, the same is not allowable. He further observed that while the assessee has shown gross receipts of Rs. 1,79,18,998/-, the figure as per service tax return was Rs. 2,30,59,414/- and as per details filed by the assessee it is Rs. 1,60,96,091/-. The A.O accordingly considered the gross receipts as per service tax return at Rs. 2,30,58,414/- and estimated the net profit rate at 8% on such receipts and arrived at net profit of Rs. 18,44,673/-.
In appeal, the ld. CIT(A) directed the A.O to verify the gross receipts which, according to him, comes to Rs. 1,79,18,998/- after reduction of service tax and directed the A.O to adopt N.P. of 5% of the gross receipts excluding service tax. The relevant observations of the ld. CIT(A) at paras 5 and 5.1 of his order reads as under:
I have considered the issue and the submissions made by the AR. From the copies of Form ST-3 filed with Service Tax Department, the gross receipts for the year under consideration are Rs 1,60,96,091/-. If service tax of Rs 18,22,707/- is added to this figure, the gross receipts come to Rs 1,79,18,998/-. It is seen from the copies of Form ST-3 that the AO has erroneously taken the gross receipts for the period April- Sept. 2008 twice and therefore arrived at a figure of Rs 2,30,59,414/-. The AO is directed to verify the same and pass necessary order.
5.1 It is interesting to note that the AO has rejected the results shown in the IT return u/s 145 (3) of the Act in the absence of books of accounts. Section 145 (3) only talks about rejection of books of accounts and not rejection of results shown in the IT return in the absence of books of accounts. If the books of accounts were indeed not produced before him, the AO can resort to best judgment u/s 144 of the Act. It is seen from the evidence, in the form of certified copies of letters written to the AO by the assessee during assessment proceedings, that the books of accounts have been produced before the AO. Be that as it may, the fact remains that most of the payments made by the assessee viz wages etc. are not capable of verification in the absence of addresses as they are mostly self made vouchers. The profit shown by the assessee therefore cannot be accepted. Having regard to the business of supply of labour, I deem it appropriate to estimate the profit @ 5% of the gross receipts excluding service tax. The grounds of appeal are therefore partly allowed.”
5. Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before us.
The ld. Counsel for the assessee, referring to copy of assessment order for A.Y 2010-11 passed u/s 143(3) of the Act on 24.12.2012, a copy of which is placed at pages 4 to 6 of the paper book submitted that the A.O has accepted the book results and only nominal additions were made on account of certain expenses. Referring to the copy of the assessment order for A.Y 2011-12 passed u/s 143(3) of the Act on 26.12.2013, he submitted that for this year also books were not rejected and some minor disallowance of expenses have been made in the order passed u/s 143(3) of the Act. He accordingly submitted that estimation of profit at 5% of the gross receipt is on the higher side and therefore, it should be suitably reduced to 2 to 2.5%.
The ld. DR, on the other hand, heavily relied on the order of the ld. CIT(A). He submitted that the ld. CIT(A), after considering the totality of the facts of the case, has directed the A.O to adopt N.P. rate of 5%. Since the Revenue is not in appeal and adoption of 5% appears to be reasonable, therefore, the same should be upheld and the grounds raised by the assessee should be dismissed.
We have considered the rival arguments made by both the sides, perused the orders of the A.O and the ld. CIT(A) and the paper book filed on behalf of the assessee. We find the assessee is engaged in the business of supply of labour and has declared net profit of Rs. 3,13,042/- on gross receipts of Rs. 1,79,18,998/-. Since the assessee did not produce the books of accounts, the A.O considered the receipts declared in the service tax return at Rs. 2,30,59,414/- as gross receipts and adopted 8% profit on such receipts as income of the assessee. We find in appeal, the ld. CIT(A) directed the A.O to adopt 5% on the gross receipts excluding service tax. It is the submission of the ld. Counsel for the assessee that in the two subsequent A.Ys, the A.O in the orders passed u/s 143(3) of the Act has not rejected the book results and some nominal addition has been made under various heads of expenses. Therefore, according to the ld. AR, estimate of profit @ 5% appears to be on the higher side. We find merit in the above argument of the ld. AR. It is an admitted fact that in the subsequent A.Ys, the A.O has not rejected the books results and has made nominal additions on account of various expenses being unverifiable in nature. Therefore, adoption of 5% N.P. rate on gross receipts for the impugned A.Y appears to be on the higher side. At the same time, it is also a fact that despite repeated opportunities given by the A.O, the assessee has not produced books of accounts. Under these circumstances, we are of the considered opinion that adoption of 3% net profit on the gross receipts excluding service tax will meet the ends of justice. It may be pertinent to mention here that this rate of estimated profit is only for this year and cannot be taken as a precedent for other years. We hold and direct accordingly. Grounds raised by the assessee are accordingly partly allowed.