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Facts
The assessee, a partnership firm, failed to file its Income Tax Return for AY 2017-18. The AO re-opened the assessment and completed it under Section 144, estimating the income at 8% of gross business receipts. The CIT(A) confirmed this.
Held
The Tribunal noted that the assessee had previously filed returns showing net profit rates significantly lower than 8%. Considering the past and subsequent book results, a 3% estimation was deemed reasonable.
Key Issues
Whether the estimation of income at 8% of gross business receipts by the AO and confirmed by the CIT(A) is justified, considering the assessee's past profit margins.
Sections Cited
194A, 148, 144
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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI AMITABH SHUKLA
आदेश / O R D E R
PER ABY T. VARKEY, JM:
1. This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), (hereinafter in short ‘the Ld.CIT(A)’), NFAC, Delhi, dated 19.04.2024 for the Assessment Year (hereinafter in short ‘AY’) 2017-18.
The main grievance of the assessee is against the action of the Ld.CIT(A) confirming the action of the AO estimating income @8% of the gross business receipts of Rs.4,95,21,331/- i.e. Rs.39,61,706/- and an amount of Rs.26,268/- u/s.194A of the Act as income from other sources.
Brief facts are that the assessee is a partnership firm and didn’t file return of income (RoI). The AO noted that assessee had made exports worth of Rs.4,88,00,649/- and imports worth of Rs.5,90,588/- and also derived interest income of Rs.26,268/-. The AO re-opened the assessment of the assessee and noted that the assessee didn’t file RoI in response to notice u/s.148 of the Act and therefore, the AO issued several notices and also notice u/s.144 of the Act and thereafter, finding no response from the assessee, completed the assessment u/s.144 (best judgment assessment) by estimating the income @8% of the gross business receipts of Rs.4,95,21,331/- i.e. Rs.39,61,706/- and added Rs.26,268/- as income from other sources. On appeal, the Ld.CIT(A), confirmed the action of the AO.
Aggrieved, the assessee is before us.
We have heard both the parties and perused the material available on record. We note that the assessee is a partnership firm and didn’t file return of income (RoI). The AO noted that assessee had made exports worth of Rs.4,88,00,649/- and imports worth of Rs.5,90,588/- and also derived interest income of Rs.26,268/-. According to the Ld.AR, the assessee was regularly filing RoI from AYs 2012-13 to 2015-16 and also from AYs 2018-19 to 2019-20 except for AYs 2016-17 & 2017-18 and that the RoI filed earlier has been duly accepted by the department. The only plea of the assessee is that a reasonable estimation of income may be made by considering the earlier year book results of the assessee and drew our attention to the summary of the chart which shows the past and future book results, which are noted as under:
A.Y. Gross Receipts Gross Profit GP Rate Net Profit NP Rate Date of 44AB 2012-13 1,17,46,303 - - 1,51,422 1.29% - 2013-14 89,63,632 22,98,717 25.64% 1,35,018 1.51% - 2014-15 3,42,26,413 14,47,811 4.23% 8,80,900 2.57% 30/11/2014 2015-16 5,66,07,667 54,20,674 9.58% 1,91,664 0.34% 29/10/2015 2018-19 4,01,07,232 57,21,761 14.27% 69,512 0.17% 31/10/2018 2019-20 4,79,07,168 35,39,241 7.39% 80,156 0.17% 31/10/2019 Average Net Profit Rate 1.008%
The Hon’ble Courts have held that the estimation has to be based on relevant material and it should not be whimsical or arbitrary; and that while estimating the income of an assessee, the earlier and subsequent book results of the assessee is good indicator to reasonably estimate the income of the assessee. We note that the AO/the Ld.CIT(A) has estimated the income of the assessee @8% whereas the assessee has been filing returns from AYs 2012-13 to 2015-16 (four years) wherein the assessee has been showing a net profit maximum of 2.57% for AY 2014- 15, and in other years average net profit (even considering subsequent AYs 2018-19 to 2019-20) is 1.008%. Therefore, considering the aforesaid Chart, [i.e. earlier and subsequent book results of the (AY 2017-18) Jayasakthi Knit Wear assessee], which is an indicator of assessee’s income from its business, we are of the considered view that 3% would be a reasonable estimate in place of 8%. Therefore, we direct the AO to compute the income @3% of the gross business receipts of Rs.4,95,21,331/- and compute the total income of the assessee.
In the result, appeal filed by the assessee is partly allowed.