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Facts
The assessee, engaged in trading livestock and iron scrap, filed a revised return after reassessment proceedings, disclosing higher turnover and income. The AO rejected the books of account and applied an ad-hoc net profit rate of 8% on the total turnover for both businesses. The CIT(A) allowed the assessee's appeal, applying different net profit rates for each business based on past results and comparable cases.
Held
The Tribunal upheld the CIT(A)'s decision, finding no error in applying separate net profit rates for the animal sales and iron scrap businesses. It noted that the AO failed to identify specific defects in the books of account and applied a uniform rate without proper justification, which the CIT(A) rightly corrected based on comparable cases and the assessee's own past performance.
Key Issues
The key legal issue was the appropriate net profit rate to be applied to the assessee's two distinct businesses (livestock trading and iron scrap sales) after the rejection of books of account, and whether the CIT(A) was justified in applying different rates based on comparable cases and past performance.
Sections Cited
Section 143(1), Section 143(2), Section 142(1), Section 147, Section 148, Section 250, Section 44AD
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Income Tax Appellate Tribunal, AGRA BENCH, AGRA
Before: SHRI S. RIFAUR RAHMAN & SHRI SUNIL KUMAR SINGH
ORDER PER : SUNIL KUMAR SINGH, JUDICIAL MEMBER:
This appeal has been preferred by revenue against the impugned order dated 08.01.2025 passed in Appeal No. NFAC/2013-14/10111782 by the Ld. Commissioner of Income-tax (Appeals), NFAC, Delhi u/s. 250 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for the assessment year 2014-15, wherein learned CIT(A) has allowed assessee’s appeal.
Briefly stating, the facts are that the assessee is engaged in the business of trading of live stock (buffalos) as well as sale of iron scrap. The break-up of sales is that sale of Rs.33,02,83,735/- is animal sales and Rs.36,54,000/- is scrap sales, totaling to Rs.33,39,37,735/-. The assessee filed return of income on 25.03.2015 for A.Y. 2014-15, declaring total income of Rs.2,19,460/-. The return was processed u/s. 143(1) of the Act.
Later on, the case was reopened u/s. 147 of the Act on the issue of suppressed turnover. Notice u/s. 148 of the Act was issued. Assessee filed return in response thereof, declaring total income at Rs. 9,74,530/-.
Statutory notices u/s. 143(2) and 142(1) of the Act were issued, calling for various details from the assessee. Assessee made his submissions before the learned Assessing Officer. However, learned Assessing Officer was not satisfied with the assessee’s response and inferred that the assessee failed to explain the transactions of purchase and sales and other items as covered in the audit report and after rejecting assessee’s books of account, assessed the net business income of the assessee @ 8% to an amount of Rs.2,68,85,320/- on adhoc basis.
Aggrieved, assessee preferred an appeal before learned CIT(Appeals) against the said assessment order dated 17.03.2022.
Learned CIT(A), after considering assessee’s submissions and documentary evidences, allowed assessee’s first appeal, holding that on animal sales turnover of Rs.33,02,83,735/-, net profit rate of 0.22% shall be 2 | P a g e calculated and on iron scrap turnover of Rs, 36,54,000/-, net profit rate of 8.7% should be applied.
Aggrieved, the revenue has raised following grounds in this appeal before the Tribunal.
“1. That the CITIA) has erred on facts and in law in holding that the NP of 0.22% shall be applied on animal sales turnover as against rate of 8% applied by the AO ignoring the fact that the assessee has not declared/disclosed the sales from livestock/animal sales in the return of income filed originally and it was only after the initiation of proceedings u/s.147 of the Act, the assessee disclosed & claimed the sales from the Livestock / animals.
2. That the CIT(A) has erred on facts and in law in deciding the issue of application of NP rate on sales/turnover from livestock/animals sales in favour of the assessee on the basis of NP declared by the assessee in one year before and after one year from the year under consideration ignoring the fact that the assessee has not disclosed the sales of livestock/animals in the returns originally filed by him for those years also and the same were claimed only after initiation of proceedings u/s. 147 in those years.
3. That the CIT(A) has erred on facts and in law in failing to address a critical issue during the appellate proceedings, despite clear findings in para 5 of the assessment order regarding high-volume transfers from M/s Al-Dua Food Processing Pvt. Ltd. into the bank account of the assessee, followed by immediate cash withdrawals through self-paid cheques. Whereas, it was necessary for ascertaining the nature of credits received in the bank account of the assessee because the assessee as well as the party M/s Al- Dua Food Processing Pvt. Ltd., did not cooperate in the assessment proceedings and did not furnish any explanation on this issue during the assessment proceedings. Therefore, the Assessing Officer rightly made an addition of Rs. 2,59,10,793/-by estimating business income at 8% of the turnover.
4. That the CIT(A) has erred on facts and in law in completely ignoring the fact of suppression of turnover claimed to have been generated from the business of trading in livestock by the assessee, which is evident from records. The assessee initially declared a gross turnover/receipt of only Rs. 36,54,000/- and a presumptive income under section 44AD of the IT Act of Rs.2,94,760/- in the original ITR-4S and it was only after the initiation of proceedings under section 147 of the Act, the assessee, 3 | P a g e realizing the consequences, chose to disclose the income from livestock turnover in the return filed under section 148 and declared negligible profit rate.
5. That the CIT(A) has erred on facts and in law in placing reliance on the decision reported in in the case of Zaheer Salimuddin, despite the fact that the merits of that case were entirely different from the present case; (i) in the case of Zaheer Salimuddin, the assessee was engaged in the business of commission and was not involved in the trading of livestock. (ii) The case of Zaheer Salimuddin did not involve crucial factors such as the intentional suppression of turnover, whereas in the present case, there is clear evidence that the assessee deliberately underreporting turnover and disclosing negligible profits in the returns and turnover from sale of livestock/animals were claimed/disclosed only after proceedings under section 147 were initiated by the department.
That the order of the CIT(A) dated 08.01.2025 is bad in law and deserves to be set aside as it is based upon considering the false submission of the assessee without proper verification of records. ……………….”
Perused the records and heard learned DR for appellant revenue and learned authorized representative for respondent assessee.
6. The main point for determination under appeal is as to whether learned CIT(A) has erred in applying NP rate of 0.22% on animal sales turnover as against NP rate of 8% applied by the Assessing Officer.
We have perused the impugned order dated 08.01.2025 passed by learned CIT(A). Relevant paragraph 5.1 of the impugned order reads as under :
“5.1.Ground No. I, II & III
4 | P a g e a). The AO has passed order u/s 147/144 read with section 144B of the Income Tax Act. and has applied N.P rate of 8% on total credits in the ICICI Bank account of the Assessee after rejecting the books of accounts. The Appellant is engaged in two types of businesses namely sale of iron scrap and supply of live animals. The AO estimated net profit @8 % on combined .turnover of iron scrap sale and live animal supply.
The appellant in response to notice u/s 142(1) dated 31.08.2021 issued by the JAO has filed reply on 23.11.2021 along with manual audit report, balance sheet, profit and loss account, bank statement etc. The appellant has submitted that all his transaction of sale of animals has been done with M/s Al-Dua Food Processing Private Ltd. And all his receipts have been either received by cheque or through banking channels.
The AO in his order has mentioned that the Assessee did not get his books of accounts audited by an accountant before the specified time, although his turnover was more than the specified limit. In his original ITR for AY 2014-15, the assessee has shown gross turnover/receipts of Rs. 36,54,000/- only and presumptive business income u/s 44AD of Rs. 2,94,760/- only. Now when the case of Assessee was reopened u/s 147, the assessee has revised his ITR u/s 148 and shown sales of Rs. 33,39,37,735/- and total income of Rs. 9,74,530/-as against income shown earlier at Rs. 2,19,460/- in original ITR. As the assessee could not produce the evidences before the AO during assessment proceedings, the AO applied N.P @ 8% on the total credit entries in the assessee's bank account and computed his business income at Rs. 2,69,60,624/-. b). During the course of appellate proceedings, the appellant had submitted a written submission along with bank statements and various judicial decisions. The appellant has also requested to rely on the Jurisdictional ITAT Agra Bench decision dated 02.07.2018 in the case of Zaheer Salimuddeen V/s ACIT Circle 1 Aligarh (ITA No. 132/ AGR/2018) for assessment year 2014-15.
The appellant has contended that the learned AO applied the N.P rate of iron scrap business on animal sales business which is illogical and without any basis. The appellant has further submitted that it is a well known fact that all the entries in the bank account does not mean 'sales'. He has also refuted the decision of learned AO and submitted that if we add the sales of Rs.33,02,83,735/- (animal sales) and Rs.36,54,000/-(scrap sales), the total figure would be Rs.33,39,37,735/- which is reflected in the ITR as well as in two separate profit and loss accounts of businesses. 5 | P a g e
The appellant has also submitted a comparative chart of sales and N.P for three years that is one year before and one year after the year under consideration which is reproduced below:-
Animal Sales A.Y. Turnover Net Profit % of N.P. 2013-14 11,24,72,445 2,66,517 0.23 2014-15 33,02,83,735 7,55,070 0.22 2015-16 14,97,93,222 3,46,922 0.23
Scrap Sale A.Y. Turnover Net Profit % of N.P. 2013-14 28,58,740 265480 9.28 2014-15 36,54,000 2,94,759 8.0 2015-16 44,87,600 3,91,174 8.71
The appellant has mentioned that learned AO has not pointed any specific defects in the books of accounts to justify rejection of accounts, except the fact that some of the notices remained un- responded. c). Hon'ble ITAT Bench Agra, In its decision reported at in the case of Zaheer Salimuddeen V/s ACIT Circle 1 Aligarh for AY 2014-15 has decided that-
"7. We have heard the rival contentions of both the parties and perused the record. The finding recorded by the lower authorities is based on the net profit rate for the AY 2013-14 where the net profit rate applied was 0.23% in the present case, as noticed here and above the assessing officer had applied 0.20% as against 0.23% which was the net profit rate for the AY 2013-14. The pendency of appeal before the first appellate authority is not disputed by the learned DR for the revenue. Further, we noticed that the AO has merely taken the average of net profit of the two parties, namely Mr. Shaid Quereshi and Mohd. Haneef without bringing on record comparability of the profile of the Assessee with these two persons. In these peculiar facts and circumstances of the case, we have to venture into the estimation without any formal foundation. We accordingly hold that the lower of the two namely, net profit rate of 0.17% is required to be applied instead of 0.20%. Accordingly the AO is directed to apply net profit rate of 0.17% instead of 0.20………”
6 | P a g e The appellant has also submitted few orders passed by the AOs who are engaged in the same kind of business showing N.P rate ranging from 0.15 to 0.21%. d)- Hence it is very clear that the Net profit ratio in animal sales business ranges anywhere from 0.15 to 0.23%. The AO without mentioning any reason except non submission of certain documents has applied the N.P ratio of scrap sales business on animal sales business. It cannot be doubted that N.P rate of 8% cannot be applied on such business where there are plethora of assessment orders passed applying the N.P rate ranging from 0.15 to 0.23%. The estimation of the Income has to be based on comparable cases in similar trade or assessee's own past results. Hence, I hold that on animal sales turnover of Rs.33,02,83,735/- N.P rate of 0.22% shall be calculated as net profit and for iron scrap turnover of Rs.36,54,000/-, N.P rate of 8.07% should be applied.”
It transpires from the perusal of the assessment order that that learned Assessing Officer has applied the common NP rate of 8% on both iron scrap business as well as on animal sales business. Perusal of the percentage of NP rate on animal sales and scrap sales, depicted hereinabove, shows that there is substantial difference in the NP rate of the two separate businesses. Learned CIT(A) has based his findings on various other orders passed by the Assessing Officers in respect of assessees engaged in the same kind of business showing NP rates ranging from 0.15 to 0.23%. Admittedly, no defect or discrepancy, whatsoever, has been pointed out in the books of account by the Assessing Officer. Assessing Officer has applied same rate for both the business not based on any intelligible differentia. This error has rightly been corrected by 7 | P a g e the learned CIT(A) on the basis of comparable. We do not find any error of fact or law in the impugned order passed by learned CIT(A), which is based on right reasons. The aforesaid point is accordingly determined against the revenue and in favour of the assessee.
In the result, Revenue’s appeal is dismissed.
Order pronounced in the open court on 15.01.2026.