2014 (1) TMI 235 - AT - Income Tax

Tribunal upholds net profit estimation, dismisses excessive disallowance, orders service charges review.

Addl. Commissioner of Income Tax Versus Taruna Grover

The tribunal upheld the Commissioner of Income Tax (Appeals)'s estimation of net profit at 15% of receipts, dismissed the excessive disallowance by the ... Estimation of net profit - Held that:- The assessee did not produce books of accounts and complete relevant bills and vouchers before the Assessing Officer - The Commissioner of Income Tax(A) proceeded to estimate the net profit of the assessee on the basis of 15% of total receipts of the assessee during the year under consideration - The Commissioner of Income Tax(A) was justified in estimation of NP rate on the basis of total receipts - There was a substantial increase in the receipts of the assessee during the year and at the same time, some fixed expenses like rent and fixed salary etc. do not inflate in proportion to increase in receipts - The Commissioner of Income Tax(A) adopted a balanced view in adopting 15% of total receipts for estimation of net profit of the assessee. The other comparables are not relevant when the assessee herself is declaring higher percentage of NP during earlier and subsequent years of assessment - Decided against Revenue as well as against the assessee. Service charges - Held that:- The Commissioner of Income Tax(A) held that the undeclared income cannot be considered on the basis of TDS certificate - The Assessing Officer could have verified the same from ICICI Bank (the payer) and only after finding that the same was found undeclared by the assessee, the additions could have been made and the Commissioner of Income Tax(A) deleted the additions - The Assessing Officer should have been given an opportunity to verify the amount shown by the assessee and shown in the TDS certificate issued by the payer ICICI Bank but the Commissioner of Income Tax(A) has decided the issue in favour of the assessee without any verification - The issue was restored for fresh adjudication. Interest u/s 234B - Held that:- The issue was restored for fresh adjudication with a direction to AO to decide the issue of levy of interest on the assessee u/s 234B of the Act by considering the result of above ground. Issues Involved:1. Estimation of Net Profit (Ground No. 2 of both the Revenue and the Assessee)2. Difference in Service Charges (Ground No. 1 of the Revenue)3. Levy of Interest under Section 234B (Ground No. 3 of the Assessee)Issue-Wise Detailed Analysis:1. Estimation of Net Profit (Ground No. 2 of both the Revenue and the Assessee):The core issue revolves around the estimation of net profit (NP) for the assessee, who is an agent of ICICI Bank. The Assessing Officer (AO) disallowed 94.64% of the total expenses claimed, leading to an addition of Rs. 1,28,71,393. The Commissioner of Income Tax (Appeals) [CIT(A)] estimated the NP at 15% of the receipts, based on the results of AY 2005-06, which showed an NP rate of 9.23%. The assessee argued that the declared NP rate of 5.54% should be accepted, citing similar cases where lower NP rates were accepted by the department. However, the CIT(A) justified the 15% NP rate by noting that some expenses like rent and fixed salary do not increase proportionally with gross receipts. The tribunal upheld the CIT(A)'s decision, stating that the CIT(A) adopted a balanced approach and the AO's disallowance was excessive. Thus, both Ground No. 2 of the Revenue and the Assessee were dismissed.2. Difference in Service Charges (Ground No. 1 of the Revenue):The AO added Rs. 70,170 to the assessee's income due to a discrepancy between the service charges shown in the TDS certificate and those declared by the assessee. The CIT(A) deleted this addition, stating that the AO did not verify the discrepancy with ICICI Bank and that the undeclared income could not be considered based solely on the TDS certificate. The tribunal found that the CIT(A) should have given the AO an opportunity to verify the amount and restored the issue to the AO for fresh adjudication. Therefore, Ground No. 1 of the Revenue was allowed for statistical purposes.3. Levy of Interest under Section 234B (Ground No. 3 of the Assessee):The assessee contended that no interest under Section 234B should be charged as all receipts were subjected to TDS. The tribunal noted that all receipts were indeed subjected to TDS, as evidenced by the TDS certificate issued by ICICI Bank. Consequently, the tribunal directed the AO to decide the issue of interest levy under Section 234B, considering the outcome of Ground No. 1 of the Revenue, which was restored for fresh adjudication. Thus, Ground No. 3 of the Assessee was disposed of with directions to the AO.Conclusion:The tribunal upheld the CIT(A)'s estimation of NP at 15% of the receipts, dismissed the excessive disallowance by the AO, and restored the issue of the difference in service charges to the AO for verification. The tribunal also directed the AO to reconsider the levy of interest under Section 234B based on the final determination of the service charges. The appeal of the Revenue was partly allowed, and the appeal of the Assessee was dismissed.