ITAT directs AO to assess income at 3% net profit rate, considering past history. Appeal partly allowed.

The ITAT partially allowed the appeal, directing the AO to assess the income by applying a net profit rate of 3% of the total sales, considering past history and circumstances. The order pronounced on 29.05.2017 concluded that the appeal of the assessee is partly allowed.

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Issues Involved:
1. Confirmation of addition by CIT (Appeals) based on employee and selling expenses deduction and net profit estimation.
2. Estimation of business profit based on preceding years' net profit.
3. Admission of additional evidence and compliance issues during assessment.

Issue-wise Detailed Analysis:

1. Confirmation of Addition by CIT (Appeals):
The CIT (Appeals) confirmed an addition of Rs. 12,98,019 by allowing only the employee and selling expenses at 3% of the turnover as a deduction and estimating the net profit at 10.75% of the turnover. The assessee argued that this estimation was higher than the 7% estimated by the AO and should be deleted. The CIT (Appeals) held that the appellant must suffer for all the infractions, such as failing to file the return, pay due taxes, maintain books of account, and get accounts audited. Thus, the net profit rate was enhanced from 7% to 10.75%.

2. Estimation of Business Profit Based on Preceding Years:
The assessee contended that if the profit of the business is to be estimated, it should be based on the net profit declared and assessed in preceding years rather than on surmises and conjectures. The AO had initially estimated the turnover at Rs. 2,20,00,000 and applied a net profit rate of 7%. However, the turnover was later accepted as Rs. 1,20,76,727 based on sales tax returns. The CIT (Appeals) applied a higher net profit rate of 10.75%, but the ITAT found this to be excessive and instead applied a net profit rate of 3%, considering the past history where the net profit rate was 2.46%.

3. Admission of Additional Evidence and Compliance Issues:
The assessee submitted that proper compliance before the AO could not be made due to the terminal illness and subsequent death of the managing partner's husband. The CIT (Appeals) admitted additional evidence under Rule 46A and called for a remand report from the AO. The AO verified the documents and suggested that the turnover may be accepted as per the sales tax order, but the net profit rate should be kept at 1% of the turnover. The ITAT noted that the best judgment assessment under section 144 was justified due to the non-maintenance of books of accounts and failure to get accounts audited. The ITAT directed the AO to assess the income by applying a net profit rate of 3% of the total sales of Rs. 1,20,76,727.

Conclusion:
The ITAT partially allowed the appeal, directing the AO to assess the income by applying a net profit rate of 3% of the total sales, considering the past history and other circumstances. The order pronounced on 29.05.2017 concluded that the appeal of the assessee is partly allowed.

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