2018 (9) TMI 1023 - AT - Income Tax

ITAT upholds 8% profit rate estimation, adds 18,86,442 to income, directs deduction of partner's salary & interest

The ITAT confirmed the Ld. CIT(A)'s decision to estimate the net profit rate at 8%, adding &8377;18,86,442 to the declared income. The ITAT upheld the ... Estimation of income - Net profit assessment @ 8% - Best judgement assessment - deduction of salary paid to partners - Held that:- CIT(A) that in the absence of the major details of expenses which were not produced for verification and in presence of certain lacunae on the part of the assessee as observed above by the Ld. CIT(A) estimation of net profit @ 8% of gross turnover cannot be said to be unjustified. The observation made by the CIT(A) does not call for any interference and thus we do not hesitate to confirm the same. However, the salary of the partners and interest of the partner’s capital account cannot be clubbed in such addition made by the authorities below. We, therefore, find it fit and proper to remit the issue to the file of the AO to deduct the salary paid to the partners in the relevant year and the interest to partners capital accounts as paid from the total addition of ₹ 18,86,442/-. With this direction, we partly allow the appeal filed by the assessee for statistical purposes. Issues:Estimation of net profit rate at 8% by Ld. CIT(A) | Excessive income estimation by Ld. CIT(A) | Rejection of books of accounts by Ld. CIT(A) | Reliability of assessee's records | Consideration of partner's salary and interest | Confirmation of addition by ITATEstimation of Net Profit Rate at 8%:The appeal was filed against the Ld. CIT(A)'s order adopting a net profit rate of 8%, contending it was excessive and not based on the assessee's records or turnover. The Ld. CIT(A) added &8377; 18,86,442 to the declared income of &8377; 8,46,472. The ITAT upheld the estimation, noting the AO's inability to verify due to lack of compliance by the assessee. The ITAT agreed with the Ld. CIT(A)'s observation that in the absence of expense details and unreliability of records, the 8% estimation was justified. However, the ITAT directed the AO to deduct partner's salary and interest from the addition.Excessive Income Estimation:The main grievance of the assessee was the excessive income estimation by the Ld. CIT(A) at &8377; 27,32,914 compared to the declared income of &8377; 8,46,472. The ITAT found that the Ld. CIT(A) based the estimation on the net profit rate of 8% of the turnover, which was upheld due to the assessee's failure to provide necessary details and unreliable records. The ITAT partially allowed the appeal for statistical purposes, directing the deduction of partner's salary and interest from the total addition.Rejection of Books of Accounts:The Ld. CIT(A) rejected the books of accounts due to discrepancies and unreliability, leading to the computation of net profit at 8% of the turnover. The ITAT concurred with this decision, emphasizing the incomplete nature of records, lack of verification, and dilatory tactics by the assessee. The ITAT upheld the rejection of books but directed the deduction of partner's salary and interest from the total addition.Reliability of Assessee's Records:The ITAT noted discrepancies in the assessee's records, including incomplete salary and wages registers, missing purchase bills, and cash expenditures without evidence. The unreliability of records led to the rejection of books by the Ld. CIT(A) and the subsequent estimation of net profit at 8% of the turnover. The ITAT supported this decision based on the inadequacies in the documentation provided by the assessee.Consideration of Partner's Salary and Interest:The ITAT directed the AO to consider the deduction of partner's salary and interest from the total addition of &8377; 18,86,442. While upholding the 8% net profit estimation, the ITAT emphasized the need to exclude partner-related expenses from the addition. This direction was given to ensure a fair assessment of the income and to address the specific issue raised by the assessee during the appeal.Confirmation of Addition by ITAT:Ultimately, the ITAT partly allowed the appeal for statistical purposes, confirming the addition of &8377; 18,86,442 while directing the deduction of partner's salary and interest. The ITAT upheld the estimation of net profit at 8% of the turnover, considering the unreliability of the assessee's records and the failure to provide necessary details for verification. The decision aimed to balance the assessment process by addressing the specific concerns raised during the appeal.