2018 (12) TMI 596 - AT - Income Tax

Appellate Tribunal affirms 4% profit rate on disclosed turnover, supports past business history consideration.

DCIT, Cir-1 (1), Kolkata Versus M/s. Coast Liners Pvt. Ltd.

DCIT, Cir-1 (1), Kolkata Versus M/s. Coast Liners Pvt. Ltd. - TMI Issues:1. Determination of net profit rate on disclosed turnover.2. Justification of relief granted by the Commissioner of Income Tax (Appeals).3. Consideration of past history of the assessee's business in estimating profit.Issue 1: Determination of net profit rate on disclosed turnover:The appeal pertains to the Assessment Year 2012-13, where the Revenue challenged the order of the ld. Commissioner of Income Tax (Appeals) regarding the determination of the net profit rate on the disclosed turnover. The Assessing Officer, after noting discrepancies in the books of accounts and malpractices in the share application money, estimated the net profit at 8% of the disclosed turnover. The ld. CIT(A) reduced this estimated net profit rate to 4%, leading to the Revenue's appeal. The Revenue contended that the ld. CIT(A) did not consider the past history of the assessee's business in justifying the 4% rate. However, after considering the submissions and materials on record, the Tribunal upheld the ld. CIT(A)'s order, emphasizing that the Assessing Officer rightly rejected the books of accounts due to specific defects and malpractices, and the estimated profit rate of 4% was reasonable based on the past history of the business.Issue 2: Justification of relief granted by the Commissioner of Income Tax (Appeals):The Revenue raised concerns regarding the substantial relief granted by the ld. CIT(A) without providing sufficient reasons. The ld. CIT(A) allowed a significant tax relief of Rs. 1,35,73,413 without detailed justification. However, the Tribunal noted that the ld. CIT(A) considered the past history of the assessee's business and reasonably estimated the profit at 4% of the turnover. The Tribunal found the order passed by the ld. CIT(A) to be reasoned and based on a true estimate, considering the comparative chart of the net profit from previous years. Therefore, the Tribunal upheld the order of the ld. CIT(A) in granting the relief with tax effect.Issue 3: Consideration of past history of the assessee's business in estimating profit:The Tribunal emphasized the importance of considering the past history of the assessee's business while estimating the profit rate on turnover. Despite the Assessing Officer applying an 8% net profit rate without adequately considering the past assessment records and comparable cases, the Tribunal highlighted the average profit rate of the last four years at 2.74%. The Tribunal referred to relevant judicial decisions and circulars to support the allowance of depreciation separately from the estimated net profit. By analyzing the past profit history and relevant legal provisions, the Tribunal directed the Assessing Officer to apply a 4% rate to the disclosed turnover and allow depreciation separately. The Tribunal declined to interfere in the ld. CIT(A)'s order, upholding the decision based on the past history of the business and fair estimation of profit.In conclusion, the Appellate Tribunal upheld the order of the ld. Commissioner of Income Tax (Appeals) regarding the determination of the net profit rate on disclosed turnover and the justification of relief granted, emphasizing the significance of considering the past history of the assessee's business in estimating profit. The Tribunal dismissed the Revenue's appeal and directed the Assessing Officer to apply a 4% rate to the disclosed turnover while allowing depreciation separately.