Tribunal sets 6% N.P rate on gross receipts, rejecting 2.65% and 12% rates. Appeal partly allowed, revenue appeal dismissed.

Sh. Shobha Ram Sharma, Contractor Versus ACIT, Circle-3, Mathura. And (Vice-Versa)

Sh. Shobha Ram Sharma, Contractor Versus ACIT, Circle-3, Mathura. And (Vice-Versa) - [2019] 75 ITR (Trib) 394 (ITAT [Agra]) Issues Involved:
1. Estimation of Net Profit rate.
2. Rejection of books of accounts under Section 145(3) of the Income Tax Act.
3. Validity of assessment under Section 144 of the Income Tax Act.
4. Comparison with similar cases and historical data for profit estimation.
5. Applicability of judicial precedents.
6. Maintainability of the revenue's appeal based on tax effect.

Issue-wise Detailed Analysis:

1. Estimation of Net Profit Rate:
The primary issue is the estimation of the Net Profit (N.P) rate. The assessee challenged the authorities' application of a 12% N.P rate, which was reduced to 8% by the CIT(A). The assessee argued that the rate is "grossly arbitrary, highly unjust, wrong, illegal and in any view highly excessive." The department, on the other hand, contested the reduction from 12% to 8%, asserting that the assessee did not produce the necessary books of accounts, forcing the AO to estimate the income.

2. Rejection of Books of Accounts under Section 145(3):
The rejection of the books of accounts was upheld as the assessee did not press this ground during the hearing, thus accepting the rejection. The Tribunal noted that the books were rejected due to non-compliance during assessment proceedings, invoking Section 145(3) of the Income Tax Act.

3. Validity of Assessment under Section 144:
The assessment was made under Section 144 due to the non-production of books of accounts. The assessee's challenge to this was dismissed as it was not pressed during the hearing, making the rejection of accounts final.

4. Comparison with Similar Cases and Historical Data for Profit Estimation:
The Tribunal considered comparable cases and historical data for profit estimation. The assessee cited several cases with lower N.P rates, arguing for a rate of 2.65%. However, the Tribunal found the cases cited by the assessee not comparable due to differences in business nature and location. Instead, it referred to a recent case with a similar business in Mathura where a 7.50% N.P rate was applied. Considering the significant increase in turnover, the Tribunal deemed a 6% N.P rate reasonable.

5. Applicability of Judicial Precedents:
The Tribunal referenced several judicial precedents, including the Hon’ble Supreme Court and High Courts, emphasizing that estimation is a question of fact. It cited cases like Sanjay Oilcake Industries Vs CIT and CIT Vs Sahu Construction (P) Ltd, which support the view that estimation should be based on comparable cases and historical data. The Tribunal also highlighted the principle that taxing authorities must act fairly, ensuring neither the revenue nor the assessee faces unreasonable hardship.

6. Maintainability of the Revenue's Appeal Based on Tax Effect:
The revenue's appeal was dismissed on the grounds that the tax effect on the disputed addition was less than Rs. 50,00,000/-, making the appeal non-maintainable as per the latest CBDT Circular No. 17/2019 dated 08/08/2019.

Conclusion:
The Tribunal directed the AO to apply a 6% N.P rate on gross receipts of Rs. 27,72,26,469/-, rejecting both the assessee's plea for a 2.65% rate and the AO's 12% rate. The assessee's appeal was partly allowed, and the revenue's appeal was dismissed due to the low tax effect. The decision was pronounced in the open court on 04/09/2019.