2020 (1) TMI 402 - AT - Income Tax

Tribunal adjusts profit rate, favors assessee with fair decision based on facts and legal precedents.

The Tribunal partially allowed the appeal, directing the AO to apply a 5% net profit rate on the gross receipt, overturning the previous 10% and 8% ... Net profit determination - CIT-A confirming the net profit rate of 8% - AO held that the assessee has failed to maintain complete and correct books of account with documentary evidence - HELD THAT:- We find that the assessee has submitted before the CIT(Appeal) by relying on the decisions in the case of Dhampur Sugar Mills Ltd [1972 (3) TMI 16 - ALLAHABAD HIGH COURT] and M/s IVF Holdings (P) Ltd. Mumbai [2011 (7) TMI 1242 - ITAT MUMBAI] that where the revised return has been filed as per the terms of the provisions of section 139(5), the original return shall be treated as withdrawn. Therefore the revised return is only to be considered during the assessment proceedings. However, the AO, on the basis of original return of income pointed out some discrepancies and rejected the books of account. We find from the submission made by the assessee before CIT(Appeal) that the tribunal of Amritsar Bench in the case of Mohan Singh Contractor [2012 (6) TMI 877 - ITAT AMRITSAR]. has considered 5% NP rate has reasonable in the case of contractor. Therefore, considering all, we direct the AO to apply 5% NP rate in the case of assessee on the gross receipt of ₹ 3,15,21,611/- including return of income of ₹ 6,87,464/-. The AO is directed to recompute the taxable income of the assessee by applying 5% NP rate. Accordingly, this appeal is partly allowed. Issues:1. Rejection of books of account by AO and estimation of net profit rate at 10%.2. Reduction of net profit rate to 8% by CIT(Appeal).3. Appeal by the assessee against the net profit rate and the subsequent decision.Detailed Analysis:Issue 1:The AO rejected the books of account of the assessee due to discrepancies in the original return of income. The AO found that the assessee failed to maintain complete and correct books of account with documentary evidence, leading to the rejection of the books under section 145(3) of the Act. The AO then estimated the net profit at 10% of the gross contract receipt, citing decisions from ITAT Chandigarh. The assessee contended that the AO did not provide reasons for rejecting the books and referred to case laws supporting the filing of revised returns under section 139(5). The CIT(Appeal) reduced the net profit rate to 8% based on previous judgments, which was affirmed by the Tribunal.Issue 2:The CIT(Appeal) reduced the net profit rate to 8% from the initial 10% estimated by the AO. The CIT(Appeal) relied on judgments from Punjab & Haryana High Court and the Tribunal to support the reduction. The CIT(Appeal) considered the rejection of books of account and assessed the net profit rate at 8% as a pure finding of fact, favoring the assessee.Issue 3:The assessee appealed the decision regarding the net profit rate, although no representation was made during the proceedings. The Tribunal reviewed the submissions and material on record. Relying on previous decisions, the Tribunal directed the AO to apply a net profit rate of 5% on the gross receipt, considering the facts of the case and following a decision from the Amritsar Bench. The appeal was partly allowed, and the taxable income was to be recomputed based on the 5% net profit rate.In conclusion, the Tribunal partially allowed the appeal by directing the AO to apply a net profit rate of 5% on the gross receipt, overturning the previous decisions that estimated the rate at 10% and later reduced it to 8%. The Tribunal's decision was based on the assessment of facts and relevant legal precedents, ensuring a fair resolution for the assessee.