Tribunal revises profit rate for commission agents dealing in agricultural produce

The Tribunal allowed the appeal, directing the Assessing Officer to compute the income of the commission agent at a profit rate of 4% of total credits, rather than the 8% applied by the AO. The Tribunal held that commission agents dealing in agricultural produce are excluded from the presumptive basis provision of Section 44AD, and their profit should be estimated reasonably. The decision was made in accordance with Section 44AD(6)(iii) of the Income Tax Act, emphasizing the need for a fair profit assessment for such agents.

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Issues:
- Computing profits and gains of business on presumptive basis under Section 44AD of the Income Tax Act, 1961.

Analysis:
The appeal before the Appellate Tribunal ITAT Chennai arose from the order of the Commissioner of Income Tax (Appeals) confirming the action of the Assessing Officer in computing the profits and gains of business on a presumptive basis under Section 44AD of the Income Tax Act, 1961. The assessee, an individual engaged in commission agency business of agricultural produce, had filed the return of income admitting taxable income. The Assessing Officer computed the profit and gains of business on a presumptive basis by applying a profit rate of 8% of the total turnover. The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's action, leading to the appeal before the Tribunal.

During the proceedings, the assessee argued that the provision of Section 44AD of the Act should not be applied to commission agents dealing in agricultural produce, as their net profit or agency commission is typically at 2%. The Tribunal acknowledged that Section 44AD(6)(iii) specifically excludes persons carrying on agency business from the applicability of the section. Therefore, the profit rate mentioned in Section 44AD cannot be applied to commission agents engaged in agency business. Consequently, the Tribunal estimated the profit at the rate of 4% of the total credits determined by the Assessing Officer, and directed the AO to recompute the income accordingly.

In conclusion, the Tribunal allowed the appeal filed by the assessee for statistical purposes, emphasizing that a reasonable profit estimate should be made for commission agents dealing in agricultural produce, in line with the provisions of Section 44AD(6)(iii) of the Income Tax Act. The order was pronounced on 8th April, 2022, at Chennai.

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