2023 (7) TMI 8 - AT - Income Tax

Tribunal upholds 10% net profit estimation but sets aside premature expense examination for A.Y. 2014-15.

The Asst. C.I.T. Circle 2, Nashik Versus M/s. Pingle Builders Pvt. Ltd.

The Tribunal partly allowed the Revenue's appeal, upholding the estimation of net profit at 10% by the ld. CIT(A) for the relevant assessment year. ... Best judgment assessment order u/s 144 - books of accounts rejected - estimating the net profit of the assessee at 10% of the total turnover by CIT(A) - HELD THAT:- Once the books of accounts have been rejected by the CIT(A) u/s 145(3) stating that the contents therein are not reliable and thereafter, he had arrived at the net profit of the assessee at 10% then in such scenario such estimation of net profit shall cover all other expenses and additions whatsoever. Meaning thereby, once the income is arrived at on percentage of net profit while rejecting the books of accounts, then such estimation of income is conclusive of all other expenses in the case of the assessee and after such estimation of income rejecting the books of accounts there is no scope for any further addition for any other expenses. Directly on the point of estimation of net profit the Hon’ble Madhya Pradesh High Court in the case of CIT Vs. Purshottamlal Tamrakar Uchehra [2003 (3) TMI 10 - MADHYA PRADESH HIGH COURT] has held that once the net profit is applied while determining the income of the assessee then section 40A(3) of the Act is not applicable. Reverting to the facts of the present case, when the ld. CIT(A) has rejected the books of accounts u/s 145(3) of the Act and had arrived at net profit at 10% that would cover all expenses and disallowances and therefore, the contention of the department that certain expenses have been allowed without verifying, the issue now becomes irrelevant and immaterial. No infirmity with the findings of the d. CIT(A) which is therefore, upheld. This part of the ground in revenue’s appeal is dismissed. CIT(A)'s order where he had directed the A.O to examine the expenses claimed and genuineness of the creditors and the profit shown by the assessee for A.Y. 2014-15 - We hold that the relevant year before us is A.Y. 2013-14 and not A.Y. 2014-15. Therefore, the determination on the issue pertaining to the taxation for A.Y. 2014-15 in the case of the assessee is not the subject matter of adjudication for the relevant assessment year 2013-14 and hence this part of the findings in the CIT(A)’s order is set aside as premature and infructuous. We order accordingly. This part of the revenue’s contention is accepted and allowed. Appeal of the Revenue stands partly allowed. Issues involved:The issues involved in this case are: 1. Whether the ld. CIT(A)-2, Nashik was justified in estimating the net profit of the assessee at 10% of the total turnover even after the assessee failed to substantiate its claim about the expenditure.2. Whether the appellant can adduce further evidence to substantiate the case.3. Whether the appellant can add, alter, clarify, amend, or withdraw any grounds of appeal as and when required.Issue 1: Estimation of Net Profit:The assessee, a company engaged in Mining, Quarrying, and Civil Construction, filed a return of income declaring a total loss. The Assessing Officer (A.O) passed a best judgment assessment order due to non-compliance by the assessee. The ld. CIT(A) estimated the net profit at 10% of the total turnover, rejecting the books of accounts as unreliable. The A.O had not verified certain expenses, but once the net profit is determined through percentage of turnover rejecting the books of accounts, no further separate additions are warranted. The Tribunal upheld the ld. CIT(A)'s decision, citing relevant case laws to support the conclusion.Issue 2: Examination of Expenses and Genuineness for A.Y. 2014-15:The ld. CIT(A) directed the A.O to examine expenses, genuineness of creditors, and profit shown by the assessee for A.Y. 2014-15. However, the Tribunal held that the relevant assessment year was 2013-14, not 2014-15. Therefore, the direction regarding A.Y. 2014-15 was deemed premature and infructuous. This part of the ld. CIT(A)'s order was set aside, and the revenue's contention on this issue was accepted and allowed.Conclusion:The Tribunal partly allowed the Revenue's appeal, upholding the estimation of net profit at 10% by the ld. CIT(A) for the relevant assessment year. However, the direction to examine expenses for A.Y. 2014-15 was considered premature and set aside. The decision was pronounced on the 10th day of May 2023.