Best-judgment assessment and bank credits as turnover: income fixed at 5% of gross receipts; unexplained investment remanded for fresh hearing

Best-judgment assessment treated all bank credits as turnover and AO adopted an 8% net profit rate, while appellate authority reduced it; on challenge, absent any bank-credit particulars from the taxpayer the tribunal upheld reliance on bank credits and directed income estimation at 5% of gross receipts, adopting a prevailing net profit benchmark. Separately, addition for unexplained investment premised on an agreement and third-party statement was set aside for re-examination because the taxpayer was not confronted and received only a single notice during the pandemic; consequence: remand to the assessing officer for fresh adjudication after opportunity of hearing.

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Issues: (i) Whether the total credits in the assessee's bank account can be treated as turnover and the appropriate rate for estimating net profit; (ii) Whether addition of unexplained investment of Rs.1.50 crores based on an agreement to sell found during search is sustainable or requires fresh adjudication.

Issue (i): Whether the Assessing Officer was justified in treating total bank credits as turnover and estimating income; and whether the net profit rate should be fixed at 12%, 8% or 5%.

Analysis: The Tribunal noted absence of any material from the assessee to show that part of the bank credits did not relate to turnover; therefore there was no basis to interfere with the finding that credits represented receipts. The Assessing Officer adopted 12% without any basis; the CIT(A) adopted 8% but also did not record a supporting basis. The Tribunal held that past declared and finalized profit history or prevailing profit rates in the trade are proper guides for estimation and followed Tribunal precedent directing different profit rates for main contract and sub-contract work, and applied a 5% net profit rate on gross receipts as reasonable in the facts of this case.

Conclusion: Issue (i) is partly allowed in favour of the assessee by directing estimation of income at net profit @5% of gross receipts.

Issue (ii): Whether the addition of Rs.1.50 crores as unexplained investment, based on an agreement of sale seized during search and related statements, is sustainable.

Analysis: The Tribunal observed that the assessee did not receive effective opportunity to respond to the seized agreement or to the statement relied upon; the assessment was completed under section 144 after limited notice during the COVID period and the remand report relied on statements not confronted to the assessee. Given absence of confrontation and opportunity for cross-examination and that the registered sale deed differed from the seized agreement, the Tribunal considered re-examination by the Assessing Officer necessary.

Conclusion: Issue (ii) is remitted to the Assessing Officer for fresh adjudication after giving the assessee opportunity of hearing; the addition is not sustained at this stage.

Final Conclusion: The appeal is partly allowed by reducing the estimation of income to 5% of gross receipts and by remanding the unexplained investment addition for re-adjudication; other contested grounds were either not pressed or do not survive.

Ratio Decidendi: Where books are unverifiable, estimation of income should be guided by the assessee's past finalized profit history or prevailing profit rates in the trade; estimation must be supported by objective basis and parties must be given effective opportunity to meet incriminating material relied upon under search records.

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