ITAT Adjusts Net Profit Estimate to 5% of Gross Receipts for 2017-18, Ensuring Fair Profit Estimation Practices.

The ITAT partially allowed the appeal, directing the AO to estimate the net profit at 5% of the gross receipts for the assessment year 2017-18, instead of the previously estimated 10%. This decision considered the assessee's historical profit range and industry standards, emphasizing fair and reasonable profit estimation practices.

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Issues Involved:
- Estimation of net profit for assessment year 2017-18 based on bank deposits.

Summary:
The case involved an appeal by the assessee against the estimation of net profit for the assessment year 2017-18 by the Assessing Officer. The assessee, a proprietor of M/s. Sarda & Co., declared an income of Rs. 3,74,760/-, but the Assessing Officer estimated the net profit at 10% on the gross receipts of Rs. 1,43,11,623/- due to certain deposits in the bank account. The assessee challenged this estimation before the CIT(A) who upheld the addition, leading to the appeal.

The assessee argued that the 10% estimation was too high compared to similar businesses, citing the example of another individual, Mr. Jai Singh, whose net profit was accepted at 0.5% and 0.57% for previous years. The assessee requested the net profit to be accepted at 5%. The Revenue, however, contended that the assessee had previously shown varying net profits ranging from 1.8% to 8% for different assessment years.

Upon review, it was observed that the assessee's net profit had never been as high as 10%, with figures ranging from 0.5% to 8%. Considering the facts presented, it was deemed that 5% was a reasonable net profit estimation. Therefore, the appeal was allowed in part, directing the Assessing Officer to estimate the net profit at 5% of the total sales for the assessment year 2017-18.

This judgment highlights the importance of reasonable net profit estimations based on the specific circumstances of the case and comparable businesses in the same industry.

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