ITAT reduces estimated net profit rate from 5% to 1.33% based on assessee's historical performance

The ITAT Jaipur reduced the estimated net profit rate from 5% to 1.33% for the assessee's business, considering the profit history from previous years where net profit rates ranged from 1.10% to 1.19%. The tribunal found the 5% estimation excessive given the assessee's past performance and business nature. The case involved second-round litigation where directors faced financial difficulties and health issues, leading to non-compliance and estimated assessment. The tribunal partly allowed the first ground and directed the AO to verify disclosed income from interest, commission, and rent before making separate additions, allowing grounds 2 and 3 for statistical purposes.

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Issues Involved:
1. Estimation of Net Profit by applying a Net Profit rate.
2. Separate addition towards Income from Interest and Commission.
3. Separate addition towards Income from Rent.
4. Admission of Additional Evidence under Rule 46A(1)(c) of the Income Tax Rules, 1962.

Issue-wise Detailed Analysis:

1. Estimation of Net Profit by Applying a Net Profit Rate:
The assessee did not file an Income Tax Return (ITR) and was listed as a non-filer under NMS Priority-1. The Assessing Officer (AO) issued a notice under Section 148 of the Income Tax Act, 1961, and subsequently under Section 142(1), but the assessee did not comply. The AO estimated the gross receipts at Rs. 36,00,00,000 and applied a Net Profit (NP) rate of 8%, determining the net profit at Rs. 2,88,00,000. The Commissioner of Income Tax (Appeals) [CIT(A)] reduced the NP rate to 5%, estimating the net profit at Rs. 1,70,95,760. The Tribunal considered the past profit rates of the assessee, which were around 1.33% and 1.10% for the preceding years, and deemed a 5% NP rate to be on the higher side. The Tribunal decided to apply a 1.33% NP rate, consistent with the assessee's historical performance, and partly allowed the appeal on this ground.

2. Separate Addition towards Income from Interest and Commission:
The AO added Rs. 3,17,048 towards income from interest and commission over and above the estimated business income. The CIT(A) upheld this addition, stating that the nature of the commission and interest received was not explained, and no expenses were allowed against these incomes. The Tribunal directed the AO to verify whether the assessee had disclosed this income in its books and, if so, to avoid a separate addition. This ground was allowed for statistical purposes.

3. Separate Addition towards Income from Rent:
The AO added Rs. 2,21,800 towards income from rent over and above the estimated business income. The CIT(A) upheld this addition. The Tribunal directed the AO to verify whether the assessee had disclosed this income in its books and, if so, to avoid a separate addition. This ground was also allowed for statistical purposes.

4. Admission of Additional Evidence under Rule 46A(1)(c) of the Income Tax Rules, 1962:
The assessee claimed that it was prevented by sufficient cause from producing evidence during the assessment proceedings due to the illness of the Director and financial hardships. The CIT(A) rejected the application for additional evidence, stating that no proof of illness was provided, and the financial statements were not acknowledged as filed with the Registrar of Companies. The Tribunal noted that the assessee had filed the tax audit report on the portal and provided audited financial statements. The Tribunal allowed the additional evidence and directed the AO to verify the disclosed incomes, thereby partly allowing the appeal on this ground.

Consolidated Order:
Both appeals, ITA No. 343/JP/2024 and ITA No. 344/JP/2024, were heard together as the issues involved were identical. The Tribunal's decision in ITA No. 343/JP/2024 was applied mutatis mutandis to ITA No. 344/JP/2024. As a result, both appeals were partly allowed. The Tribunal emphasized the need for a fair estimation of income based on historical data and directed the AO to verify the disclosed incomes to avoid separate additions. The order was pronounced in the open court on 10/07/2024.

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