ITAT orders 8.24% net profit rate on gross receipts, rejects AO's 15% determination on undeclared turnover under section 44AD

The ITAT Bangalore directed the AO to adopt a net profit rate of 8.24% on gross receipts for the relevant assessment year, rejecting the AO's determination of 15% profit on undeclared turnover. The tribunal relied on the assessee's audited accounts for AY 2017-18 showing 8.24% net profit rate, finding these figures more dependable as the business operations and turnover remained consistent across years. The tribunal noted that for other assessment years, income was declared on presumptive basis under section 44AD at 8% of gross receipts. The assessee's appeal was partly allowed.

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Issues:
1. Discrepancy in profit estimation between the assessee and the assessing officer.
2. Application of profit rate on undeclared turnover by the National Faceless Appeal Centre.
3. Reasonableness of the profit percentage adopted by the assessing officer.
4. Comparison of profit rates declared in previous assessment years.

Analysis:
1. The appeal concerns the disagreement over the profit and gain from business declared by the assessee and the assessing officer for the Assessment Year 2016-17. The assessing officer added an amount to the income declared by the assessee, citing discrepancies in the turnover figures.

2. The National Faceless Appeal Centre directed the assessing officer to adopt a profit rate of 15% on the undeclared turnover of Rs. 96,40,912, differing from the 6.8455% declared by the assessee. The issue revolves around the reasonableness of this adjustment and whether it aligns with the provisions of the Income Tax Act, 1961.

3. The CIT(A) partially allowed the appeal by reducing the profit rate to be adopted to 15% from the assessing officer's 30%. The CIT(A) emphasized the requirement for auditing accounts under Section 44AB for businesses exceeding Rs. 1 crore in sales, suggesting that the assessee's declared profit percentage was below the standard.

4. The Tribunal reviewed the facts and submissions, considering the consistency of profit rates declared in previous assessment years. The Tribunal found the net profit rate of 8.24% declared by the assessee for the Assessment Year 2017-18 to be reasonable and applicable to the current year as well. Therefore, the Tribunal directed the assessing officer to adopt a net profit rate of 8.24% on the gross receipts for the relevant Assessment Year, partially allowing the appeal.

This detailed analysis showcases the progression of the case, highlighting the key arguments, decisions, and legal considerations involved in the judgment.

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