2024 (9) TMI 1044 - AT - Income Tax

Tribunal Overturns Decision: Delay in Filing Doesn't Justify Income Estimation Based Solely on Turnover.

Ganchi Lakshman Kumar Prop. Sri Raj Computers & Mobiles Versus Income Tax Officer Ward-2 Kakinada

The Tribunal ruled in favor of the assessee, overturning the CIT(A)'s decision. The Tribunal determined that the delay in filing the return did not ... Estimation of profit on turnover - assessee has not filed the return of income within the time prescribed in the notice u/s 143(2) - though the return is filed belatedly, but prior to the completion of assessment - HELD THAT:- As admitted fact that the assessee maintained the books of accounts and got the accounts audited u/s 44AB and filed Form 3CB and 3CD in time. But he could not file the return of income due to personal reasons. Therefore, the AO estimated the net income @15% on the turnover as per audit report. Assessee has relied on the decision of Delhi Kalyan Samithi & Ors [2016 (4) TMI 172 - DELHI HIGH COURT] wherein, categorically held that even though the return is filed belatedly, but prior to the completion of assessment has to be taken into consideration. In this case also, the return was filed much prior to the completion of assessment and the assessee has explained the source for cash deposits during the demonetization period, therefore, we are of the view that simply, delay in filing the return of income itself is not sufficient reason to estimate the profit of the assessee @15% on the turnover. If the assessee filed the return belatedly, there are other provisions to take action against the assessee, but simply, the AO cannot estimate the profit. Moreover, the assessee has filed audit report financials within the time prescribed under the Act. We find merit in the argument of the assessee, therefore, the grounds raised by the assessee are allowed. Issues:1. Estimation of income by AO based on turnover.2. Delay in filing the return of income by the assessee.3. Dismissal of appeal by CIT(A) and grounds raised before the Tribunal.Analysis:The appeal was filed against the order of the Commissioner of Income Tax (Appeals) arising from the assessment year 2017-18. The assessee, engaged in the sale of mobile phones and accessories, faced an estimation of income by the Assessing Officer (AO) at 15% of turnover due to delayed filing of the return of income. The AO considered the delay in filing the return and estimated the income based on turnover despite the assessee maintaining audited accounts. The assessee contended that the return was filed before the completion of assessment, citing relevant case laws supporting the consideration of returns filed before assessment completion. The Tribunal analyzed the facts, noting the timely audit reports and supporting documents for transactions. The Tribunal agreed with the assessee's argument, emphasizing that mere delay in filing the return does not warrant income estimation at a fixed percentage of turnover. The Tribunal found merit in the assessee's case and allowed the appeal.The key issue revolved around the AO's decision to estimate the income at 15% of turnover due to the delayed filing of the return of income by the assessee. The assessee maintained proper accounts and submitted audit reports but failed to file the return on time. The AO's estimation was challenged before the Tribunal, arguing that the return was filed before the completion of assessment, as supported by relevant case laws. The Tribunal considered the facts, emphasizing the availability of audited financial statements and explanations for cash deposits during the demonetization period. The Tribunal concurred with the assessee's position, highlighting that the delay in filing the return does not justify income estimation solely based on turnover.The dismissal of the appeal by the CIT(A) led the assessee to approach the Tribunal, raising specific grounds challenging the AO's income estimation methodology. The Tribunal scrutinized the case, acknowledging the timely maintenance of accounts and audit reports by the assessee. The Tribunal focused on the delayed filing of the return and the subsequent income estimation by the AO. By considering the legal precedents cited by the assessee and the circumstances of the case, the Tribunal concluded in favor of the assessee, emphasizing that the delay in filing the return should not automatically result in income estimation at a fixed percentage of turnover. Consequently, the Tribunal allowed the appeal, overturning the CIT(A)'s decision and ruling in favor of the assessee.