2024 (11) TMI 384 - AT - Income Tax

Assessee's disclosed 5.99% profit rate deemed adequate, no additional estimation required despite turnover mismatch

ITAT Jaipur allowed the assessee's appeal regarding GP estimation dispute. AO applied 8% profit rate due to turnover mismatch with Form 26AS, while CIT(A) ... GP estimation - estimation of the percentage of profit that is to be applied in the case of the assessee based on the facts that the assessee has disclosed the turnover which is not matching with that of the form no. 26AS - AO applied the profit at the rate of 8%, CIT(A) considering the past order in the case of the assessee estimated at 7% HELD THAT:- As the assessee has already disclosed @ 5.99 % there is no need to further add the estimation of profit and moreover the profit of the Sri Lanka project for which the dispute is raised the profit of which is also forms part of the total profit declared by the assessee. Appeal of the assessee is allowed. Issues Involved:1. Rejection of books of accounts and invocation of Section 145(3) of the Income Tax Act, 1961.2. Application of Gross Profit (G.P.) rate of 7% on the turnover, including the turnover from the Sri Lanka branch.3. Inclusion of turnover from the Sri Lanka branch in the total turnover for estimation of net profit.Detailed Analysis:1. Rejection of Books of Accounts and Invocation of Section 145(3):The primary issue was whether the books of accounts maintained by the assessee were reliable and whether the provisions of Section 145(3) of the Income Tax Act, 1961, were correctly invoked. The Assessing Officer (AO) noted discrepancies in the books of accounts, particularly concerning the contract work done at Sri Lanka. The AO observed that the assessee failed to provide complete books of accounts and supporting documents, leading to the rejection of the books under Section 145(3). The CIT(A) upheld this rejection, citing the lack of proper details and supporting evidence for expenditures and stock records. The Tribunal, however, noted that the rejection of books in previous years had been consistently overturned or modified, suggesting that the assessee's method of maintaining accounts had been accepted in the past. Consequently, the Tribunal found merit in the assessee's argument that the peculiar nature of its business justified the absence of certain records and allowed the appeal on this ground.2. Application of G.P. Rate of 7%:The CIT(A) upheld the application of a 7% G.P. rate on the total turnover, including the Sri Lanka branch. The assessee argued that the G.P. rate applied was arbitrary, particularly since the ITAT had previously accepted the G.P. rate declared by the assessee for earlier assessment years. The Tribunal examined past decisions and found that the past history of the assessee's profit rates should guide the estimation of profits. It noted that the G.P. rate declared by the assessee was consistent with past years and that the CIT(A) had not adequately justified the deviation from this history. The Tribunal directed the AO to apply the average G.P. rate from the last three years, which was lower than the applied 7%, thereby allowing the assessee's appeal on this issue.3. Inclusion of Turnover from Sri Lanka Branch:The inclusion of the Sri Lanka branch's turnover in the total turnover for estimating net profit was contested by the assessee. The assessee contended that the profits from the Sri Lanka branch were already reflected in its accounts and that the turnover should not be included again for profit estimation. The Tribunal agreed with the assessee, noting that the profits from the Sri Lanka branch were already incorporated in the total profits declared. It found that the inclusion of the Sri Lanka turnover for further estimation would result in double taxation, as the income was already subject to tax in Sri Lanka and reported in India. The Tribunal thus directed the exclusion of the Sri Lanka turnover from the total turnover for profit estimation purposes.In conclusion, the Tribunal allowed the assessee's appeal, directing the AO to apply the average G.P. rate from the last three years and exclude the Sri Lanka turnover from the total turnover for profit estimation. The decision emphasized the importance of consistency with past assessments and the need to avoid double taxation.