2026 (1) TMI 921 - AT - Income Tax

NP determination on animal sales turnover adjusted using comparables, overturning uniform 8% application in favour of the assessee.

NP rate determination concerned application of a uniform 8% NP rate by the AO across iron scrap and animal sales turnover. The CIT(A) relied on ... NP determination - applying NP rate of 0.22% on animal sales turnover as against NP rate of 8% applied by the AO - application of NP rate on sales/turnover from livestock/animals - application of NP rate on sales/turnover from livestock/animals - rejection of books of accounts - HELD THAT:- AO has applied the common NP rate of 8% on both iron scrap business as well as on animal sales business. Perusal of the percentage of NP rate on animal sales and scrap sales, depicted hereinabove, shows that there is substantial difference in the NP rate of the two separate businesses. CIT(A) has based his findings on various other orders passed by the Assessing Officers in respect of assessee’s engaged in the same kind of business showing NP rates ranging from 0.15 to 0.23%. Admittedly, no defect or discrepancy, whatsoever, has been pointed out in the books of account by the AO. AO has applied same rate for both the business not based on any intelligible differentia. This error has rightly been corrected by the learned CIT(A) on the basis of comparable. We do not find any error of fact or law in the impugned order passed by CIT(A), which is based on right reasons. The aforesaid point is accordingly determined against the revenue and in favour of the assessee. Issues: Whether the net profit (NP) rate of 0.22% applied by the CIT(A) on animal sales turnover and NP rate of 8.07% on scrap turnover was correctly applied in place of the Assessing Officer's uniform NP rate of 8% on combined turnover for assessment year 2014-15.Analysis: The issue arises from the Assessing Officer's application of a common NP rate of 8% on combined receipts after rejecting the books of account and estimating income on bank credits. The CIT(A) examined turnover and declared net profit percentages for the assessee's animal-sales business and scrap business separately, relying on the assessee's audited statements for the businesses and on precedents and assessment orders showing NP rates for animal sales in the range of 0.15%0.23%. The CIT(A) treated the two businesses as distinct activities with materially different net profit characteristics and applied comparable past results and assessments in similar trades to determine appropriate NP rates. The Tribunal found no specific defect in the books of account identified by the Assessing Officer to justify applying the scrap-business NP rate to animal sales, and accepted the principle that estimation of income must be grounded on comparable cases or the assessee's own past results rather than an undifferentiated common rate.Conclusion: The CIT(A)'s determination that NP rate of 0.22% is to be applied on animal sales turnover of Rs. 33,02,83,735/- and NP rate of 8.07% on scrap turnover of Rs. 36,54,000/- is upheld; the revenue's appeal is dismissed, decision in favour of the assessee.