Net Profit Shall Be Estimated @2.75% Of Total Turnover In Case Its Rate Is Highest In First Year Of Operation: Cuttack ITAT
Finding that the assessee has shown highest rate of net profit in its first year of business, the Cuttack ITAT directed for estimation of net profit @2.75% on the total turnover of the assessee after reduction of the airport rent cost, sheet cost and truck rent cost as there is no possibility of assessee earning any income out of the said expenses. The Bench of Manish...
Finding that the assessee has shown highest rate of net profit in its first year of business, the Cuttack ITAT directed for estimation of net profit @2.75% on the total turnover of the assessee after reduction of the airport rent cost, sheet cost and truck rent cost as there is no possibility of assessee earning any income out of the said expenses.
The Bench of Manish Aggarwal (Accountant Member) and George Mathan (Judicial Member) observed that “the assessee has shown the highest rate of net profit for the impugned assessment year. This being so, and considering the fact that the income of the assessee has been estimated, net profit of the assessee is liable to be estimated @2.75% on the total turnover of the assessee after reduction of the airport rent cost, sheet cost and truck rent cost”. (Para 6)
Facts of the case:
The assessee, engaged in the business of commission agent for prawn seeds, filed its return which was accepted during assessment. However, the return of assessee was the subject matter of revision u/s 263, wherein the Pr. CIT set aside the assessment to the file of AO with a direction to redo the assessment in regard to two issues, being one the profit of the assessee and secondly to bring to tax the interest from bank accounts which had not been offered to tax by the assessee. Later, consequential assessment order was passed u/s.143(3) r.w.s.263, wherein the AO estimated the income of the assessee @8% by applying the provisions of Section 44AD on the turnover of Rs.6,67,98,896/-. The AO also brought to tax the interest income earned by the assessee from the bank account. On appeal, the CIT(A) though deleted the reference of Section 44AD by the AO, however, upheld the addition.
Observations of Tribunal:
The Bench found that the net profit disclosed by the assessee itself for the relevant assessment year and subsequent assessment years were accepted in the intimation u/s.143(1).
The Bench also found that neither the AO nor the CIT(A) has considered any comparative case for the purpose of determination of the rate of profit disclosed by the assessee.
Typically, the best comparison to determine the net profit by the assessee would be earlier or the subsequent assessment years of the same assessee, added the Bench.
The Bench also found that the impugned assessment year is the first year of assessee's business and assessee has shown highest rate of net profit for said year.
The ITAT therefore partly allowed assessee's appeal and directed the AO to estimate the income of the assessee @2.75% on its total turnover.
Counsel for appellant/ Assessee: S.K Sarangi
Counsel for Respondent/ Revenue: Dr. Abani Kanta Nayak
Case Title: Bankula Jaga Reddy vs. ITO
Case Number: ITA No.182/CTK/2024