Eswaramurthy Prakash Vs ITO (ITAT Chennai)
ITAT Chennai Reduces Estimated Profit from 8% to 6.5% of Bank Deposits in Best Judgment Assessment
The assessee, engaged in garment trading, had not filed a return of income for AY 2016-17. Based on information that the assessee’s bank account reflected credits of about ₹1.37 crore, the AO reopened the assessment and completed it ex-parte, estimating income at 8% of total bank credits under best judgment assessment. The CIT(A) upheld the estimation by relying on the presumptive rate under section 44AD due to absence of books of account.
Before the ITAT, the assessee argued that the garment trading business normally operates on very thin margins and the average net profit in earlier years was about 2%, therefore the 8% estimation was excessive.
The Tribunal held that while estimation was justified in the absence of books, section 44AD cannot be mechanically applied for estimating income in every case. Considering the nature of the garment trade, high turnover and relatively low margins, the Tribunal held that 8% was excessive and 2% was too low. Accordingly, it directed the AO to estimate net profit at 6.5% of total bank credits, partly allowing the appeal.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
