Manoj Kumar Contractor Vs DCIT (ITAT Delhi)
Income Tax Appellate Tribunal (ITAT) Delhi, in the case of Manoj Kumar Contractor vs. DCIT, reviewed the net profit addition after the rejection of books of accounts. The appeal pertained to the assessment year 2020-21, where the assessee challenged the enhancement of the net profit rate from 5.04% to 6% by the tax authorities. The dispute arose from the inclusion of interest from Fixed Deposit Receipts (FDRs) and tax refunds in the profit computation, which the Assessing Officer (AO) subsequently excluded while increasing the profit percentage.
The assessee, who did not appear for the hearing, had initially declared a net profit rate of 5.04%, including interest earnings. However, the department rejected the books of accounts and reassessed the profit at a higher rate of 6%, leading to an addition of ₹4,00,008 to taxable income. The ITAT examined the matter and found that while an adjustment was warranted due to book rejection, a substantial increase in profit percentage was not justified solely on estimation without sufficient supporting evidence.
Relying on the principle that book rejection does not automatically justify arbitrary profit enhancements, ITAT Delhi followed a reasoned approach similar to CIT vs. Amitabh Bachchan (2016) 384 ITR 200 (SC), where the Supreme Court emphasized that additions must be based on reasonable estimation rather than mere assumptions. The Tribunal held that a lump sum addition of ₹1 lakh would be appropriate, granting partial relief to the assessee by reducing the taxable addition from ₹4 lakh to ₹1 lakh.
