DCIT Vs Miniboss Consultancy Pvt. Ltd. (ITAT Mumbai)
Once Books Rejected, Profit Must Be Estimated with Comparables – CIT(A) Erred in Accepting 5% GP Without Evidence
Assessee, engaged in marketing & event support activities, filed return declaring income of ₹40.51 lakhs. AO, finding substantial purchases from suspicious/non-filer parties, rejected books & estimated net profit @20% of sales, assessing total income at ₹2.86 crores. Separate additions of ₹24.34 lakhs (unexplained liabilities u/s 68) & ₹19.09 lakhs (fixed asset additions) were also made.
Before CIT(A), Assessee contended that once books were rejected, only profit estimation could be done & separate additions were impermissible. CIT(A) upheld rejection of books but reduced profit estimation to 5% of sales, reasoning that comparable cases had much lower margins. Since Assessee had already declared 3.36% profit, CIT(A) restricted further addition to 1.64% of turnover. He also deleted separate additions of ₹24.34 lakhs & ₹19.09 lakhs, holding that these would amount to double addition once profit estimation was made.
Revenue appealed, arguing that CIT(A) erred in reducing GP without evidence of comparables & wrongly deleted separate additions not linked to book rejection.
Tribunal held that once books are rejected, profit must indeed be estimated based on industry comparables. However, CIT(A) had accepted 5% GP without placing any market evidence on record. Tribunal therefore remanded matter back to AO with directions:
- Assessee to produce comparable cases showing margins near 5%.
- AO also empowered to collect independent data & re-estimate profit fairly.
- Fresh decision to be taken after affording opportunity of hearing.
Accordingly, Tribunal allowed Revenue’s appeal for statistical purposes, restoring matter to AO
