L.P.R. Construction Vs DCIT (ITAT Allahabad)
The appeal filed by L.P.R. Construction concerned the addition made by the Assessing Officer by estimating net profit at 7% instead of the 6.5% net profit declared by the assessee for Assessment Year 2013-14. The Assessing Officer had rejected the books of account by invoking Section 145(3) of the Income Tax Act, 1961 and thereafter estimated the assessee’s income by applying a 7% net profit rate, making an additional addition of Rs. 3,68,770/-.
The assessee contended that the Assessing Officer had wrongly invoked the provisions of Section 44AD, since the assessee’s turnover of approximately Rs. 7.25 crores was outside the applicable turnover limit, and submitted that its declared net profit of 6.5% was better than the profit history of the preceding year. For AY 2011-12, the assessee had declared a 6% net profit on turnover of Rs. 1.98 crores, which had been accepted by the Revenue under Section 143(1).
The Revenue argued that the earlier year was not comparable because there had been no scrutiny assessment and because turnover had increased substantially. The ITAT held that where books are rejected under Section 145(3), the Assessing Officer must make a best judgment assessment on a proper, reasonable and legally sustainable basis. The Tribunal found that Section 44AD could not be invoked in the present case because the assessee’s turnover was about Rs. 7.25 crores.
