Same line of business in same area is reliable in estimation of profit in best judgement assessment

CA Kanhaiya Kumar Agarwal

Brief Facts of the Case and Question of Law:

Brief Facts

The assessee-company is a Civil Contractor as well as trading in sarees and fabrics. The assessee-company filed its return of income on 28-09-2008 declaring total income at Rs.3,07,285/-. As noted by AO, the assessee could not produce the books of account and supporting bills and vouchers. The AO accordingly resorted to Sec. 144 of the Act and in response to show cause notice u/s. 145(3) of the Act rejected the book results.

The AO assessed the income from civil construction by estimated net profit @ 8% on the total turnover of Rs. 3,43,20,000/- at Rs. 27,45,600/- and also applied the provisions of Sec. 44AF of the Act on the trading business of sarees and fabrics by estimating NP rate @ 2% of the turnover of Rs. 9,75,15,575/-. Aggrieved against the estimation of NP on civil contracts receipts @ 8%, assessee preferred appeal before CIT(A). The assessee has not challenged the rejection of book results u/s 145 of the Act which was confirmed by CIT(A). The CIT(A) restricted the net profit to 5% of the gross civil contracts receipts.

Question of Law

This appeal of Revenue is against the order of CIT(A) in applying net profit @ 5% of gross civil contractual receipt as against 8% as applied by AO.

Contention of the Revenue

The Revenue was not satisfied with the estimation of Net Profit @ 5% by CIT(A) on gross civil contractual receipts as against 8% applied by the AO.

Contention of the Assessee

The assesse admitted that books of accounts are not maintained and no other supporting vouchers are available with the assesse. The assessee did not challenge the rejection of book results u/s 145 of the Act but objected to estimation of NP @ 8% on contractual receipts by the A.O.

Held by ITAT

ITAT held the view that the net profit @ 5% is too low and even the reason stated by the CIT(A) that there is increase in rate and for that cost has escalated and no evidence qua the same was filed by the assessee before the CIT(A) or AO.

Even books of accounts are not maintained and no other supporting vouchers are available with the assessee. There is no NP rate of preceding years or subsequent year which can be compared. Even the assessee could not produce the comparative cases in same line of business and same area where there is civil construction was carried out by other assessees.

In terms of the above, hon’ble ITAT is of view that a reasonable estimate of net profit will be @ 6%. The AO will re-compute the income accordingly.