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2021 (5) TMI 657 - AT - Income TaxRejection of books of account - estimation of profit - AO, before estimating the profits @ 10% on the total turnover, observed that as per the provisions of Sec. 44AD, the profit and gains of eligible business have to be computed at 8% of total turnover or gross receipts, where the. total turnover or gross receipts in the previous year does not exceed ₹ 1 Cr. - HELD THAT:- In the instant case, since the turnover of the business was R$,13.91 Cr., the provisions of Sec.44AD cannot be applied. The assessee has shown a meager profit of 4.52% on a total turnover of ₹ 13.91Cr. Since the Act has envisaged a profit of 8% for small businesses, considering the facts and circumstances of the case and since the books of account have been rejected for the reasons discussed above, a profit @ 10% on total turnover is felt to be reasonable. The CIT(A) upheld the action of the AO. The assessee has earned more Gross Profit i.e. 56% as evident from the order of the CIT (A) at para No. 04. It was the primary duty of the assessee to produce the bills/vouchers as and when required for verification in support of the claim of expenses debited into the P&L A/c during the course of assessment proceedings, but, the assessee has failed to do so. After considering the totality of the facts of the case and statements recorded of Sri A. Srinagaveer, we do not find any reason to interfere with the orders of revenue authorities and, therefore, approve the 10% estimation on total turnover of the assessee. According, this grounds raised on this issue are dismissed. Enhancement of the income of the assessee by CIT u/s 251(2) - HELD THAT:- CIT(A) rejecting the submissions of the assessee, enhanced the income of the assessee by using powers u/s 251(2) of the Act. As contended by the ld. AR of the assessee that once the books of account are rejected, it is trite law that no further additions can be made from the same books of account. We find substance in the submissions of the ld. AR and case law relied on by him. Therefore, we set aside the decision of the CIT(A) in enhancing the income of the assessee and uphold the order of the AO in estimating the income of the assessee @ 10% on the total turnover. CIT(A) has treated it as other income. The CIT(A) has co- terminus powers but once a pragmatic view has been formed by the AO, it should be changed as per the case law cited supra. Further, on perusal of the details of other income shown in the financial statement, this income is related to the primary business activity of the assessee. Accordingly, this ground of the assessee is allowed. Deduction u/s 80IB (11A) - assessee strongly submitted that the business of the assessee is eligible for deduction u/s 80IB(11A) because assessee is engaged in the business of corn processing & packaging - HELD THAT:- The assessee is entitled for claim of deduction u/s 80IB(11A) on the profit estimated by the AO @ 10% on the revenue from operations as per Note No. “O” of the financial statements. Hence, we set aside the order of the CIT(A) in this regard and direct the AO to allow the assessee’s claim of deduction u/s 80IB(11A). In the result, the ground raised by the assessee on this issue is allowed. The items mentioned in the table extracted by the CIT(A) in his order are not covered part of the turnover of the assessee. In this regard, the assessee has shown separately under two heads, one is from revenue from operations and from other income. The other income shown by the assessee are arising during the course of principal business activity of the assessee. Therefore, profit derived under these heads is also forms part of the main business of the assessee and therefore, the entire profit enhanced by the CIT(A) is not justified. In this regard, the AO has rejected the books of account of the assessee and applied 10% of the net profit on entire receipts of the assessee. In the result, the appeal of the assessee is allowed. We make it clear that the assessee will not get benefit of deduction u/s 80IB(11A) on the profits estimated @ 10% on the other income vide Note No. “P” of the financial statements.
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