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2022 (6) TMI 1020 - AT - Income TaxEstimation of profit - addition of receipts pertaining to contract receipts not shown in the total turnover and cash deposits into SBI Bank account - CIT-A computed the estimated addition based on gross profit ratio 12.89% (as compared to estimated net profit ratio at the rate of 8% computed by the assessing officer) - HELD THAT:- We note that Assessing Officer as well as ld. CIT(A) failed to consider the past history of net profit ratio shown by the assessee, which is very much relevant to make estimated addition.It is well settled that in estimation there is always a certain degree of guesswork. No doubt the authorities concerned should try to make an honest and fair estimate of the income and should not act totally arbitrarily. Department must act judiciously, while making estimated addition and must be guided by judicial consideration and by rule of justice, equity and good conscience. And also that there must be honest and fair estimate of the proper figure of assessment, for which consideration of local knowledge and repute, besides the previous returns an assessment of the assessee concerned, and all other matters must be taken into account for fair and proper estimate which of course, would fall in the category of guesswork, but a honest guesswork. We are of the view that estimation made by assessing officer is not based on sound reasoning in comparison with the past results shown by the assessee. We note that in AY.2009-10, the assessee’s audit results shows net profit at the rate of 5.12% and for A.Y.2010-11, net profit ratio is 4.32% and for AY.2011-12 the net profit ratio is 4.99%. Therefore, if we consider the average of these three years, the average net profit comes at 4.79%. Thus, based on past three years average net profit, the addition, on turnover ought to have been made by the assessing officer at the rate of 4.79%. As total turnover of the assessee comes at Rs. Rs.3,08,25,664/-( Rs.64,23,832 + Rs.84,75,415 + Rs.1,59,26,417) on which estimation should be made at the rate of average net profit @ 4.79%. Taking into account all these facts, we are not inclined to accept the contention of the Assessing Officer in any manner to make estimated addition @ 8%, hence, the assessee`s income should be estimated @ 5% of turnover of Rs. 3,08,25,664/-, which comes to Rs.15,41,283/-. As the assessee has declared net profit on turnover at Rs. 7,86,505/- therefore, we direct the assessing officer to make addition of Rs.7,54,778/- ( Rs.15,41,283- Rs. 7,86,505). Thus, ground Nos. 1 and 2 are partly allowed. Addition in respect of 12 parties from whom the assessee borrowed small amount for business purposes - Amount borrowed from each party is between Rs.13000 to Rs. 19000/-, which is received by the assessee from friend circle to meet immediate business requirements. The ld Counsel submits that assessee paid these amounts in subsequent years, therefore the addition may be deleted. However, ld DR relied on the findings of the assessing officer. We note that assessing officer failed to bring any evidence on record to show that said amount borrowed from friends and relatives are bogus and for non-business purposes. The assessee is a small businessman and in needy hours, he borrowed money from his friends and relatives, and in subsequent years he has paid to them. We note that there are no findings of the assessing officer that it is assessee`s money which came back to the assessee in the form of cash credit. Hence, a small amount borrowed by assessee to meet the urgent business requirements should not be added in the hands of the assessee, therefore, based on this factual position the addition of Rs.2,00,000/- is hereby deleted. Reopening of assessment u/s 147 - On appeal by the department to the Supreme Court, [2010 (1) TMI 11 - SUPREME COURT] it was held that though the power to reopen under the amended section 147 is much wider, one needs to give a schematic interpretation to the words “reason to believe” failing which section 147 would give arbitrary powers to the AO to re-open assessments on the basis of “mere change of opinion”, which cannot be per se reason to re-open. One must also keep in mind the conceptual difference between power to review and power to re-assess. AO has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the AO. Hence, after 1.4.1989, the AO has power to re-open, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Considering, these facts and circumstances, we note that the re-assessment u/s 144 r.w.s. 147 dated 21.03.2016 was rightly quashed by the ld CIT(A). That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.
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