TMI Blog2016 (1) TMI 631X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision of beneficial nature which seeks to reduce hardships and tax hassles. It overrides the normal provisions of section 28 to section 43C of the Act to unable the assessee to avail this alternative route for computation of taxable business income. The statutory percentage estimated at 8% of the total turnover or gross receipts though made available to the assessee of the smaller size i.e. having a turnover of ₹ 40,00,000/- is presumed to be based on empirical studies and analysis of sample of statistical datas to arrive at the fair estimate. The percentage prescribed cannot be deemed to be arbitrary or without any rational basis. Therefore, adopting a rate of 8% of the contract receipts, in our view, is in harmony with the statutory percentage which acts as a fair benchmark. There is no justification to adopt the profit percentage declared by the assessee himself in the preceding year in preference to the statutory percentage. - Decided in favour of revenue. - ITA No.694/PN/2014 - - - Dated:- 28-10-2015 - MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM For The Appellant by : Shri B. C. Malakar For The Respondent by : None ORDER PER PRADIP KU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment. However, as there was no compliance or response by the assessee during the assessment proceedings, a show-cause notice was issued by the Assessing Officer wherein it was proposed to estimate the total income of the assessee @ 8% of the total turnover. Responding to the said notice, Shri R.D. Sarde, partner of the firm attended before the Assessing Officer and stated to have furnished financial statements, work order details, bank pass book extracts, purchase register etc.. However, as per the Assessing Officer, the assessee could not furnish any evidence supporting the expenditure claimed and profits shown. It was also noted by the Assessing Officer that though the turnover of the assessee was more than ₹ 6 crores, no audit report under section 44AB of the Act was furnished which led the Assessing Officer to draw the inference that the assessee failed to get its accounts audited. In the background, the Assessing Officer came to the conclusion that there was no sanctity to the profits shown by the assessee and he proceeded to reject the books results shown by the assessee and estimated the net profit @ 8% of the total turnover, leading to an addition of ₹ 34,29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A), however, agreed with the findings of the Assessing Officer that the assessee could not substantiate the reasonableness of the profits disclosed, by producing supporting books of account and corroborating evidences nor it could show that such books, if any, got audited under section 44AB of the Act as audit report was not filed during the course of assessment proceedings. Therefore, as per para 4.1 of the CIT(A) s order, he observed certain defects in the tax audit report filed before him and in the absence of books of account and day-to-day stock register for raw material and Work-in- Progress (WIP), etc. coupled with lack of bonafides of valuation of stock etc. and he found justification in the action of the Assessing Officer in resorting to section 145(3) of the Act. He also relied upon the decision of the Jurisdictional High Court in the case of National Plastic Industries reported in 309 ITR 191 (Bom) to support the action of the Assessing Officer. However, he adopted the profit percentage @ 5.3% of the contract receipts as profit during the year on estimation basis quantified at ₹ 17,44,619/- based on the value addition made of ₹ 3,29,17,352/- to the opening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant and that whether the profit disclosed by the appellant can be considered to the reasonable profit or not. As per the profit loss account for the year under consideration, the appellant has disclosed a gross profit of ₹ 27,41,196/- on a gross sales of ₹ 6,02,42,649/- which works out to 4.5%. However, during the immediately preceding year, the gross profit stood at 14.37% while the net profit disclosed stood at 5.36% of the WIP. This makes it clear that there is considerable increase in the direct expenses during the year. In this regard, it would be relevant to carry out a comparative analysis of the components of direct expenses during this year and the preceding year:- Items A.Y.2008-09 2009-10 Closing WIP / Addition 2,73,25,297 3,29,17,352 Purchases 1,79,61,135 *1,94,95,875 Labour charges 54,35,788 96,22,925 Transport expenses - 10,57,355 Percentage of purchases to WIP / Additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of books, based on another person's business of similar kind in the same area or on the assessee's own financial results of the preceding years. 4.2.3 Having considered the facts and circumstances of the case, I am of the opinion that it would be fair and reasonable to adopt the profit percentage at the same rate as was disclosed by the appellant during the immediately preceding year. This is being so done after considering the fact that the profit disclosed by the appellant during this year also pertains to the same project which it had commenced in the preceding year and the appellant has not made out any ground for claiming higher expenditure during this year. Accordingly, adopting the profit percentage at 5.3%, the profit during the year is estimated at ₹ 17,44,619/- on the value addition made of ₹ 3,29,17,352/- to the opening WIP of ₹ 2,73,25,297/-. Accordingly, the addition of ₹ 34,29,712/- made by the Assessing Officer is restricted to ₹ 17,44,619/-. Appellant gets a consequential relief of ₹ 16,85,093/-. Ground of appeal No.l 2 are partly allowed. 9. The Ld. Departmental Representative for the Revenue strongly r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resumptive being equal to 8% of the total turnover or gross receipts. This is a provision of beneficial nature which seeks to reduce hardships and tax hassles. It overrides the normal provisions of section 28 to section 43C of the Act to unable the assessee to avail this alternative route for computation of taxable business income. The statutory percentage estimated at 8% of the total turnover or gross receipts though made available to the assessee of the smaller size i.e. having a turnover of ₹ 40,00,000/- is presumed to be based on empirical studies and analysis of sample of statistical datas to arrive at the fair estimate. The percentage prescribed cannot be deemed to be arbitrary or without any rational basis. Therefore, adopting a rate of 8% of the contract receipts, in our view, is in harmony with the statutory percentage which acts as a fair benchmark. In our view, in the given set of facts, there is no justification to adopt the profit percentage declared by the assessee himself in the preceding year in preference to the statutory percentage. The books of account, which is the basis for computation of actual profits is not available. We find the reasonings marshaled g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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