Net profit ratio of 3 percent in contract business allowed as in earlier years even lower profit rate was consistently accepted without objection-ITAT

Net profit ratio of 3 percent in contract business allowed as in earlier years even lower profit rate was consistently accepted without objection by the Department – ITAT

Net profit ratio

ABCAUS Case Law Citation:
ABCAUS 1225 (2017) (04) ITAT

The Grievance:
The appellant assessee was aggrieved by the order passed by the Commissioner of Income Tax (Appeals) in confirming the order of the Assessing Officer (AO) in estimating the profit of his contact business at 8% of the total turnover.

Assessment Year : 2010-11
Date/Month of Pronouncement: April, 2017

Brief Facts of the Case:
The assessee was an individual engaged in the business of contract work. For the relevant year, the AO observed that the books of account of the assessee were not reliable as such he assessed the income of the assessee at by estimating the profit at 8% of the total turnover.

The appeal preferred by the assessee before the CIT(A) was dismissed.

Aggrieved by the same the assessee is in appeal before us challenging the rejection of books of account and estimation of profit at 8% of contract receipts.

Contentions of the appellant assessee:
It was submitted that in respect of the earlier years were namely 2000-01, 2003-04, 2006-07, 2007-08 and 2009-10 assessment was completed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) accepting the profit ratio as under:

Ass. Year Net Profit %
AY 2000-01 3.31%
AY 2003-04 1.60
AY 2006-07 2.63
AY 2007-08 2.39
AY 2008-09 2.30
AY 2009-10 2.46

It was prayed that in view of the above it was not open for the Revenue now to straightaway estimate the profit ratio at 8%. He prayed that profit ratio be  estimated at 2.46% which was accepted in the immediately preceding AY 2009-10.

Contention of the Respondent Revenue:
It was the argument of the Revenue that the AO had given the cogent reasons for rejection of the books and estimation of 8% of the profit ratio. He submitted that the profit ratio suggested by the assessee at 2.46% was too low and could not be accepted. It was prayed that at the lowest the profit ratio could be around 4%.

Observations made by the Tribunal:
The Tribunal observed that as pointed out, for many years, the Income Tax Department consistently accepted the profit ratio in the business of the assessee which was between 1.60 and 3.31 and at no point of time any objection was taken by the AO on the ground that in the kind of business of the assessee average rate of profit would be anything around 8%.

The Tribunal opined that under the circumstances, it did not find any rational in the AO estimating the profit at 8% and the consistency of the net profit as was established by the accepted books of account in the business of the assessee was something between 1.60% and 3.31% therefore taking a pragmatic view, 3% of the profit ratio of the contract receipt would meet the ends of justice.

AO was directed to estimate the profit of the assessee at 3% of the total turnover.

Net profit ratio

Download Full Judgment

----------- Similar Posts: -----------

Leave a Reply

Subscribe to ABCAUS Newsletter

Get reliable, authentic and latest updates on taxation/corporate and other laws in your mail box free.

After subscribing, please check your email (including spam or junk folder) and activate the subscription link by clicking it.