In a recent case about the challenge was on reduction of net profit upheld by the Commissioner of Income Tax (Appeal)(CIT(A), the Ranchi bench of the Income Tax Appellate Tribunal (ITAT) remanded the matter for re verification of books of accounts & other documents.
The appeal was filed by the Revenue and Cross Objection filed by the assessee , M/s M Z Enterprises against the order of the CIT(A) passed under section 250 of the Income Tax Act, 1961 (“the Act”) for AY 1994-95, dated 28.09.2021.
It was stated that on the facts and in the circumstances of the case and in law, the CIT(A) has erred in reducing the net profit percentage to 1.25% from 5.5%. During survey, Shri Zinu, partner of the firm had stated that he earns commission at the rate of 5.5% from M/s Shapoorji Pallonji for supply of manpower. However, in the ITR the assessee shown only 0.84% as his profit. The Books of Accounts were neither the assessee shown only 0.84% as his profit.
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It was alleged that the Books of Accounts were neither produced at the time of survey not at the time of assessment by the assessee. The CIT(A) has accepted the submissions of the assessee that it had filed various documents such as cash book, sales register, purchase register, party wise ledgers, bank statement etc. during the assessment proceeding which is not correct as per the assessment record.
The year under consideration was a year in which survey was conducted that brought out some facts which were not in consideration in the earlier assessment years. Therefore, the comparison of income declared in earlier years with the year under consideration is misplaced. That the order of the CIT(A) being erroneous in law and on facts to be vacated and the order of the A.O be restored.
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A survey operation was conducted under section 133A of the Act by the ITO-Ward-1(5), Jamshedpur on 26.02.2018in the business premises of the assessee, M/s M Z Enterprises. During the course of survey proceedings documents vide ID mark MZ-01 to MZ-14were impounded. The assessee filed its return of income on 31.10.2018 showing total income of Rs. 37,99,270/-. The case was selected for compulsory scrutiny as per the CBDT guidelines. Notice u/s 143(2) and 142(1) of the Act.
It was noted in the assessment order under consideration that “during the course of survey proceedings, the statement of one of the partners of the firm Mr. Zinu, was recorded, who had stated that he earns commission @ 5.5% from M/s Shapoorji Pallonji for supply of manpower. He had also provided documentary evidence in this regard. However, from ITR filed by the assessee it was observed that the assessee has shown only 0.84% as his profit.
It is pertinent to note that the assessee has failed to produce his books of accounts during the course of survey proceedings. Therefore, it is clear that the assessee has failed to show his true income in his ITR filed and his books of accounts are liable to be rejected. Thus, the net profit of the assessee is calculated at 5.5% of his turn over i.e. at Rs.3,95,51,000/-. The assessee has shown mere profit of Rs. 60,29,926/-. Based on the facts and circumstances of the case, the difference i.e. Rs. 3,35,21,075/- is added back to the total income of the assessee.
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It was found that Assessing Officer has considered the gross commission received by the appellant @5.50% as net profit without considering the over head expenses like Staff Salary, Conveyance Expenses, Misc. Expenses, Postage & Courier, Telephone & mobile, Printing & Stationery, Staff House Rent, Site Expenses, Bank Charges, Accounting Charges, Legal Fees, Audit Fees & Depreciation. All such expenses are directly related to business of the appellant.
However, on perusal of the return filed by the appellant, it is found that appellant has disclosed net profit @0.84% which appears to be low. In earlier years ie, AY. 2016-17 and 2017-18 assessed net profit percentage was 1.25%. Appellant has accepted net profit percentage @1.25% in the earlier years, therefore, the net profit percentage for the relevant year should be taken as 1.25%.
Assessing Officer without giving any cogent and valid reason just rejected the books of account of the appellant and estimated entire gross commission as net profit of the appellant. The CIT (A) restricted the net profit percentage for the relevant year @ 1.25% Remaining amount of estimated net profit (5.50%-1.25%) is hereby deleted. Accordingly, Assessing Officer is directed to act.
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The Revenue submitted by the CITDR that the books of accounts of the assessee were never found or impounded during the course of survey proceedings and the same was also not produced before the AO during the assessment proceedings and that is the reason why income of the assessee was estimated at 5.5% of the turn-over.
The Counsel for the assessee, on the other hand, reiterated that the relevant documents and books of accounts were produced before the AO and the CIT(A) and therefore, rejection of the book results by the AO is not proper. It was also submitted by the AR that in the business of manpower supply the profit rate is very less and therefore, the profit rates applied both by the AO and the CIT (A) is unreasonable.
A two member bench of Shri Partha Sarathi Chaudhury, Judicial Member and Shri Ratnesh Nandan Sahay, Accountant Member set aside the impugned order and remanded the matter back to the file of the CIT(A) to re-examine this fact whether books of account were actually produced and examined.
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The Tribunal allowed the appeal of the revenue for statistical purpose and Cross Objection filed by the assessee is dismissed. The Assessee was represented by Arun Kumar and the Department was represented by Sanjay Kumar.
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