ITAT Sustains 8% Gross Profit Estimation on Unaccounted Sales due to Non-Cooperation by Assessee [Read Order]

The Raipur Bench of the Income Tax Appellate Tribunal (ITAT) recently upheld an estimation of 8% gross profit (GP) on unaccounted sales after noting that the assessee had failed to cooperate and substantiate its claims against the concerned Assessing Officer’s computation of undisclosed income.

Two appeals were instituted by Sarthak Ispat Pvt. Ltd. (Sarthak Ispat) following a search and seizure operation conducted against them on November 26, 2019.

Pursuant to the search, the assessee was issued notices under Section 153A of the Income Tax Act, 1961 in response to which they filed income returns on September 23, 2021. Subsequently, the assessments for Assessment Years (AYs) 2011-12 to 2013-14 were completed wherein the Assessing Officer (AO) made several additions including the estimating income from unaccounted sales by applying an 8% GP rate.

Aggrieved, the assessee unsuccessfully appealed before the Commissioner of Income Tax (Appeals) ( CIT(A) ), leading to the present appeal.

The assessee was represented before the ITAT by Subhash Agrawal while the Department was represented by S.L. Anuragi.

The AO had based the estimation on seized documents and digital data that was found during the search, based on which the AO had estimated unrecorded sales. Since the assessee failed to produce proper books of account or supporting evidence, the AO applied an 8% GP rate to the undisclosed turnover against which the assessee claimed that only a lower GP rate of 5% should be adopted, contending that the AO’s estimate was excessive.

The two-member Bench of Ravish Sood (Judicial Member) and Arun Khodpia (Accountant Member) examined the record and observed that the AO had based their findings on the basis of seized material. However, it was noted that the assessee did not cooperate in the proceedings or furnish any comparative data to justify its claim warranting a lower GP rate of 5%.

The Tribunal further referenced one of its earlier decisions pertaining to the same assessee, where the 8% GP estimation on similar facts had been sustained following continued non-cooperation by the assessee.

Alluding to the consistency of facts in both instances and the continued non-cooperation by the assessee, the Tribunal held that the estimate of 8% Gross Profit was fair and reasonable.

Accordingly, the ITAT sustained the 8% GP estimation on unaccounted sales and dismissed this particular ground raised by the assessee.

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