Profit Estimation Capped at 1.5%: ITAT Recognises Assessee as Livestock Transporter [Read Order]

The bench of the Income Tax Appellate Tribunal (ITAT) Pune, observing that the assessee was engaged in the transportation of livestock on a commission basis and not in retail trading, the Tribunal restricted the profit estimation to 1.5% of turnover, thereby partly setting aside the additions made by the lower authorities under the Income Tax Act, 1961.

The appellant, Haroon Shaikh, is engaged in the business of transporting live birds and poultry products, who was subjected to reassessment proceedings based on information that he had purchased poultry products worth ₹2,64,76,630 in cash from Venkateshwara Hatcheries Pvt. Ltd. (VHPL).

The Assessing Officer (AO) reopened the assessment under Section 147 read with Section 143(3) of the Income Tax Act, 1961, after issuing a notice under Section 148. During assessment, the AO observed that VHPL records showed cash sales to the assessee, registered as Standard Boiler, Dhule and the assessee’s declared profit was only 1.22%. The AO inferred that the assessee was engaged in wholesale trading of livestock and estimated his net profit at 8% of total sales, resulting in an addition of ₹19,36,753.

The Commissioner of Income Tax (Appeals), Delhi [CIT(A)], upheld the addition, prompting the assessee to appeal before the Tribunal.

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Represented by Sanket Joshi, the appellant argued that the AO erred in estimating profits without rejecting the regularly maintained books of accounts or identifying specific defects. It was contended that the assessee was not engaged in trading but merely transported livestock from VHPL to small retailers in Dhule District on a commission-per-kilogram basis.

It was submitted that in previous and subsequent years, the Revenue had accepted similar commission-based income declarations showing net profit margins between 1.20% and 1.65%. Furthermore, documentary evidences including financial statements, and ledger accounts of various retailers, to demonstrate that he acted as an intermediary transporter and not a trader.

The Tribunal Bench of Dr. Manish Borad, Accountant Member held that while the AO did not explicitly reject the books of accounts under Section 145(3), his observations implicitly questioned the correctness of the declared results. However, the Tribunal found merit in the assessee’s explanation and supporting evidence showing that the activity involved transportation of livestock and poultry products on commission, not retail trading.

Thus, the Tribunal held that the application of an 8% net profit rate was unjustified. Therefore, directed that the net profit rate of 1.5% be applied on the turnover of ₹2,85,94,760 for Assessment Year 2012-13, computing profit at ₹4,28,921. However, since the assessee had already offered ₹3,50,828 in the return, the excess profit of ₹78,093 was sustained.

Similarly, for Assessment Year 2013-14, with a turnover of ₹4,11,54,943, the Tribunal applied the same 1.5% rate, sustaining a reduced addition of ₹1,46,134.

Consequently, the findings of the CIT(A) were set aside.

Accordingly, the appeals were partly allowed.

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