Suppressed Turnover Cannot Automatically Attract 8% Profit Estimation: ITAT Restricts Addition to 2.5% [Read Order]

The Income Tax Appellate Tribunal (ITAT)Kolkata Bench has held that suppressed business turnover cannot automatically justify application of an 8% profit rate and accordingly restricted the addition to 2.5% of the undisclosed turnover.

The assessee Niranjan Lal Jindal engaged in the business of jute bags had disclosed a turnover of ₹6.21 crore under the name Jindal Supply Company. However, during assessment proceedings the Revenue discovered another business operated by the assessee under the name Goel Agro Business, involving an undisclosed turnover of ₹12.69 crore.

The Assessing Officer treated the entire turnover as suppressed business receipts and estimated profit at 8% of the undisclosed turnover thereby making the addition. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the assessment order without granting any relief.

The assessee contended that in a similar matter involving his brother for the same assessment year, the Coordinate Bench of the Tribunal had restricted the estimated profit rate to 1.25% instead of 8%. The assessee argued that identical treatment should be extended in the present case as well.

On the other hand, the Revenue argued that the turnover itself was completely undisclosed and therefore the estimation made by the Assessing Officer deserved to be sustained.

The Tribunal observed that the undisclosed turnover in the present case was more than double the disclosed turnover. The Bench further noted that generation of unaccounted turnover would naturally result in savings of fixed expenses such as rent, salary and other operational costs, thereby increasing the actual profit margin.

However, the Tribunal comprising George Mathan and Manjunatha G held that estimation of profit at 8% was excessive in the facts of the case. Taking note of the disclosed business profit margin of around 0.75% to 1% the Bench held that a reasonable estimation on the undisclosed turnover would be 2.5%.

Accordingly, the bench directed the Assessing Officer to recompute the income by applying a profit rate of 2.5% instead of 8% and partly allowing the appeal of the assessee.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates