RATHINAM SENTHILKUMAR, NAMAKKAL CHENNAI V. ITO WORLD 2 NAMAKKAL, NAMAKKAL

ITA 453/CHNY/2023

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The case involves Shri Rathinam Senthilkumar, who is engaged in poultry farming, and the Income Tax Officer, Ward 2, Namakkal. The dispute arose from the assessment year 2017-18, where the Assessing Officer (AO) applied a profit rate of 8% on the total credits in the assessee's bank account, amounting to Rs.2,31,04,621, due to non-maintenance of books and non-audit under section 44AB of the Income Tax Act, 1961. The assessee contested this in the Commissioner of Income Tax (Appeals), which upheld the AO's decision. Subsequently, the assessee appealed to the Income Tax Appellate Tribunal, which partly allowed the appeal by reducing the profit rate to 4%.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135089 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 13-06-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 09-04-2023
• Other Referred Cases: PCIT vs. Kandla Steel (P) Ltd., [2023] 149 taxmann.com 224
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Question of law
• Section: 145; 44AD

Judgement Text

आयकर अपीलीय अिधकरण, ‘सी’ (एस एम सी) ᭠यायपीठ,चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ (SMC) BENCH, CHENNAI ᮰ी महावीर ᳲसह, उपा᭟यᭃ के समᭃ BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT आयकर अपील सं./ITA No.: 453/CHNY/2023 िनधाᭅरण वषᭅ/Assessment Year: 2017-18 Shri Rathinam Senthilkumar, 1R, Puliyampatty, Vettuvankadu Kalyani Post, Puduchatram, Namakkal – 637 418. PAN: DQDPS 3422Q Vs. The Income Tax Officer, Ward 2, Namakkal. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri Tarun, Advocate & Shri S. Sridhar, Advocate ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri G. Johnson, Addl.CIT सुनवाई कᳱ तारीख/Date of Hearing : 14.06.2023 घोषणा कᳱ तारीख/Date of Pronouncement : 16.06.2023 आदेश /O R D E R This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 07.03.2023. The assessment was framed by the Income Tax Officer, Ward-2, Namakkal for the assessment year 2017-18 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 16.12.2019. - 2 - ITA No.453/Chny/2023 2. The only issue in this appeal of assessee is as regards to the order of CIT(A) (NFAC, Delhi) i.e., CIT(A), Salem confirming the action of the AO in applying profit rate @ 8% as against declared by the assessee i.e., average percentage of profit at 3.11% for assessment year 2019- 20 to 2020-21. For this, assessee has raised various grounds which are argumentative and hence, need not be reproduced. 3. The brief fats are that the assessee is engaged in the business of poultry farming during the relevant financial year 2016-17 relevant to this assessment year 2017-18. The assessee filed his return of income for assessment year 2017-18 on 19.09.2017 and accordingly, assessee’s case was selected for scrutiny assessment for the reason, “cash deposit during the year”. The AO during the course of assessment proceedings noticed that there are cash deposits and other credits appearing in assessee’s bank account maintained with Canara Bank, Pillanallur, Namakkal i.e., total cash credit of Rs.2,31,04,621/-. The AO noted that the assessee has admitted income of Rs.4.2 lakhs from poultry business but has not maintained any books of accounts or has not got the accounts audited u/s.44AB of the Act as the assessee’s turnover exceeds Rs.2,31,04,621/-. Accordingly, the AO estimated the profit rate at 8% of the total credit of the total credit of Rs.2,31,04,621/- and assessed the business income at Rs.18,48,370/-, after allowing set off of income already declared of Rs.4,20,000/- the - 3 - ITA No.453/Chny/2023 AO added the estimated income at Rs.14,28,370/-. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) also confirmed the action of the AO. Aggrieved, assessee came in appeal before Tribunal. 4. I have heard rival contentions and gone through facts and circumstances of the case. I noted that the assessee has engaged in the business of poultry farming and he has total credits or gross receipts of Rs.2,31,04,621/- during the financial year 2016-17 relevant to this assessment year 2017-18. The AO estimated profit rate at 8% based on the provisions of section 44AD of the Act. Admittedly, the provisions of section 44AD of the Act do not apply to the case of the assessee and some estimation has to be done but reasonable estimation has to be done. I have gone through the decision of Hon’ble Gujarat High Court in the case of PCIT vs. Kandla Steel (P) Ltd., [2023] 149 taxmann.com 224, wherein Hon’ble Gujarat High Court upheld the Tribunal’s order of upholding the estimation of net profit at 0.5% by observing in para 10 as under:- “10. We find that both the CIT (Appeals) and the Tribunal have concurrently held estimating the net profit at 0.05 % of the assessee company. While so doing, it had also confirmed the act of rejection of books under Section 145 of the IT Act. At the same time, there has been equitable balance struck by the authorities when it found that the Assessing Officer had not given any internal or external comparitive figures of sector of the assessee's business while arriving at the GP/NP ratio of 7%. The business is of trading of steel items. The manufacturing activities had almost stopped. The NP ratio of 7% being impractical and completely unacceptable and as most of the trading concerns have been operating C/TAXAP/675/2022 ORDER DATED: 03/01/2023 at the GP ratio of 0.5% - 4 - ITA No.453/Chny/2023 to 1%, when both the authorities have deemed it appropriate to apply 0.5% ratio, no indulgence is necessary. These are all essentially and predominantly the factual aspects analysed based on the material adduced before these authorities and that also by giving cogent and sound reasons, in absence of any question of law, much less any substantial questions of law for the court to admit this matter, this appeal is dismissed.” 4.1 I have gone through the case records and noted that the assessee’s profit rate in future years is at average percentage of 3.11%. The assessee has tabulated the profit rate as under:- S.No. Particulars A.Y 2019-20 A.Y 2020-21 A.Y 2021-22 1 Turnover / Gross receipts 2,98,97,791 3,20,30,247 3,51,27,472 2 Profit offered for tax 9,57,432 10,25,866 10,33,553 3 Percentage profit offered to tax 3.20% 3.20% 2.94% 4 Average percentage of profit 3.11% In view of the above facts, as the profit rate in the line of business is around 3 to 4% and hence, I estimate a reasonable profit rate of 4%. I direct the AO accordingly. The appeal of the assessee is partly-allowed. 5. In the result, the appeal filed by the assessee is partly-allowed. Order pronounced in the open court on 16 th June, 2023 at Chennai. Sd/- (महावीर ᳲसह ) (MAHAVIR SINGH) उपा᭟यᭃ /VICE PRESIDENT चे᳖ई/Chennai, ᳰदनांक/Dated, the 16 th June, 2023 RSR आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथᱮ/Appellant 2. ᮧ᭜यथᱮ/Respondent 3. आयकर आयुᲦ /CIT 4. िवभागीय ᮧितिनिध/DR 5. गाडᭅ फाईल/GF.