ITAT Cuts Estimated Profit from 15% to 0.5% in Newspaper Publishing Business:

The case involved an individual engaged in the publication of newspapers and magazines. During assessment proceedings, the Assessing Officer noticed that the assessee had reported a business turnover of about Rs.17.12 crore but had not furnished the details and supporting records sought during the assessment. Due to the lack of compliance, the Assessing Officer estimated the assessee's net profit at 15% of the total turnover and made an addition of Rs.2.56 crore.

The assessee challenged the addition before the CIT(A). However, the appeal was dismissed as non-maintainable because defects in Form 35 were not rectified. Aggrieved by this dismissal, the assessee approached the Income Tax Appellate Tribunal.

Before the Tribunal, the assessee explained that the newspaper publishing business generally operates on extremely thin margins and is often loss-making. It was argued that estimating profit at 15% of turnover was unrealistic and commercially impractical for this industry. The assessee also submitted that, due to old age, he had been unable to properly handle the tax proceedings.

After examining the facts, the Tribunal observed that newspaper and publication businesses typically earn very low margins despite having large turnovers. It held that there was no reasonable basis for estimating net profit at 15% of turnover in such a line of business. Considering the nature of the industry and the overall facts of the case, the Tribunal found a profit rate of 0.5% of turnover to be fair and reasonable.

Thus, the Tribunal directed the Assessing Officer to recompute the assessee’s income by applying a net profit rate of 0.5% instead of 15%, thereby granting substantial relief to the assessee.

The appeal was partly allowed. The ITAT reduced the estimated profit rate from 15% to 0.5% of turnover and directed the Assessing Officer to recompute the income accordingly.

To Read Full Order, Download PDF Given Below.