Undisclosed Income: ITAT restricts addition to average Net Profit

The assessee firm is engaged in the business of Civil Contract. The assessee filed its return of income on 26.9.2012 declaring total income of Rs. 2,68,120 after deduction of salary and interest to partners. During the scrutiny assessment, the Assessing Officer issued various notices under section 142(1) but the assessee did not respond to the notices except once through its counsel when the assessee filed a copy of the ITR with Audit Report. The Assessing Officer also issued a notice under section 133(6) to the Bank Manager where the assessee is having the bank account. No information was provided even by the bank or by the assessee as requisitioned by the Assessing Officer. The Assessing Officer finally completed the assessment under section 144 of the Income Tax Act. The Assessing Officer noted that the assessee has received against the contract work of Rs. 453,86,361 but declared net profit at Rs. 2,68,120 after salary and interest to the partners. Thus the assessee declared net profit rate of 0.59% whereas in the just immediately preceding year, the assessee has shown the net profit at 1.01%. Since the assessee did not produce the books of accounts, bills and vouchers in support of the expenditure claim therefore, the Assessing Officer rejected the book result under section 145(3) of the Act and estimated the income of the assessee by applying net profit rate of 8% on its gross receipts.

Consequently, the Assessing Officer has made an addition of Rs. 33,62,788/- to the income of the assessee. The Assessing Officer further made an addition on account of the interest received from the bank as well as the investment made in the deposits amounting to Rs. 2,79,312/-. The assessee challenged the action of the Assessing Officer before the CIT(A). The CIT(A) restricted the net profit rate to 5% instead of 8% applied by the Assessing Officer and consequently the addition on this account is confirmed to the extent of Rs. 20,01,198/- as against Rs. 33,62,788/-. As regards the addition of unexplained investment and interest to the extent of Rs. 2,79,312/-, the CIT(A) has sustained the order of the Assessing Officer.

ITAT Order:

6. So far as the estimation of the income by the Assessing Officer by applying net profit at 8%, by Assessing Officer which was restricted by CIT(A) to 5% is concerned the CIT(A) has given the past history of net profit declared by the assessee and the average of the same comes to Rs. 4%. Therefore, the addition made on this account is restricted by applying the net profit at 4% instead of 5% applied by the CIT(A).

7. As regards, the addition on account of unexplained investment and interest income, the CIT(A) has recorded in the order that the counsel for the assessee has admitted the said addition. Accordingly, I do not find any reason to interfere with the order of the CIT(A) on this issue.

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