Estimate – on money – It is a settled principle of statistics that principle of averaging provides results of reliable nature – Such average minimizes the errors and brings out reasonable and reliable results.:

[Prime Developers. vs. DCIT, CC-33,; I.T.A. NO.323/M/2010, 321/M/2010, 322/M/2010, 324/M/2010 Bh – C, dt : 22/03/2013, AY: 2004-05 to 2007-08,]

Assessee was engaged in the business of construction. During the subject assessment year the assessee undertook construction of a project called ‘Prime Mall’. However in its return of income filed for the subject assessment year the assessee did not disclose any profits on its above project as it was following the Project Completion Method. There was a search on the assessee under Section 1 32 of the Act.

During the course of the search it was found that during the previous year relevant to assessment year under consideration it was found that the assessee had sold 14 units in its Prime Mall Project and received 65% of the total sales consideration as ‘on money’. Consequent to the search, the assessee contended that in the subject assessment year no income is chargeable to tax as it is following the Project Completion Method of Accounting . Therefore the profit, if any, would be subject to tax on completion of the project which takes place only for the A.Y. 2006- 07( 90%) and A.Y. 2007- 08.

The Assessing Officer did not accept the assessee’s contention of Project Completion Method and brought to tax, the entire amount received as ‘on money’ consideration i.e. 65% of total sales value (35% recorded plus 65% ‘on money’) of the 14 unit sold.

In appeal, the CIT(A) modified the order of the Assessing Officer to the extent it held that the total consideration received in respect of sales of 14 unit during the subject assessment year would be taxed at 40% as net profit of the total consideration in place of 65% in respect of sales of 14 units. The CIT(A) did not accept the assessee’s contention that only 8% should be taken as net profit of the unaccounted turnover. This was in view of the fact that annexure L found during the course of the search indicated the net profit at 28.18%.

Being aggrieved, both the Revenue as well as the assessee carried the issue in appeal to the Tribunal. The Tribunal after considering the facts and the NP of assessee held that the reasonable percentage of profits of the project – Prime Mall was somewhere in the range of said NPs ie 13.735% – 23.99% . It was a settled principle of statistics that principle of averaging provides results of reliable nature. Such average minimizes the errors and brings out reasonable and reliable results. The average of the 13.735% and 23.99% would give rise to a reasonable percentage of NP ie 17.08%. The issue was restored to the Assessing Officer to work out the taxable profits after adopting a reasonable net profit of 17.08% on its gross sales turnover of Rs.11.60 crore in the subject AY .

The Revenue challenged before High Court the adoption of net profit of 17.08% as determined by the Tribunal was not correct . The High Court observed that the Revenue sought to substitute the estimated net profit arrived at by the Tribunal with a new figure of net profit . This was without showing that the estimate arrived at by the Tribunal in the impugned order was perverse. It was a settled position of law that in estimated net profit arrived at by the authorities is a question of fact and if the material on record supported the estimate arrived at by the Tribunal then it didnot give rise to any substantial question of law (see CIT v/s. Piramal Spinning and Weaving Mills Ltd. 124 ITR 408). In this case, High Court held that the net profit estimated at 17.08% was a very possible view on the facts found and dismissed revenue appeal.