1999 (5) TMI 459 - AT - Income Tax

Summary

Issues Involved:
1. Search Operations and Seizure of Documents
2. Taxation of 'On Money' Receipts
3. Application of Gross Profit Rate
4. Rejection of Books of Account
5. Allowance of Expenses Against 'On Money' Receipts
6. Interest Under Section 234B

Detailed Analysis:

1. Search Operations and Seizure of Documents:
The case involved two search operations on 21st August 1990 and 24th December 1992. During the first search, a computer sheet detailing 'on money' receipts amounting to Rs. 1,04,44,834 was found. In the second search, the director of the assessee company admitted to receiving Rs. 1,05,01,345 from prospective flat owners as of 30th November 1992. The total gross money receipts relevant to the assessment years 1990-91, 1991-92, 1992-93, and 1993-94 amounted to Rs. 2,09,46,179.

2. Taxation of 'On Money' Receipts:
The Assessing Officer (AO) held that 'on money' receipts of Rs. 35,85,595 were received from different prospective flat owners and not from the same persons who paid Rs. 35,57,500. Hence, he taxed Rs. 35,85,595 as unaccounted money receipts. The AO also did not accept that any expenditure was incurred in cash to earn 'on money' in the business.

3. Application of Gross Profit Rate:
The AO applied a gross profit rate of 12% on Rs. 5,86,67,554, giving credit for the amounts already taxed in 1990-91 and 1991-92. The profit for the year concerned was computed at Rs. 40,75,288 after setting off the amounts already taxed. The CIT(A) upheld the AO's application of a 12% rate, as confirmed by the Tribunal in their order for the assessment year 1991-92.

4. Rejection of Books of Account:
The AO rejected the books of account under section 145 of the Income-tax Act, stating that substantial receipts were kept outside the books of account, making them unreliable. The CIT(A) and the Tribunal upheld this rejection, noting that the auditors had also expressed their inability to comment on the unrecorded gross receipts and expenses.

5. Allowance of Expenses Against 'On Money' Receipts:
The CIT(A) directed the AO to allow a deduction of 12% out of cash receipts (i.e., 'on money' receipts). The Tribunal found no material brought by the Department to prove that a higher rate of gross profit should have been applied. The CIT(A) followed the decision of the Tribunal in ITA 1759 of 95 dated 7th August 1995, leading to the dismissal of the Departmental appeal.

6. Interest Under Section 234B:
Regarding the charging of interest under section 234B, it was held to have a consequential effect, and necessary relief was to be allowed to the assessee.

Separate Judgments:
- Judicial Member's View: The Judicial Member agreed with the AO and CIT(A) in rejecting the book results and applying a 12% profit rate on both recorded and unrecorded transactions.
- Accountant Member's View: The Accountant Member disagreed, emphasizing that the book results for recorded transactions should be accepted, and the 12% rate should only apply to unrecorded transactions.
- Third Member's Decision: The Third Member sided with the Judicial Member, agreeing that the book results could not be accepted due to the substantial omission of transactions, thus upholding the application of a 12% profit rate on both accounted and unaccounted turnover.

Conclusion:
The appeal of the assessee was allowed in part, while the appeal of the Revenue was dismissed. The Tribunal concluded that the rate of 12% should be applied to both accounted and unaccounted turnover of the assessee, rejecting the book results due to the substantial omission of transactions.