2012 (4) TMI 649 - AT - Income Tax

Assessment under section 153C - Held that - The determination of undisclosed income consequent to search action and framing assessment under section 153C of the Act is different from regular assessment or it is not substitute for regular assessment. Being so, the AO shall frame assessment on the basis of incriminating material found during the course of search action under sec. 153C of the Act. The AO without bringing any incriminating material on record for the purpose of determination of undisclosed income on estimate basis is not possible in the present circumstances to frame the assessment under section 153C of the Act. Therefore, after considering the totality of facts and the circumstances of the case and after going through the order of the CIT (A) in the instant case, we find the CIT (A) is perfectly justified in allowing the claims of the assessee.

Issues:
Appeals by Revenue against common order, condonation of delay, estimation of income without valid reason, reliance on general letter, maintenance of books of accounts, estimation of profit margin, assessment under section 153C, allowance of claims by CIT (A).

Analysis:
1. Condonation of Delay:
The appeals by the Revenue were time-barred by 44 days, and no petition was filed for condoning the delay. However, the delay was condoned by the tribunal due to its short duration and the explanation provided by the learned DR during the hearing.

2. Estimation of Income without Valid Reason:
The Assessing Officer (AO) estimated the income of the assessee based on turnover without valid reasons. The AO observed a high profit margin in the business of pearls but did not consider the books of account provided by the assessee. The CIT (A) allowed the claims of the assessee, stating that estimation without a reasonable basis is not justifiable.

3. Reliance on General Letter:
The CIT (A) erred in relying solely on a general letter filed by the assessee during assessment proceedings without allowing the AO to verify the books of accounts. The tribunal found this reliance unjustified and emphasized the importance of proper verification before accepting trading results.

4. Maintenance of Books of Accounts:
The tribunal noted that the assessee, being a company, maintained books of account audited for compliance with the Companies Act and Income-tax Act. The CIT (A) held that the AO's findings regarding non-production of books were refuted by the assessee, and the books were submitted before the AO. The tribunal emphasized that when books are maintained in the regular course of business, they cannot be rejected without proper inquiry.

5. Estimation of Profit Margin:
The AO estimated the income of the assessee at a profit rate of 68% without a reasonable basis. The tribunal found this estimation arbitrary, especially in the absence of incriminating material found during search operations under section 132 of the IT Act. The tribunal highlighted that assessment under section 153C should be based on incriminating material, not arbitrary estimates.

6. Assessment under Section 153C:
The tribunal clarified that assessment under section 153C is distinct from regular assessment and should be based on incriminating material found during search actions. Without such material, estimating undisclosed income on a random basis is not permissible. The tribunal upheld the CIT (A)'s decision to allow the assessee's claims based on these principles.

7. Conclusion:
The tribunal upheld the CIT (A)'s findings for all the years under consideration and dismissed the appeals filed by the Revenue. The tribunal emphasized the importance of proper verification, reasonable estimation, and adherence to legal procedures in assessments under section 153C.

← Previous Next →