2012 (3) TMI 499 - AT - Income Tax

Estimation of income - Held that - As in the case of Deputy Commissioner of Income-tax vs. Paras Dyeing and Printing Mills P. Ltd. 2010 (2) TMI 953 - ITAT AHMEDABAD after reviewing various case laws on the subject also held that a lower profit cannot be the sole ground for making addition in the assessment without bringing any other material evidence on record. During the course of the proceedings before the CIT (A) the assessee had quoted the comparative cases wherein this Tribunal had held that estimation of 7% of profit is reasonable in similar cases. The Commissioner of Income-tax (Appeals) without assigning any reasons whatsoever had simply ignored the submissions in this regard. Thus viewed from any angle the order of the CIT (Appeals) cannot be sustained in the eye of law. Thus we are of the opinion that the addition of 1.50 crores is without any material brought on record and it is made on suspicion and surmises and the same is deleted.

Summary

Issues:
- Addition of Rs. 1.50 crores by estimating the income of the assessee.

Analysis:
1. Facts and Background: The assessee derived income from civil contract works and house property. A survey under section 133A was conducted, leading to the declaration of additional income of Rs. 1.5 crores for A.Y. 2006-07. The Assessing Officer found discrepancies in expense verification during the survey and assessment proceedings.

2. Assessing Officer's Conclusion: The Assessing Officer noted the lack of complete bills or vouchers for expenses, leading to the addition of Rs. 1.5 crores for non-verifiable expenses for A.Y. 2007-08. The decision was based on the low profit ratios even after the additional income declaration.

3. CIT(A) Confirmation: The CIT(A) upheld the addition, considering the gross profit ratio and the substantial receipts received by the assessee during the fiscal year. The CIT(A) found the addition of Rs. 1.5 crores reasonable and fair based on the turnover and profit margins.

4. Appellant's Arguments: The appellant contended that the returned income was fair and reasonable, citing various expenditures incurred and commission earned. The appellant highlighted the gross profit ratio of 10.4% on the own turnover, which was considered reasonable based on past tribunal decisions.

5. ITAT Judgment: The ITAT observed that the addition of Rs. 1.5 crores lacked supporting material. The ITAT criticized the CIT(A) for assuming a gross profit of 8.43% instead of the actual 10.4%. The ITAT emphasized that the revenue had accepted the surrendered income during the survey, preventing further additions without concrete evidence.

6. Legal Precedents and Rulings: The ITAT referenced legal precedents to argue against the addition without rejecting the books of account or providing substantial evidence of income inflation. The ITAT highlighted that lower profit alone cannot justify additions without additional evidence, as seen in various tribunal and high court judgments.

7. Final Verdict: The ITAT ruled in favor of the assessee, deeming the addition of Rs. 1.5 crores baseless and unsupported by evidence. The ITAT emphasized the lack of material to justify the addition and concluded that it was made on suspicion and surmises, ultimately deleting the addition.

In conclusion, the ITAT overturned the CIT(A)'s decision, emphasizing the need for concrete evidence before making income additions and highlighting the importance of following legal precedents and rulings in such cases.