2013 (5) TMI 953 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition made on account of estimated unaccounted turnover and unaccounted income.
2. Scope of assessment u/s 153A.
3. Estimation of unaccounted turnover and Gross Profit (GP).
4. Telescopy of cash found during search against estimated profit.
5. Penalty u/s 271AAA on estimated profit.

Summary:

1. Deletion of Addition on Account of Estimated Unaccounted Turnover and Unaccounted Income:
The department objected to the deletion of the addition made on account of estimated unaccounted turnover and unaccounted income. The assessee argued that the addition was beyond the scope of assessment u/s 153A and should be based on incriminating documents found during the search. The Tribunal held that the addition can only be made on the basis of material found during the search or gathered by the AO at the time of framing the assessment. The Tribunal directed the AO to take the turnover of the assessee on account of undisclosed turnover for the months of August and September 2005 and compute the profit accordingly.

2. Scope of Assessment u/s 153A:
The Tribunal referred to the decision of the Hon'ble Andhra Pradesh High Court in the case of Gopal Lal Bhadruka Vs. DCIT, which held that the AO can take into consideration material other than what was available during the search for making an assessment of undisclosed income. However, in the present case, no material other than the dispatch register was found during the search. Therefore, the addition can only be made on the basis of the incriminating material found during the search.

3. Estimation of Unaccounted Turnover and GP:
The AO estimated the unaccounted turnover based on the rough cash registers found during the search and applied a GP rate of 4.81%. The CIT(A) directed the AO to estimate the unaccounted sales based on the seized documents relevant to the assessment year. The Tribunal upheld this approach and directed the AO to compute the profit based on the turnover recorded in the dispatch register for the months of August and September 2005.

4. Telescopy of Cash Found During Search Against Estimated Profit:
For the assessment year 2007-08, the CIT(A) allowed the telescopy of Rs. 50,58,000/- found during the search against the estimated profit on account of unrecorded turnover. The Tribunal found no infirmity in this approach and upheld the CIT(A)'s decision, confirming that the profit earned on account of unrecorded turnover should be treated as available with the assessee.

5. Penalty u/s 271AAA on Estimated Profit:
The AO levied a penalty of Rs. 1,79,860/- u/s 271AAA on the estimated profit of Rs. 15,87,500/-. The Tribunal held that penalty cannot be levied on estimated profit and cancelled the levy of penalty, following the precedent set in the case of M/s Shreeji Traders Vs. DCIT.

Conclusion:
The appeals of the assessee for assessment year 2008-09 and Cross Objection No.189/M/2011 were allowed in part, and the appeal in respect of penalty levied u/s 271AAA was allowed. The appeals of the department for assessment years 2006-07 and 2007-08 were dismissed. The order was pronounced in the open court on May 8, 2013.