2012 (7) TMI 363 - AT - Income Tax

Computation of Income - CIT(A) restricted the income of assessee to Rs.3 Lakh as against AO s declaration of at Rs.10,51,812/- treating it to be excessive and on higher side - assessee contested that AO erred in clubbing the purchases of both the entities in the hands of the appellant estimating the sales of both the entities in the hands of the appellant - Held that - The assessee claimed in the profit and loss account, payment of license fees of Rs.6,00,000/- which was paid for both the concerns and report of the Excise Inspector also confirmed it and the assessee also claimed deduction of total license fees of both the concerns in the profit and loss account. Therefore, from the conduct of the assessee, it was clear that the assessee has shown ownership on both the shops in question and when the assessee was confronted of the fact and was called upon to file rejoinder to the remand report, the assessee did not say anything and stated that it is a matter of record of the AO. Assessee s claim that both the entities of AOP is to be assessed separately is found to be afterthought because no return of income for the assessment year under appeal was filed for AOP. The return of AOP was filed for the first time for subsequent assessment year 2005-06 after completion of assessment of assessee. Thus, no reliance can be placed in the assessment year under appeal that any valid AOP exists as claimed by the assessee - as the assessee did not file the allotment letter of D.M. in respect of shop and no documentary evidence has been filed in support of any of the contentions. The CIT(A) was justified in upholding that both the shops were operated and owned by the assessee and estimate of profit of both the concerns in the hands of the assessee was justified - estimation of the figure of net profit at Rs.3,00,000/- which was in proportion to the income declared by the assessee in the return of income on the basis of declared purchases was correct - against assessee.

Summary

Issues Involved:
1. Deletion of addition of Rs.7,51,812/- by CIT(A) and restriction of net profit to Rs.3,00,000/-.
2. Clubbing of purchases of two separate entities (M/s. Sanjay Pandey and Rajeev Pandey) in the hands of the appellant.
3. Validity and legality of the estimation of net profit at Rs.3,00,000/-.

Detailed Analysis:

1. Deletion of Addition and Restriction of Net Profit:
The Revenue challenged the CIT(A)'s decision to delete an addition of Rs.7,51,812/- and restrict the net profit to Rs.3,00,000/-. The CIT(A) found that the AO's estimation of net profit at Rs.10,51,812/- was excessive and not supported by a logical explanation. The CIT(A) considered the appellant's inability to produce books/accounts for Awas Vikas Shop and the absence of a reasonable deduction for expenses. Consequently, the CIT(A) estimated a reasonable net profit of Rs.3,00,000/- for both shops.

2. Clubbing of Purchases of Two Separate Entities:
The assessee argued that M/s. Sanjay Pandey and Rajeev Pandey are separate entities with distinct PAN numbers and separate income tax returns. The CIT(A) found this contention to be an afterthought, as the appellant failed to provide the original allotment letter for the business at Lal Darwaja and other supporting documents. The CIT(A) concluded that the appellant was operating both shops in his proprietary capacity and attempted to hide this fact until the enquiry revealed the truth. Therefore, the AO was justified in clubbing the purchases of both shops in the hands of the appellant.

3. Validity and Legality of Estimation of Net Profit:
The assessee claimed that the estimation of net profit at Rs.3,00,000/- was based on mere surmise and conjecture. The CIT(A) noted several issues, including typing errors in sale figures and irrational proportionate extrapolation of purchase-to-sale figures. Despite these issues, the CIT(A) found that the AO should have allowed a reasonable deduction for expenses on an estimated basis. The CIT(A) ultimately estimated the net profit at Rs.3,00,000/- considering the appellant's failure to produce accounts for Awas Vikas Shop and attempts to hide the business activities.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to restrict the net profit to Rs.3,00,000/- and dismissed both the Revenue's and the assessee's appeals. The Tribunal found no justification to interfere with the CIT(A)'s order, particularly when the assessee failed to produce any evidence either before the authorities below or the Tribunal. The Tribunal emphasized the importance of judging evidence by applying the test of human probabilities and considering the surrounding circumstances. Both cross-appeals were dismissed, and the order was pronounced in the open court.