2013 (11) TMI 124 - AT - Income Tax

Assessment u/s 147 - Held that - The assessee himself has admitted 6 percent income on the sales effected which is more than that provided under section 44AF Assessed the income of the assessee at 6 percent on the sales effected as against 8 percent made by the Assessing Officer Decided in favour of assessee. Addition of unaccounted purchases Held that - The Assessing Officer has not produced any evidence to indicate that the purchases corresponding to the disclosed turnover were in addition to those evidenced by the demand draft of Rs. 21,97,000 - The purchases to the tune of Rs. 24,49,115 would have been made by the assessee closely tallies with the figure of demand drafts purchased by the assesse - The gross profit rate in this business ranges from 20 to 25 percent - Gross profit rate of 25 percent on the turnover of Rs. 32,65,486 comes to Rs. 8,16,731 - The explanation given by the assessee is plausible explanation - Deleted the addition of Rs. 21,97,000 Decided against Revenue.

Summary

Issues:
1. Estimation of net income at 8 percent of sales by Assessing Officer.
2. Applicability of Section 44AF in determining income percentage.
3. Addition of unexplained purchases by Assessing Officer.
4. Levying interest under sections 234A, 234B, and 234C.

Estimation of Net Income at 8 Percent of Sales:
The case involved cross-appeals against the order of the Commissioner of Income-tax (Appeals) for the assessment year 2004-05. The assessee, a partnership firm trading in crackers, had its net income estimated by the Assessing Officer at 8 percent of sales, adding income from unexplained sources. The Commissioner of Income-tax (Appeals) upheld this estimation. The authorized representative argued for a lower income percentage based on Section 44AF, which applies to retail trade. The Commissioner noted the lack of supporting documents and upheld the 8 percent estimation. On further appeal, the Tribunal found Section 44AF applicable, reducing the income estimation to 6 percent of sales, partly allowing the appeal.

Applicability of Section 44AF in Determining Income Percentage:
The Tribunal analyzed Section 44AF, which mandates a 5 percent income on turnover for retail trade below Rs. 40 lakhs, subject to partner deductions. The Tribunal found the assessee to be a retailer, not a wholesaler as previously held. Given the assessee's admission of 6 percent income, exceeding Section 44AF, the Tribunal revised the income estimation to 6 percent, differing from the Assessing Officer's 8 percent and the Commissioner's decision.

Addition of Unexplained Purchases:
Regarding unexplained purchases of Rs. 21,97,000, the Assessing Officer added this amount, which the Commissioner deleted due to lack of evidence linking it to turnover. The Tribunal concurred, noting the plausible explanation provided by the assessee regarding the source of funds and the correlation between purchases and demand drafts. Consequently, the addition was deemed unjustified, and a consequential addition of Rs. 4,94,325 was also deleted.

Levying Interest under Sections 234A, 234B, and 234C:
The Tribunal directed the Assessing Officer to levy interest under the specified sections, considering it consequential in nature. The appeal was partly allowed, with the Revenue's appeal dismissed. The judgment was pronounced on August 24, 2012, upholding the Tribunal's decision.