2014 (12) TMI 800 - AT - Income Tax

Condonation of delay of 465 days inadvertent mistake by CA - Held that - Assessee has explained a reasonable cause for not filing the appeal within the period of limitation as there was an inadvertent mistake at the office of the Chartered Accountant - by not filing the appeal within the period of limitation, the assessee cannot have any ulterior purpose - No prudent person would act in such a manner that his action can be detrimental to his own interest - By not filing the appeal on time, the assessee could not have derived any benefit - whenever substantial justice and technical considerations are opposed to each other, case of substantial justice has to be preferred and justice oriented approach has to be taken while deciding the matter on condonation of delay - the reasons explained by the assessee are not malafide and there is nothing on record to infer that by filing a belated appeal, the assessee could have achieved an ulterior purpose - the assessee was having sufficient cause for not filing the appeal within the period of limitation the delay condoned with cost. Addition of unaccounted income Held that - During the course of the search proceedings, Shri Mahesh Nanji Patel admitted undisclosed income of ₹ 5 crores in the hands of the assessee based on the papers found and seized - assessee was making entries of the on-money received by it during the course of its business - u/s. 153A, the AO has the power to assess or reassess the total income in respect of each AY falling within such assessment year in case of person where a search is initiated u/s. 132 - the AO has the power to assess or reassess the total income of the assessee - what can be taxed is the undisclosed income and not the undisclosed receipts, this means that only a reasonable amount of profit which the assessee could have earned can be added - seized paper indicates assessee was receiving on-money in the ordinary course of its business - even the unaccounted expenditures are also reflected in the seized papers - a reasonable profit should be taxed which is embedded in the total unaccounted gross receipts and therefore 8% is allowed Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal by the assessee.
2. Addition of unaccounted income by the Assessing Officer (AO).
3. Treatment of unaccounted receipts and expenditure.
4. Estimation of profit on unaccounted receipts.

Detailed Analysis:

1. Condonation of Delay:
The assessee's appeal was delayed by 465 days. The delay was attributed to an inadvertent oversight by the Administrative Head of the Chartered Accountant's office. The Departmental Representative opposed the condonation, arguing that subsequent notices should have prompted the assessee to file the appeal timely. However, the Tribunal found the delay to be due to a reasonable cause and not malafide. The Tribunal condoned the delay, imposing a cost of Rs. 5,000/- on the assessee. The Tribunal emphasized a justice-oriented approach, preferring substantial justice over technical considerations.

2. Addition of Unaccounted Income:
The AO added Rs. 6,36,91,589/- as unaccounted income, which the CIT(A) reduced to Rs. 6,01,51,589/-. The addition was based on seized documents and the assessee's admission during search proceedings, where the assessee declared Rs. 5 crores as unaccounted income. The assessee contended that only the profit embedded in the unaccounted receipts should be taxed, not the entire receipts.

3. Treatment of Unaccounted Receipts and Expenditure:
The AO treated the entire unaccounted receipts as income, rejecting the assessee's claim that only the profit element should be considered. The AO allowed all unaccounted expenditures except Rs. 34.50 lakhs and made an addition of Rs. 7,11,91,589/-. The CIT(A) upheld the AO's action but allowed an expenditure of Rs. 35.40 lakhs reflected in the seized documents.

4. Estimation of Profit on Unaccounted Receipts:
The Tribunal noted that the assessee, a builder and developer, received on-money in the ordinary course of business, which was reflected in the seized documents. The Tribunal held that only a reasonable profit from the unaccounted receipts should be taxed, not the gross receipts. The Tribunal directed the AO to estimate the profit at 8% of the total unaccounted receipts, considering this rate as just and reasonable. This estimation implied that all expenditures were deemed allowed.

Conclusion:
The Tribunal allowed the assessee's appeal, directing the AO to recompute the undisclosed income by applying an 8% net profit ratio on the total unaccounted receipts. The cross-appeal by the Revenue was allowed for statistical purposes, as the Tribunal's direction implied that no separate deductions would be allowed. The judgment emphasized a fair and reasonable approach in estimating taxable income from unaccounted receipts, aligning with the principles of justice and equity.