2015 (3) TMI 974 - AT - Income Tax

Estimation of income - applying 20% net profit rate - whether bank account No. 12505 and 7968 do not belong to the assessee company? - assessment year 2004-05 - Held that - When Dr. A. K. Shah M.D. of the assessee company has admitted in the statement recorded during search that the bank accounts are belonging to the assessee company simply because the accounts are in two different names it cannot be accepted that the transactions in these bank accounts do not belong to the assessee company. These findings of the learned CIT (A) could not be controverted by the learned AR of the assessee. Hence on this aspect we do not find any reason to interfere in the order of CIT(A). - Decided against assessee. Estimation of income by estimating gross receipts at Rs. 40 lacs - we find that it is noted by CIT(A) that the receipts as per books of account are at Rs. 26, 29, 965/- and there is total credits in bank account Nos. 12050 & 7968 to the extent of Rs. 12, 44, 000/-. Total of these two amounts has been arrived at Rs. 38, 73, 965/- and under these facts the turnover was estimated at Rs. 40 lacs. In our considered opinion in the facts of the present case when these two bank accounts are belonging to the assessee company and receipts as per these two bank accounts were not accounted for in regular books the receipts as per these two bank accounts and as per books of account have to be added to estimate the gross receipt of the assessee company and therefore estimation of gross receipts at Rs. 40 lacs is proper and reasonable. Applying net profit rate of 20% on the said estimated gross receipts of Rs. 40 lacs we find that against receipt in the books of account of Rs. 26.30 lacs the assessee has declared profit before depreciation of Rs. 2.53 lac which worked out to 9.62%. Hence we find force in the submission of Learned A.R. of the assessee that applying net profit rate @20% is excessive in the facts of the present case. We therefore hold that applying net profit rate of 10% will meet the ends of justice and hence we direct the Assessing Officer to apply net profit rate of 10% on estimated gross receipt of Rs. 40 lac and in this manner the assessee gets part relief of Rs. 4 lac. These grounds are partly allowed. - Decided partly in favour of assessee. Estimation of income - applying net profit @25% - assessment year 2005-06 - Held that - It is noted by CIT(A) that receipts as per books of account was Rs. 32.57 lacs and total credits in bank account Nos. 12050 & 7968 was to the extent of Rs. 21.10 lac. Total of these were worked out at Rs. 53.67 lacs against which the receipts were estimated at Rs. 55 lacs and considering these facts we are of the considered opinion that on this aspect no interference is called for in the order of CIT(A) in this year also. In this year as per profit & loss account of the assessee company net profit rate declared by the assessee before depreciation was 16.09%. Hence in this year we feel that applying net profit rate of 17% will meet the ends of justice as against 25% applied by CIT (A). We direct the Assessing Officer accordingly. The assessee gets relief of Rs. 4.40 lac being 8% of Rs. 55 lac. - Decided partly in favour of assessee. Addition on account of undisclosed income - CIT(A) deleted the addition - whether the total unaccounted receipts as per total credits in two bank accounts should be added in full or only net profit rate should be applied on these receipts - assessment year 2005-06 - Held that - when the receipts in question is unaccounted business receipts the entire receipts cannot be assessed as income and only net profit out of such receipts should be brought to tax. Hence on this aspect we do not find any infirmity in the order of CIT(A). Regarding the rate of net profit we have already decided while deciding the appeal of the assessee that instead of 25% rate of net profit it should be applied at 17%. Apart from this we do not find any reason to interfere in the order of CIT(A) on this aspect. - Decided against revenue. Bifurcation of total surrender made by the assessee of Rs. 40 lac - whether CIT(A) was justified in holding that such surrender should be bifurcated in two years i.e. Rs. 8, 96, 686/- in the present year and balance amount of Rs. 31, 03, 314/- in assessment year 2006-07 whereas it was held by Assessing Officer that such surrender should be divided in these two years equally i.e. Rs. 20 lac in each year? - Held that - As per the material found in course of search there were two bank accounts belonging to the assessee company receipts of which were not included in the receipts as per books of account. We have already held that on such unaccounted receipts profit @17% of gross receipts has to be taxed in the present year. The income was worked out by CIT(A) at Rs. 10, 51, 176/- as against the income declared by the assessee in the return of income at Rs. 1, 54, 956/-. In this manner CIT(A) has confirmed an addition of Rs. 8, 96, 686/-. While deciding the appeal of the assessee we have reduced this addition by Rs. 4.40 lac because we have directed the Assessing Officer to adopt net profit of 17% as against 25%. Hence the additional income to be taxed in the present year remains only Rs. 4, 56, 686/- and therefore the amount to be considered in assessment year 2006-07 should be Rs. 35, 43, 314/- being difference of Rs. 40 lac and Rs. 4, 56, 686/-. Except this modification we decline to interfere in the order of CIT(A). - Decided partly in favour of assessee. Addition made on account of deposits in the benami account - CIT(A) deleted the addition - Held that - stand of the Revenue is that total deposit in Benami account should be considered as income of the assessee company. Since admittedly such receipts being Benami bank account were business transactions of the assessee company only net profit out of such unaccounted receipt should be taxed and not the gross receipt. The amount being taxed out of such gross receipts of Rs. 64.69 lac is more than normal income out of such gross receipt and therefore there is no merit in this ground of the Revenue. - Decided against revenue. Addition being credit balances found in the bank account Nos. 12050 and 7968 also - CIT(A) deleted addition - Held that - we do not find any merit because when the assessee is surrendering extra income in the present year such extra income is the source of credit balance found in these two bank accounts and therefore no double addition can be made. Decided against revenue. Addition on account of surrender not disclosed in the return - CIT(A) deleted addition - Held that - Income disclosed by the assessee is more than the surrender made by the assessee of Rs. 40 lac being composite surrender for assessment year 2005-06 and 2006-07 and therefore there is no merit. - Decided against revenue.

Summary

Issues Involved:
1. Estimation of income and turnover.
2. Ownership of bank accounts.
3. Application of net profit rate.
4. Deletion of additions made by the Assessing Officer.
5. Bifurcation of surrendered income between assessment years.
6. Treatment of unaccounted business receipts.

Issue-wise Detailed Analysis:

1. Estimation of Income and Turnover:
The assessee contested the estimation of income at Rs. 8 lakhs by estimating the turnover at Rs. 40 lakhs and applying a 20% net profit rate. The CIT(A) had computed the income at Rs. 6,03,277/- against the returned income of Rs. 42,720/- by estimating the turnover at Rs. 40 lakhs and applying a 20% net profit rate. The Tribunal found the estimation of gross receipts at Rs. 40 lakhs to be proper and reasonable, considering the receipts as per books of account and unaccounted bank accounts. However, the Tribunal reduced the net profit rate from 20% to 10%, granting partial relief to the assessee.

2. Ownership of Bank Accounts:
The assessee argued that bank account Nos. 12050 and 7968 did not belong to the assessee company. The CIT(A) found that these accounts were indeed linked to the assessee company, supported by statements from Dr. A.K. Shah and Shri Uma Shanker Shah during search proceedings. The Tribunal upheld this finding, noting that the assessee could not controvert the CIT(A)'s findings.

3. Application of Net Profit Rate:
The CIT(A) applied a 20% net profit rate on the estimated gross receipts of Rs. 40 lakhs for the assessment year 2004-05. The Tribunal found this rate excessive and directed the Assessing Officer to apply a net profit rate of 10%. For the assessment year 2005-06, the CIT(A) applied a 25% net profit rate on estimated receipts of Rs. 55 lakhs. The Tribunal reduced this rate to 17%, granting the assessee relief of Rs. 4.40 lakhs.

4. Deletion of Additions Made by the Assessing Officer:
The Revenue appealed against the deletion of Rs. 20 lakhs added by the Assessing Officer as undisclosed income, arguing that Dr. A.K. Shah had surrendered this amount during the search. The Tribunal upheld the CIT(A)'s decision to apply the net profit rate on unaccounted receipts instead of adding the entire amount. The Tribunal also supported the CIT(A)'s bifurcation of the Rs. 40 lakhs surrendered income between assessment years 2005-06 and 2006-07, modifying the amounts based on the Tribunal's adjustments.

5. Bifurcation of Surrendered Income Between Assessment Years:
The CIT(A) bifurcated the surrendered income of Rs. 40 lakhs into Rs. 8,96,686/- for assessment year 2005-06 and Rs. 31,03,314/- for assessment year 2006-07. The Tribunal modified these amounts to Rs. 4,56,686/- for assessment year 2005-06 and Rs. 35,43,314/- for assessment year 2006-07, based on the revised net profit rate.

6. Treatment of Unaccounted Business Receipts:
The Tribunal agreed with the CIT(A) that only the net profit from unaccounted business receipts should be taxed, not the entire gross receipts. The Tribunal found no merit in the Revenue's argument that the total deposits in Benami accounts should be considered as income. The Tribunal also upheld the CIT(A)'s deletion of Rs. 13,27,417/- added by the Assessing Officer, noting that the extra income surrendered by the assessee covered these amounts.

Conclusion:
Both appeals of the assessee were partly allowed, while both appeals of the Revenue were dismissed. The Tribunal's order provided a balanced resolution by adjusting the net profit rates and appropriately bifurcating the surrendered income between the relevant assessment years.