2015 (4) TMI 90 - AT - Income Tax

Rejection of books of account and adopting net profit @ 2.50% of sales - Held that - During the course of assessment proceedings, the assessee admitted that even if there were any defects in the books of account, the sales made by him were fully supported. In the entirety of the above facts and circumstances, where the assessee had failed to maintain proper record and the expenses not being backed by proper details, we hold that the provisions of section 145(3) of the Act are attracted and the book results declared by the assessee cannot be relied upon. After dismissing books of account, next resort was to estimation of income. The assessee during the year under consideration had disclosed turnover of ₹ 1,93,02,933/- on which, it had declared net profit of ₹ 3,00,754/-. The Assessing Officer however, applied NP rate at 2.5% on total sales and computed the income at ₹ 4,82,573/-. We uphold the order of Assessing Officer in this regard - Decided against assessee. Unexplained investment in purchase of land - whether AO erred in adding ₹ 21,30,000/- as income from undisclosed sources representing un-explained investment in the purchase of land at Nandurkhi, which has been confirmed by the CIT(A)- Held that - We find merit in the plea of the assessee that out of total investment of ₹ 21,30,000/- made during the year under consideration, a sum of ₹ 2,00,000/- has been paid by way of cheque dated 04.04.2008 drawn on Andhra Bank. The balance cheques in the preceding year were also drawn on Andhra Bank which is the business bank account of the assessee, hence, there is no merit in making any addition on account of said payment of ₹ 2,00,000/-. For balance payment perusal of audited financial statements relating to the financial year 2008-09 reflects that the assessee had declared the investment in plot at ₹ 39,00,500/- in its balance sheet as on 31.03.2009. Once the amount has been declared by the assessee in the balance sheet as on 31.03.2009 as investment in the purchase of plot, then investment to that extent merits to be accepted in the hands of the assessee. One point also be clarified herein that the sum of ₹ 2,00,000/- paid by cheque drawn on Andhra Bank, dated 04.04.2008 stands covered in the investment of ₹ 39,00,500/-. The assessee had declared the investment upto ₹ 29,00,000/- in the financial year 2007-08 and the balance of ₹ 10,00,500/- was declared as the investment made during the year under consideration. Accordingly, investment to the extent of ₹ 39,00,500/- merits to be accepted in the hands of the assessee as being made out of declared source of income. Balance investment of ₹ 13,29,500/-. Though the assessee claims that the said investment had been made by his family members and himself out of agricultural income, but except to filing the evidence of 7/12 extract of agricultural land at Shirdi, the assessee has not furnished any evidence as to the quantum of agricultural proceeds received by the assessee in the preceding year or in the year under consideration. In the absence of the same, we find no merit in the claim of the assessee in this regard. The perusal of the assessment order reflects that the assessee had only declared income of ₹ 2,91,150/- and no agricultural income had been offered to tax. In the absence of the same, we find no merit in the plea of the assessee that the balance investment totaling ₹ 13,29,500/- was made out of agricultural income. Additional income assessed in the hands of the assessee under the head income from business i.e. ₹ 1,81,819/- being set off against the balance addition made in the hands of the assessee i.e. ₹ 13,29,500/- finds merit. Accordingly, we direct the Assessing Officer to give the benefit of set off of the additional income against the source of investment in the purchase of plot. Accordingly, the addition in the hands of the assessee on account of undisclosed investment in the purchase of plot of land is restricted to ₹ 13,29,500/- - 1,81,819/- 11,47,681/-. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 1,81,819 to trading results by rejecting books of accounts and adopting net profit @ 2.50% of sales.
2. Addition of Rs. 21,30,000 as income from undisclosed sources representing unexplained investment.
3. Lack of reasonable and sufficient opportunity provided to the appellant to explain his case.

Detailed Analysis:

1. Addition to Trading Results and Rejection of Books of Accounts:
The assessee, engaged in the business of trading empty liquor bottles, had its books of accounts rejected by the Assessing Officer (AO) due to several defects. The AO noted that the purchases were supported only by self-made vouchers, there were no quantitative details maintained, and major expenses were also supported by self-made vouchers. The assessee admitted to these defects but contended that all sales were properly supported. The AO invoked section 145(3) of the Income-tax Act, 1961, rejecting the books and estimating the net profit at 2.5% of the disclosed turnover of Rs. 1.93 crores, resulting in a net profit of Rs. 4,82,573 as against Rs. 3,00,754 disclosed by the assessee. The CIT(A) upheld this rejection and estimation. The Tribunal found merit in the AO's approach and upheld the order, dismissing the ground of appeal raised by the assessee.

2. Addition as Income from Undisclosed Sources:
The AO also scrutinized the investment in the purchase of land at Nandurkhi, noting discrepancies in the declared investment figures and the actual amounts reflected in the purchase deed. The assessee claimed the differential amount of Rs. 21,30,000 was paid out of accumulated agricultural income, which was not disclosed in the books of account. However, the AO found no evidence of such agricultural income and noted the assessee's minimal landholding. The CIT(A) confirmed the addition, noting the lack of substantiating evidence for the claimed sources of investment. The Tribunal, upon review, acknowledged the assessee's partial merit in claiming Rs. 2,00,000 was paid by cheque and should not be added. However, for the balance Rs. 19,00,000 and additional Rs. 2,30,000 for stamp duty and registration, the Tribunal found no merit in the assessee's claim of agricultural income due to lack of evidence. The Tribunal allowed a set-off of Rs. 1,81,819 (additional income assessed under business) against the balance addition, thereby restricting the undisclosed investment addition to Rs. 11,47,681.

3. Lack of Opportunity to Explain:
The assessee contended that the CIT(A) did not provide a reasonable and sufficient opportunity to explain his case. However, this issue was not separately addressed in detail by the Tribunal, implying that the primary focus remained on the substantive issues of book rejection and unexplained investment.

Conclusion:
The appeal was partly allowed, with the Tribunal upholding the rejection of books and estimation of profit, but providing partial relief by reducing the addition for unexplained investment to Rs. 11,47,681 after allowing a set-off for additional business income assessed. The order was pronounced on 20th February 2015.