2015 (4) TMI 371 - AT - Income Tax

Validity of assessment u/s 153A - Held that - We find merit in the contentions of ld DR that considering the statement of assessee dtd. 21-10-2008 it has been admitted that assessee was regularly engaged in unrecorded purchases and sales; no exception of any year has been claimed. Consequently the statement and the seized record for other year unambiguously become incriminating material for valid issue of notices u/s 153A. It is admitted by the appellant in his statement dated 21/10/2008 that it has been indulging in unrecorded purchase and sales; no year of exception is stated. This leads to a clear indication the assessee as a regular policy indulged in such clandestine maintenance of books and avoided taxes. Therefore, the notices issued U/s 153A for all the years by the Assessing Officer are valid and CIT(A) has rightly upheld them. Further reassessment proceedings were abated in A.Y. 2003-04, 2004-05 and 2005-06 as the assessee's case were only processed U/s 143(1) of the Act. Therefore, we confirm the order of the learned CIT(A) on issuance of notice U/s 153A of the Act in all the years.- Decided against assessee. G.P. rate as well as total sales turnover estimated challenged - Held that - The learned Assessing Officer applied comparable case of M/s Rajan Fireworks and Emporium Prop. M/s Sunder Dass Hasani HUF, who is wholesalers/retailers of fireworks, who has shown G.P. rate ranging G.P. from 17% to 18%. The learned AR argued that the case of M/s Rajan Fireworks and Emporium Prop. M/s Sunder Dass Hasani HUF is not a comparable case hence distinguished on various facts and figures and nature of trading activity in quantum and experience. The assessee has shown G.P. in 2009-10 @ 14.99% on recorded sales of ₹ 21,57,817/-, therefore, we apply G.P. rate in A.Y. 2003-04 @ 13%, in A.Y. 2004-05 @ 14%, in A.Y. 2005-06 @ 13% and in A.Y. 2006-07 @ 13.5% in the interest of justice. The Assessing Officer is directed to recalculate the income of the assessee on the basis of G.P. rate decided by this Court in year wise on estimated total turnover by the learned CIT(A).- Decided in favour of assessee.

Issues Involved:

1. Validity of trading addition made by the Assessing Officer (A.O.) in assessments framed under Section 153A.
2. Estimation of unrecorded sales and the application of Gross Profit (G.P.) rate.
3. Validity of notice issued under Section 153A of the Income Tax Act, 1961.
4. Rejection of books of account under Section 145(3) of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Trading Addition under Section 153A:

The appeals challenge the validity of trading addition made by the A.O. in assessments framed under Section 153A, arguing that no incriminating material was found during the search for the years under consideration. The learned CIT(A) upheld the validity of these additions, relying on the fact that incriminating documents were found during the search, indicating unrecorded sales in subsequent years (A.Y. 2006-07 to 2009-10). The Tribunal dismissed the challenge, noting that the statement of the key person of the assessee group admitted to unrecorded transactions, thereby justifying the issuance of notices under Section 153A.

2. Estimation of Unrecorded Sales and Application of G.P. Rate:

The A.O. estimated unrecorded sales at twice the recorded sales and applied varying G.P. rates higher than those declared by the assessee. The CIT(A) partly modified these estimates, applying a G.P. rate of 19% for A.Y. 2003-04, 18% for A.Y. 2004-05, and 17% for A.Y. 2005-06 and 2006-07. The Tribunal further adjusted the G.P. rates to 13% for A.Y. 2003-04, 14% for A.Y. 2004-05, 13% for A.Y. 2005-06, and 13.5% for A.Y. 2006-07, directing the A.O. to recalculate the income based on these rates.

3. Validity of Notice Issued under Section 153A:

The assessee contended that no notice under Section 153A could be issued for A.Y. 2003-04 to 2005-06 as no incriminating material was found for these years. The Tribunal upheld the validity of the notices, citing the statement of the key person admitting to unrecorded transactions and the presence of incriminating documents. The Tribunal found that the notices were validly issued based on the evidence gathered during the search.

4. Rejection of Books of Account under Section 145(3):

The A.O. rejected the books of account under Section 145(3) due to the non-verifiability of the closing stock and incomplete records. The CIT(A) upheld this rejection, and the Tribunal agreed, noting that the assessee admitted to not maintaining regular books of account and engaging in transactions outside the books. The Tribunal found that the rejection of the books was justified and that the A.O. was correct in estimating the income based on the available evidence.

Conclusion:

The Tribunal upheld the validity of the notices issued under Section 153A and the rejection of the books of account under Section 145(3). It partly allowed the appeals by adjusting the G.P. rates and directing the A.O. to recalculate the income based on these revised rates. The Tribunal's decision was based on the evidence of unrecorded transactions and the admissions made during the search, which justified the actions taken by the A.O. and the CIT(A). The appeals were thus partly allowed, with specific directions for recalculating the income.

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