2015 (10) TMI 1485 - AT - Income Tax

Estimation of income - surrender of income to settle and to purchase peace with the department - Held that - As seen from the orders, except admitting income at 5% on the liquor sales there was no other agreed addition as stated by the Ld. CIT(A) in the order. Even though assessee has contested the income on sale of liquor at 5%, we are of the opinion that this estimation is reasonable considering the facts of the case. However, the A.O. is directed to correct the arithmetic error that occurred in the order. Estimation of income on food items at 20% - Held that - A.O. has not given any comparable cases to arrive at the profit of 20% on food sales. He simply estimated at 20% without there being any basis. Considering the facts of the business and location of the appellant Bar and Restaurant in Hyderabad, we are of the opinion that income can be estimated at 10% of the food sales. Accordingly, assessee has gets relief. A.O. is directed to adopt income of ₹ 1,96,400 as against ₹ 3,92,800 added by him in the order. Addition of ₹ 24 lakhs as income offered from Bar and Restaurant by the assessee s partner - Held that - Except the statement given by the partner during the course of survey, there is no other evidence establishing that assessee could earn that much income from the business. During the survey no incriminating material was found nor any excess stock was found. Even though books of accounts were rejected that does not mean the declaration given by the partner in the course of survey has any relevance for the business activity of the assessee. There was no evidence brought on record by the Revenue either in the form of excess stock found during the survey or excess cash available with the assessee or any other incriminating material to establish that assessee is earning unaccounted incomes. As can be seen from the statement also after enquiring about assessee s business activities, various investments, turnovers etc., and after conclusion of statement, last question was asked in the 11 page of the statement asking the assessee whether he want to state any thing further. At that point of time, assessee s partner seems to have declared additional ₹ 24 lakhs in order to settle with the Income Tax Department. In view of the scope and ambit of the materials collected during the course of survey, the action under section 133A would not have any evidentiary value and that it could not be said solely on the basis of the statement given by one of the partners of the firm that the disclosed income was assessable as lawful income of the assessee. The statement given by the partner has no rational linking to the issues being enquired nor for the incomes of the business. Therefore, the same cannot be considered as a basis for making the addition. Under these circumstances, we are of the opinion that there is no basis for making an addition of ₹ 24 lakhs solely on the basis of statement. In view of this, we have no hesitation in deleting the same. A.O. is directed to re-work out the incomes accordingly. - Decided in favour of assessee in part by way of remand.

Summary

Issues: Assessment based on agreed basis, estimation of income on liquor sales, estimation of income on food sales, addition of admitted income, rejection of books of accounts.

Analysis:

1. Assessment based on agreed basis:
The appeal was filed against the order of Ld. CIT(A)-III, Hyderabad, rejecting the appeal on the grounds that an appeal does not lie against an assessment relating to addition when the assessment was made on an agreed basis. The Ld. CIT(A) cited various decisions and concluded that an appeal does not lie in such cases. However, the assessee contended that they did not agree to the additions except for the estimation of profit on liquor sales at 5%. The ITAT held that there was no agreed addition other than the 5% estimation on liquor sales. The A.O. was directed to correct the arithmetic error in the order.

2. Estimation of income on liquor sales:
The A.O. estimated the profit on liquor sales at 5%, which the assessee contested. The ITAT found the estimation reasonable given the facts of the case but directed the A.O. to correct an arithmetic error. The D.R. acknowledged a mistake in the estimation but argued that the A.O. correctly estimated income due to unreliable books of accounts.

3. Estimation of income on food sales:
The A.O. estimated profit on food sales at 20% without providing any comparable cases. The ITAT, considering the business location, reduced the estimation to 10% of food sales, providing relief to the assessee.

4. Addition of admitted income:
Regarding the addition of Rs. 24 lakhs as income offered by the assessee's partner during the survey, the ITAT found no evidence supporting the income. The partner's statement was retracted immediately after the survey, and no incriminating material was found. The ITAT emphasized that additions cannot be solely based on a partner's statement. Citing relevant case law, the ITAT concluded that there was no basis for the addition and directed the A.O. to rework the incomes accordingly, leading to the deletion of the addition.

5. Rejection of books of accounts:
The A.O. rejected the books of accounts but the ITAT found no evidence supporting unaccounted incomes. The ITAT emphasized that the partner's statement during the survey could not be considered a basis for making the addition. Therefore, the ITAT deleted the addition of Rs. 24 lakhs and allowed the appeal partly for statistical purposes.

In conclusion, the ITAT's judgment addressed the issues of assessment based on an agreed basis, estimation of income on liquor and food sales, addition of admitted income, and rejection of books of accounts, providing relief to the assessee in certain aspects and directing corrections by the A.O. where necessary.