2012 (2) TMI 677 - AT - Income Tax

Summary

Issues Involved:
1. Deleting the addition made on account of extrapolation of profit on alleged unaccounted turnover.
2. Estimation of unaccounted sales based on loose papers and duplicate bills.
3. Rejection of books of account u/s 145(3).

Summary:

Issue 1: Deleting the addition made on account of extrapolation of profit on alleged unaccounted turnover
The Revenue filed appeals against the order of CIT(A) for deleting the addition made on account of extrapolation of profit on alleged unaccounted turnover. The search u/s 132 was conducted on 21.11.2006, and notices u/s 153A were issued. The assessee filed returns declaring additional income for excess stock and loose papers. The Assessing Officer (AO) observed discrepancies and made additions based on extrapolated turnover, which were later deleted by CIT(A).

Issue 2: Estimation of unaccounted sales based on loose papers and duplicate bills
During the search, loose papers and duplicate bills were found, leading the AO to estimate unaccounted sales. The AO calculated unaccounted sales using average daily receipts and parallel invoicing methods. However, CIT(A) found these estimations unsupported by facts, noting that loose papers were not reliable indicators of daily transactions. The AO's remand report confirmed actual sales, leading CIT(A) to conclude that unaccounted sales should be estimated at Rs. 45.25 crores up to the search date, not beyond.

Issue 3: Rejection of books of account u/s 145(3)
The AO rejected the books of account u/s 145(3) due to unreliability, supported by the discovery of unaccounted transactions and excess stock. CIT(A) upheld this rejection but found no basis for further additions beyond the surrendered amounts. The Tribunal directed the AO to apply a net profit rate of 3.3% on the unaccounted sales and reduce the surrendered amounts from the calculated profit, distributing the balance between the companies based on their turnover ratio.

Conclusion:
The Tribunal partially allowed the Revenue's appeals, directing the AO to adjust the unaccounted profit calculation and distribute it appropriately, while upholding the rejection of books of account u/s 145(3). The order was pronounced on 13th February 2012.