2015 (9) TMI 1680 - AT - Income Tax

Rejection of books of accounts - addition on the basis of net profit of 3% of the gross receipts - survey proceeding u/s. 133A - HELD THAT - The term net profit as commonly understood means the profit which has been arrived at by netting off income over the expenditure meaning thereby that whatever expenses which were due and were deductible have been deducted from the income of the Assessee before deriving the final figure of profit. We are of the view that in a situation when once addition has been made on the basis of estimation of net profit, further addition is not called for and for this conclusion we derive support by the decision of CIT vs. Aggarwal Engg. Co. 2006 (7) TMI 188 - PUNJAB AND HARYANA HIGH COURT wherein the Hon ble High Court after considering the decision of Allahabad High Court in the case of CIT vs. Banswarilal Banshidhar 1997 (5) TMI 37 - ALLAHABAD HIGH COURT held that no further addition was called for in respect of purchases and introduction of cash. Before us, Revenue has not placed on contrary binding decision in its support nor has controverted the submissions made by ld. A.R. In view of the aforesaid facts, we are of the view that apart from addition made by A.O by making estimation of net profits, no further addition on account of income declared during the course of survey was called for. Thus this ground of Assessee is allowed.

Summary

Issues Involved:
Appeals against CIT(A) orders for A.Y. 2006-07 & 2007-08, Similar facts for both years, Addition of unaccounted income, Enhancement of income by CIT(A).

Analysis:

1. Background and Assessment for A.Y. 2006-07:
The Assessee, a partnership firm in the construction business, had a survey under section 133A revealing unaccounted income of Rs. 20 lacs for A.Y. 2006-07. Despite admitting this, the Assessee filed a return declaring lower income. The Assessing Officer (A.O.) framed the assessment under section 143(3) and determined the total income at Rs. 15,93,420. The CIT(A) not only dismissed the appeal but also enhanced the income. The main issue was the treatment of the admitted unaccounted income and the subsequent enhancement by the CIT(A).

2. A.O. and CIT(A) Decisions - A.Y. 2006-07:
The A.O. rejected the books of accounts and estimated the profit at 3% of gross receipts, adding Rs. 5,79,497. Additionally, he included the admitted Rs. 20 lacs as income. The CIT(A) upheld these decisions, emphasizing that the disclosure was of net taxable income, not gross receipts. He also enhanced the income by Rs. 5,94,107 due to under-assessment. The Assessee challenged these decisions.

3. Appellate Tribunal Decision - A.Y. 2006-07:
The Tribunal noted that once an addition was made based on estimated net profit, no further addition was warranted. Citing legal precedents, the Tribunal ruled in favor of the Assessee, allowing the appeal and rejecting the additional income addition. The Tribunal highlighted that the A.O. had already estimated the profit, considering expenses, and no further addition was justified.

4. Similar Decision for A.Y. 2007-08:
Given the identical nature of facts and circumstances for A.Y. 2007-08, the Tribunal, based on the reasoning applied for A.Y. 2006-07, allowed the Assessee's appeal for this assessment year as well.

5. Conclusion:
Both appeals by the Assessee against the CIT(A) orders for A.Y. 2006-07 and 2007-08 were allowed by the Appellate Tribunal, emphasizing that once an estimation of net profit was done, no further addition for admitted income was warranted. The Tribunal's decision provided clarity on the treatment of undisclosed income and the limits of additional income enhancements, ensuring a fair assessment process.