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2020 (8) TMI 835 - AT - Income TaxAssessment u/s 153A - grievance of the assessee that the assessment order passed by the AO in this year u/s 153A is bad in law because the assessment has not abated and no incriminating material was found - HELD THAT - CIT (A) has noted several judicial pronouncements cited by the learned AR of the assessee before him and have given a categorical finding that the case of assessee squarely falls outside the purview of section 153A because the assessment has not abated and no new material was found or unearthed during the course of search and hence, these judgments are squarely applicable. These findings of CIT (A) are in favour of the assessee and the same have attained finality because no appeal is filed by the revenue against these findings of CIT (A). Thus after holding this in para 6 that the case of assessee squarely falls outside the purview of section 153A, learned CIT (A) should have held that the assessment order passed by the AO u/s 153A is bad in law and he should have allowed the appeal of the assessee instead of holding that the appeal is partly allowed. Therefore, we hold that the assessment order passed by the AO u/s 153A is bad in law . Estimation of income - undisclosed turnover - Addition made by the AO to the extent of 12% of the alleged undisclosed sales turnover based on data retrieved from the impounded materials, PC of the assessee s business premises at Nagpur, SMS in the cell phones of the employees of at Nagpur - HELD THAT - In the written submissions dated 11.06.2020 filed by the learned AR of the assessee for A. Y. 2015 16, this is one of the submissions that the coded words and figures found noted in impounded materials were disclosed in audited books of accounts and therefore, no addition is justified in this regard but no evidence was filed before us in support of this contention and therefore, this argument is rejected. This was an alternative oral argument that having noted that in the business of Arecanut, the books of accounts disclose profit @ 2 3%, learned CIT (A) was not justified in directing the AO to assess income @ 4% of undisclosed turnover as against 12 % rate adopted by the AO. It was the submission that it should be @ 2 % only. We find force in this alternative submission because the only basis adopted by CIT (A) to adopt higher percentage is this that in unaccounted business, taxes and levies etc. are evaded but the taxes i.e. VAT etc. are collected from the customer separately when the bill is issued and it is paid to government. In unaccounted sales, no bill is issued and therefore, no customer will pay taxes and levies which will result into higher profit to the seller. Therefore, we hold that adopting the profit rate of 2% will meet the ends of justice. Addition of Cash Credit received by the assessee - the claim of the assessee about source of gift being sale proceeds received on sale of property and loan repaid by Abdul Gaffur - HELD THAT - In the order of CIT (A) here is no basis indicated about this allegation of the AO that cash was deposited by the assessee in the bank account of Mrs. Haleema and there is no finding about this claim of the assessee also that the source of this gift of ₹ 50 Lacs is sale proceeds received on sale of property and loan repaid by Abdul Gaffur. Hence, the order of CIT (A) on this issue is not sustainable because there is no valid basis of adverse conclusion of AO and CIT (A) But the assessee also has not produced any evidence before us in support of this explanation that the source of this gift of ₹ 50 Lacs is sale proceeds received on sale of property and loan repaid by Abdul Gaffur. Second gift claimed to have been received from sister Khadeejamma - AO has noted that initially the amount was transferred from har BUCB Account 3475 on 16.03.2015 to the assessee Mr. M A Siddiqque and it was routed through M A Siddique account only. Various account transfers are noted and adverse inference was drawn without any concrete adverse finding. There is no concrete adverse finding of CIT (A) either about this gift also and therefore, about this gift also, the order of CIT (A) on this issue is not sustainable because there is no valid basis of adverse conclusion of AO and CIT (A) But the assessee also has not produced any explanation or evidence about source of funds of ₹ 15 Lacs in the hands of the Donor sister Khadeejamma . Under these facts, we feel it proper to remand this matter to AO for a fresh decision by way of a speaking and reasoned order Cash deposit in bank account is higher than declared turnover - Assessee's submission that books of accounts of the assessee are audited u/s 44AD and addition is made without rejecting the books of accounts which are audited and covered all the bank accounts - HELD THAT - When there is no specific finding of the AO that a particular bank account is not appearing in the books of the assessee or that some specific entries of the declared bank accounts is not appearing in the books of the assessee, this cannot be said that that there is any unexplained deposit in bank merely for this reason alone that it exceeds the declared turnover. In this regard, these observations of CIT (A) clinches the issue in favour of the assessee that entire cash deposit of the year may not be the turnover of the particular year and he also observed very correctly that it may contain cash receipts from the credit sales of the earlier years, contra entries, loans and advances etc. Under these facts, we hold that there is no valid basis of this allegation of the AO that there is unaccounted cash income simply on this basis that deposits in bank accounts exceed the declared turnover. We delete this addition. Addition of Mercedes Benz car found in course of search as parked in the parking place of the assessee is belonging to the assessee - HELD THAT - We find that the main objection of the AO and CIT (A) is this that Mr. V. K. Abdul Gaffur is a man of small means and in view of this fact that the car was found parked in the premises of the assessee, this addition is justified but we find that the AO himself has noted the amount of income declared by Mr. V. K. Abdul Gaffur for A. Ys. 2010 11 to 2015 16 as per which, the agricultural income was declared and in addition to it, taxable income was also declared in the range of ₹ 1.68 Lacs in A. Y. 2011 12 to ₹ 2.71 Lacs in A. Y. 2015 16 and If total declared agricultural income and taxable income of these 6 years is aggregated, the same amounts to about ₹ 78.50 Lacs. In spite of this much income of Mr. V. K. Abdul Gaffur, the conclusion that he did not have ability to buy Mercedez Benz car is without any valid basis because a person having aggregate income of ₹ 78.50 Lacs in last six years can very much pay ₹ 35,36,740/- in the present year and parking of car in the premises of the assessee being brother in law is not unusual even if the car in question is used by the assessee. Hence, we delete this addition Cash deposit by the assessee in bank account is in excess of the declared turnover not deposited by way of cheques - As alternatively argued even if source of cash deposit is not accepted as explained, it should be accepted that this is unaccounted turnover of the assessee - HELD THAT - Only profit element @ 6.50% of undisclosed turnover of ₹ 103.68 Lacs should be added instead of addition of ₹ 103.68 Lacs being total cash deposit in bank. This ground is partly allowed.
Issues Involved:
1. Undisclosed profit from business operations. 2. Cash deposits in bank accounts treated as undisclosed income. 3. Unexplained investment. 4. Validity of assessment under Section 153A. 5. Addition of unexplained cash credits. 6. Addition based on net worth. 7. Treatment of foreign income and investments. Detailed Analysis: 1. Undisclosed Profit from Business Operations: - Assessment Year 2012-13: The CIT(A) upheld the addition of ?44,57,669 as undisclosed profit from supari business operations based on a piece of paper found during the search. The assessee argued that the evidence was inadmissible and that the profit estimation was arbitrary and higher than industry standards. The ITAT ruled that the assessment order under Section 153A was bad in law due to the absence of incriminating material. - Assessment Year 2013-14: Similar issues were raised, with the CIT(A) upholding an addition of ?55,65,560. The ITAT again ruled the assessment order under Section 153A as bad in law. - Assessment Year 2014-15: The CIT(A) upheld additions of ?12,03,481 and ?5,84,228 for Nagpur and Indore operations, respectively. The ITAT ruled the assessment order under Section 153A as bad in law. - Assessment Year 2015-16: The CIT(A) directed the AO to assess income at 4% of undisclosed turnover instead of 12%. The ITAT reduced the profit rate to 2%. - Assessment Year 2016-17: Similar to the previous year, the ITAT reduced the profit rate to 2%. 2. Cash Deposits in Bank Accounts Treated as Undisclosed Income: - Assessment Year 2012-13 to 2014-15: The CIT(A) upheld various additions for cash deposits, which the assessee argued were recorded in the books and included receipts from credit sales and contra entries. The ITAT did not address these grounds due to the ruling on the invalidity of the assessment order under Section 153A. - Assessment Year 2015-16: The CIT(A) upheld an addition of ?65,68,862. The ITAT ruled that the basis adopted by the AO was invalid and deleted the addition. - Assessment Year 2016-17: The ITAT followed the same rationale as the previous year and reduced the addition to the profit element at 14.45%. 3. Unexplained Investment: - Assessment Year 2013-14: The CIT(A) upheld an addition of ?17,00,000 based on unregistered and undated documents. The ITAT did not address this due to the ruling on the invalidity of the assessment order under Section 153A. - Assessment Year 2016-17: The CIT(A) upheld an addition of ?35,36,740 for a Mercedes Benz car. The ITAT deleted the addition, noting that the car belonged to Mr. V.K. Abdul Gafoor, who had sufficient income to justify the purchase. 4. Validity of Assessment under Section 153A: - Assessment Years 2012-13 to 2014-15: The ITAT ruled that the assessment orders under Section 153A were bad in law due to the absence of incriminating material and non-abatement of assessments. - Assessment Year 2015-16 and 2016-17: The ITAT ruled that these assessments had abated and were valid. 5. Addition of Unexplained Cash Credits: - Assessment Year 2015-16: The CIT(A) upheld an addition of ?75,00,000. The ITAT remanded the matter to the AO for a fresh decision. - Assessment Year 2016-17: The CIT(A) upheld an addition of ?35,66,300. The ITAT remanded the matter to the AO for a fresh decision. 6. Addition Based on Net Worth: - Assessment Year 2015-16: The AO made an addition of ?147,68,009 based on net worth. The ITAT found this addition unsustainable and upheld the CIT(A)'s deletion of the addition. 7. Treatment of Foreign Income and Investments: - Assessment Year 2015-16: The CIT(A) deleted additions of ?58,58,136, ?40,18,689, and ?147,68,009 related to foreign companies, noting that such income should be taxed in the hands of the company, not the individual shareholder. The ITAT upheld this decision. Conclusion: The ITAT ruled in favor of the assessee for the assessment years 2012-13 to 2014-15 by declaring the assessment orders under Section 153A as invalid. For the assessment years 2015-16 and 2016-17, the ITAT provided partial relief by reducing the profit rate for undisclosed business operations and remanding the issues of unexplained cash credits and cash deposits for fresh consideration. The appeals of the revenue were dismissed, and the appeals of the assessee were partly allowed.
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