2014 (3) TMI 1213 - AT - Income Tax

Rejection of books of account - trading addition by estimation on net profit of contract business - HELD THAT - We find that books of account of the assessee are defective for the reasons mentioned in the order of the AO and the learned CIT(A) and no cogent explanation in this regard has been brought on record and, therefore, we find no infirmity in the order of learned CIT(A) who has rightly confirmed the action of the AO for invoking the provisions of s. 145(3) Estimation of NP no comparable case was given by AO and learned CIT(A). Further, we find force in the contention of the learned Authorised Representative that this year was the second year of the assessee in contract business. However, in current year the contract receipts of the assessee have increased by more than 6 times from last year. The NP rate is also better that last year, therefore, in view of the decision of Gotan Lime Khaniz Udhog 2001 (7) TMI 19 - RAJASTHAN HIGH COURT even if the provisions of s. 145(3) are invoked, in the present circumstances and facts of the case, no addition is called for. AO is not justified in making any addition on this account and addition confirmed by learned CIT(A) is directed to be deleted. Thus, ground No. 1 of the assessee is dismissed and ground No. 2 of the assessee is allowed. Undisclosed investment in the plot purchased in the name of partnership firm - Addition on account of sharing of assessee in total alleged on-money payment paid by firm for purchase of Plot in which the assessee was partner - HELD THAT - We find that the Department has carried out search over the assessee and no incriminating document was found to show undisclosed investment by the assessee in the purchase of the plot in the name of partnership firm Kamakshi International. We find that the addition was made/sustained in the hands of this assessee merely on surmises, conjectures, probabilities and possibilities without bringing any positive evidence. As admitted fact that the plot was purchased in the name of partnership firm Kamakshi International who is a separate assessee of IT Act through the registered sale deed. The sale consideration shown in the registered sate deed is Rs. 1,20,00,000, and the assessee's contribution in the capital of the firm was only Rs. 60.000. Had the investment in plot was in profit-sharing ratio then the investment of the assessee should be Rs. 12,00,000. It means that the other partners have mainly contributed the source of the investment in the plot. Further, the onus under s. 69B is on the Department to prove the investment. AO has not brought any positive material to show that the assessee has made undisclosed investment in the plot purchased in the name of partnership firm - Decided in favour of assessee. Addition u/s 69B - interest thereon on account of alleged unaccounted/undisclosed investment from the hands of the assessee - HELD THAT - We find that the AO has not brought any positive material to show that the assessee has made investment in loans through Shri Manish Tambi. The AO has not provided the copy of seized material to the assessee and effective opportunity of confrontation was not given to the assessee. The inquiries or material if any was gathered behind the back of the assessee, the same cannot be used against the assessee without providing opportunity of confrontation to the assessee. If the AO proposes to act on such material as he might have gathered as a result of his private enquiries behind the back of the assessee, he must disclose the substance of all such material to the assessee and if this is not done, the principles of natural justice stand violated. Onus under s. 69B of IT Act is on Department to prove the investment has been made by the assessee, which was not discharged by the AO. Nor any positive material was brought ort records to show that the assessee has made cash loans to the ultimate borrowers through Shri Manish Tambi. Therefore,no addition is called for in the hands of this assessee.

Issues Involved:
1. Rejection of books of account under Section 145(3) of the IT Act, 1961.
2. Trading addition based on estimated Net Profit (NP) rate.
3. Alleged suppression of investment in land.
4. Addition of alleged undisclosed investment under Section 69B of the IT Act, 1961.
5. Procedural fairness regarding the provision of documents and evidence.

Detailed Analysis:

1. Rejection of Books of Account:
The assessee's books of account were rejected by the AO under Section 145(3) of the IT Act, 1961, due to several defects such as non-maintenance of inventory, unsupported purchases, and cash payments to laborers without proper documentation. The CIT(A) confirmed this rejection. The Tribunal upheld the rejection of books of account, agreeing that the defects pointed out were substantial and justified the invocation of Section 145(3).

2. Trading Addition Based on Estimated NP Rate:
For the assessment year 2009-10, the AO estimated the NP at 8.5% of the total turnover, resulting in an addition of Rs. 13,42,358. The CIT(A) reduced the NP rate to 8.25%, resulting in a trading addition of Rs. 12,76,960. The Tribunal found that the NP rate declared by the assessee was better than the previous year and that no comparable cases were provided by the AO or CIT(A). Hence, the Tribunal directed the deletion of the trading addition, emphasizing that the past history of the assessee is the best guiding factor.

For the assessment year 2010-11, the AO applied an NP rate of 8.5%, while the CIT(A) reduced it to 8%, resulting in a trading addition of Rs. 26,35,657. The Tribunal noted that the assessee had already surrendered Rs. 30,00,000 as suppressed business profit during the search, which was included in the declared NP rate of 8.43%. Given the better results than the previous year, the Tribunal directed the deletion of the trading addition.

3. Alleged Suppression of Investment in Land:
The AO added Rs. 6,20,60,000 as suppressed investment in land purchased by M/s Kamakshi International, based on the market value estimation. The CIT(A) confirmed the addition on substantive basis in the hands of the assessee, attributing 10% of the on-money payment to the assessee. The Tribunal found no incriminating evidence from the search to support the addition and noted that the onus under Section 69B to prove the investment was not discharged by the AO. Consequently, the Tribunal directed the deletion of the addition.

4. Addition of Alleged Undisclosed Investment under Section 69B:
For the assessment year 2009-10, the AO added Rs. 66,50,000 as undisclosed investment based on documents seized from Shri Manish Tambi. The CIT(A) deleted the addition, noting the lack of corroborative evidence and the failure of the AO to provide the seized documents to the assessee. The Tribunal upheld the deletion, emphasizing the violation of principles of natural justice and the absence of any direct evidence linking the assessee to the undisclosed investment.

For the assessment year 2010-11, the AO added Rs. 1,29,00,000 as undisclosed investment based on the same seized documents. The CIT(A) deleted the addition, and the Tribunal confirmed this decision, reiterating the lack of evidence and the procedural unfairness in not providing the seized documents to the assessee.

5. Procedural Fairness Regarding Provision of Documents and Evidence:
The Tribunal highlighted the procedural unfairness in not providing the seized documents to the assessee, which were crucial for the defense. The AO's reliance on presumptions and assumptions without concrete evidence was criticized. The Tribunal stressed the importance of adhering to principles of natural justice and providing the assessee with an opportunity to confront the evidence used against them.

Conclusion:
The appeals filed by the assessee were partly allowed, and the appeals filed by the Revenue were dismissed. The Tribunal emphasized the importance of concrete evidence, adherence to procedural fairness, and the relevance of past history in estimating profits and making additions.

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