2016 (6) TMI 455 - AT - Income Tax

Estimation of the assessee s income - unaccounted receipt - reliance of books of accounts - Held that - The assessee s books of accounts (including note books and other documents) would indicate the purchase or the sale price and therefore yield the undisclosed profit which may be worked either on the basis of the percentage or at 250 per box. In this regard we do note that the assessee has also stated vide his said answer that there is no margin now . This is firstly inexplicable in-as-much as the assessee performing an economic function as also assuming business risk should definitely stand to gain a margin even if nominal. Secondly the statement of no margin is qualified by the word now and which would only indicate a reference to recent months while here the year under reference is the financial year 2006-07. Coming next to the turnover by way of subscription the assessee s operating results would first be required to be reckoned after elimination of the STB turnover against which no profit has been admittedly disclosed by the assessee. We further observe that the expenses claimed by the assessee are in the nature of semi-variable expenditure so that they would vary with the increase in the volume though not in linear proportion thereto. As such to contend as does the assessee that its profit be estimated at 11.95% i.e. as reported for A.Y. 2005-06 or justifying its results with reference thereto is not acceptable in-as-much as the expenditure would not stand to increase in the same proportion (of sales). The turnover for A.Y. 2005-06 assuming the entire of it as of other than STBs to our mind represents a normative level (attained after over a decade of being in business) based on which the income for the subsequent years could be estimated. The expenditure can be said to have stabilized at 88% of the turnover. The excess turnover would therefore entail expenditure not to the extent of 88% (100-12) thereof. We estimate the same at 2/3 thereof i.e. at say 58.66% or (say) 60%. As such the additional turnover would entail a margin of 40%. The additional turnover (over that for A.Y. 2005-06) i.e. 17.33 lacs (Rs.79.87 lacs 62.54 lacs) would yield a profit of 40%, while the balance turnover of 62.54 lacs would a normative rate of 12% i.e. at a total profit of 14.44 lacs or at a net profit of a little over 18%. To this would stand to be added of-course the profit on the turnover on STBs if any as indicated above. Similarly for A.Y. 2007-08 the second year. - Decided partly in favour of assessee.

Issues Involved:
1. Suppression of receipts and undisclosed income.
2. Disallowance of unaccounted expenditure.
3. Estimation of income based on unaccounted receipts and expenses.

Detailed Analysis:

1. Suppression of Receipts and Undisclosed Income:
The assessee, a cable TV operator, was subject to a survey under section 133A of the Income Tax Act, 1961, which revealed suppression of receipts for the financial years 2005-06 to 2007-08. The suppressed receipts were ?19,70,124 for FY 2005-06 and ?47,03,172 for FY 2006-07. The assessee admitted undisclosed trade receipts of ?19.70 lakhs for AY 2006-07 and ?47.03 lakhs for AY 2007-08. The assessee filed revised returns and declared additional income of ?5 lakhs for AY 2007-08 and ?30 lakhs for AY 2008-09.

2. Disallowance of Unaccounted Expenditure:
The core issue was the disallowance of unaccounted expenditure claimed by the assessee. The assessee claimed various expenditures such as salary, general expenses, stores and spares, conveyance, and vehicle expenses, amounting to ?20.06 lakhs for AY 2006-07 and ?24.11 lakhs for AY 2007-08. The Revenue disallowed these expenditures due to the lack of supporting bills, vouchers, or receipts. The assessee produced a note-book during assessment proceedings, claiming it contained details of unaccounted expenditure, but the Revenue found it unreliable as it was not found during the survey.

3. Estimation of Income Based on Unaccounted Receipts and Expenses:
The Tribunal noted that the unaccounted receipts were admitted by the assessee, and the Revenue disallowed the corresponding expenditures due to lack of evidence. The Tribunal observed that the nature of the claimed expenditures was similar to those recorded in the regular books, making it implausible to segregate them into accounted and unaccounted categories. The Tribunal decided to estimate the assessee's income by considering all relevant material, including the results for the preceding and succeeding years.

The Tribunal noted the assessee's net profit ratios for various years and concluded that the figures reported by the assessee required verification. The Tribunal estimated the assessee's income by bifurcating the turnover into subscription income and sale of set-top boxes (STBs). The Tribunal accepted the assessee's claim of nominal margin on STBs and estimated the profit on the additional turnover, considering the semi-variable nature of the expenses.

The Tribunal concluded that the additional turnover would entail a margin of 40%, while the normative turnover would yield a profit of 12%. The Tribunal decided to estimate the profit for AY 2006-07 and 2007-08 accordingly, granting partial relief to the assessee.

Conclusion:
The Tribunal partly allowed the assessee's appeals, providing a detailed estimation of income based on unaccounted receipts and expenses, and considering the semi-variable nature of the expenditures. The decision emphasized the need for reliable evidence to support claims of unaccounted expenditures and the importance of a reasonable estimation process in the absence of complete records.

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