2016 (7) TMI 11 - AT - Income Tax

Acceptance of turnover - non maintenance of books of accounts - Held that - The assessee is dealing in two kinds of businesses, viz., retail and wholesale business. In retail business, assessee is dealing in lubricant oil, having proper vouchers from manufacturers and selling it in organised sector by maintaining proper books of account. It was audited only to the extent of retail business. Where as in the wholesale business, he had not maintained any books of account, and all the vouchers relating to purchase and sales were self-made. There is no dispute with regard to the turnover. AO and CIT(A) rejected the books of both the businesses and preferred to estimate the income. Ld. AR submitted before us clearly that the retail business was audited by a Chartered Accountant as per the provisions of section 44AB. The issue before us is relating to wholesale business, which was not audited and only self-made vouchers are available. Since there is no change in the nature of business from AY 2009-10 to the current AY, we do not find any reason to adopt the rate of 3.5% on wholesale business as adopted by the AO in the previous AY 2009-10. With regard to retail business, assessee offered 3% in the AY 2009-10 and AO made some disallowance. But in the current AY 2011-12, assessee had offered only 2%. In line with the income determined in AY 2009-10, we are inclined to direct AO to assess the income of the assessee @ 3.5% of the total turnover i.e. both retail and wholesale turnover. Undisclosed income u/s 69A - Held that - As submitted by the assessee that the sales of the wholesale business were deposited in personal savings bank. Assessee had prepared self-made vouchers to prove the sales made. As can be seen from the bank statement submitted by the assessee, the cash deposits are in small denominations ranging from ₹ 2000/- to ₹ 25000/-. Revenue has not brought any material/evidence on record contrary to the submissions of assessee to prove that the assessee had other source of income. Therefore, we are inclined to accept the contention of the assessee that these cash deposits were made out of the wholesale business. Moreover, the Hon ble Jurisdictional High Court in the case of Maddi Sudarshnam Oil Mills Co. 1959 (2) TMI 27 - ANDHRA PRADESH HIGH COURT has observed that when books of account are rejected and income is estimated, Assessing Officer is not entitled to make further addition basing on the same books of account

Summary

Issues:
1. Assessment of undisclosed income based on cash deposits in the bank account.
2. Estimation of income for retail and wholesale business turnover.
3. Discrepancies in maintaining books of account and audit requirements.

Issue 1: Assessment of Undisclosed Income:
The case involved assessing undisclosed income based on cash deposits in the bank account. The AO rejected the books of account, estimating income at 10% of the total turnover. The CIT(A) reduced the estimated income to 5%, considering the nature of the wholesale business and lack of proper documentation. The AR argued that the deposits were from the wholesale business and maintained proper vouchers for retail sales. The Tribunal upheld the CIT(A)'s decision, citing the absence of evidence to prove other income sources and the principle that further additions cannot be made based on rejected books of account.

Issue 2: Estimation of Income for Retail and Wholesale Business Turnover:
The appellant conducted both retail and wholesale businesses, with proper audit for the retail sector but self-made vouchers for wholesale transactions. The AO and CIT(A) rejected the books for both businesses and estimated income. The AR argued for consistency in applying the Gross Profit (GP) rate, referring to the previous year's assessment. The Tribunal directed the AO to assess income at 3.5% of the total turnover, considering the nature of both retail and wholesale businesses.

Issue 3: Discrepancies in Maintaining Books of Account and Audit Requirements:
The appellant faced discrepancies in maintaining books of account and complying with audit requirements. While the retail business was audited as per Section 44AB, the wholesale business lacked proper documentation. The Tribunal emphasized the importance of maintaining accurate records and audit compliance. The AR highlighted the audit history and consistency in applying GP rates. The Tribunal considered the nature of both businesses and directed the AO to assess income at 3.5% of the total turnover.

In conclusion, the Tribunal partially allowed the appellant's appeal regarding income estimation and dismissed the revenue's appeal on undisclosed income assessment. The judgment emphasized the significance of maintaining proper records, audit compliance, and consistency in applying GP rates for different business sectors.