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2018 (8) TMI 121 - AT - Income TaxEstimation of suppressed turnover - assessee s contentions that quantification of undisclosed turnover is only an estimate based on figures in pencil with respect to few plots only and that there is no corroborative evidence - Held that - Before us also assessee has not furnished any evidence to counter the working of AO. Since there is some basis for working out the so called suppressed turnover and assessee s main contentions are on the reconciliation of the said working, we are of the opinion that estimation of turnover based on the so called registers/entries in pencil cannot be faulted. Thus, the grounds on this issue (Ground Nos. 1 to 6) are accordingly rejected. Determination of suppressed turnover - Held that - Since prima-facie future sales cannot be considered as suppressed turnover for the period upto date of search, the gross receipts to that extent requires to be excluded in quantifying the suppressed turnover for the impugned assessment years. Since this aspect requires examination by the AO, we direct the AO to exclude the amounts pertaining to plots unsold as on date of search, so as to quantify the suppressed turnovers upto AY. 2014-15. In the year 2015-16 & 2016-17 i.e., of subsequent years, AO is free to verify this aspect but the unsold plots as on date of search cannot be considered for suppressed turnover particularly for quantifying the turnovers on the ratio of accounted turnover in the impugned assessment years. AO is directed to examine this aspect and exclude the turnover as directed above while determining the suppressed turnover. Grounds are considered allowed for statistical purposes. Estimation of profit - Held that - In this case, the quantification itself was done on the third party registers, where only the indicative sale prices were recorded. Since more than 70% of the turnover was recorded and the profit at 4% was accepted by AO, we are of the opinion that estimation at 12.5% is reasonable on the facts of the case. Honourable Jurisdictional High Court in the case of ACIT Vs. Ravi Foods Pvt. Ltd., has confirmed net profit rate of 3.91%. That case however, pertain to a food business case, but not real estate. Generally in real estate/contract cases, profit is estimated at 12.5%. As assessee has mostly sold real estate plots, we are of the opinion that estimation of income at 12.5% on the suppressed turnover will meet the ends of justice. Accordingly, modifying the order of CIT(A), we direct the AO to determine the profit at 12.5% of the determined suppressed turnover. Ground on this issue is considered partly allowed. Disallowance u/s 40(a)(ia) - Held that - AO has not specified whether the assessment order has been passed earlier for AY. 2013-14. Even otherwise by that time the search has happened and assessments have been taken up, the proceedings for AY. 2013-14 have already become crystallised and AO can only consider the undisclosed income on the basis of the seized material or any other information which has come to the knowledge of AO. Since there is no evidence pertaining to the issues on which disallowance was made, we agree with the findings of Ld.CIT(A). As seen from the table mentioned in the assessment order regarding various disallowances, it is also not verifiable on what basis AO has quantified the violations u/s. 40(a)(ia) and 40A(3) of the Act, the details of which are not forthcoming from the order. There is no merit in the contentions of Revenue. - revenue appeal diminished.
Issues Involved:
1. Estimation of suppressed turnover 2. Determination of suppressed turnover 3. Rate of profit on suppressed turnover 4. Disallowance under Section 40(a)(ia) of the Income Tax Act Estimation of Suppressed Turnover: The assessee contended that the quantification of undisclosed turnover was merely an estimate based on figures in pencil concerning a few plots, lacking corroborative evidence. They argued that the AO adopted a uniform value for all plots, ignoring variations in consideration. The CIT(A) rejected these contentions, stating that the quantification was based on a careful examination and analysis of seized material, detailing the sale of plots in nine ventures. The methodology was logical, correct, and backed by solid evidence. The tribunal upheld this, noting that the assessee failed to counter the AO's working with evidence, thus rejecting the grounds on this issue. Determination of Suppressed Turnover: The AO worked out gross receipts at ?123.51 Crores, giving credit for admitted receipts at ?92.43 Crores and future collections at ?20.47 Crores, arriving at a suppressed turnover of ?10.60 Crores. The CIT(A) directed the AO to adopt total disclosed receipts at ?95,13,63,302/-. The assessee argued that the AO wrongly considered the registered value instead of the actual value recorded post-search, which should be reduced. The CIT(A) dismissed this, stating the AO correctly reduced the registered value. The tribunal found that future sales on unsold plots as of the search date cannot be taxed and directed the AO to exclude such amounts while determining suppressed turnover. Rate of Profit on Suppressed Turnover: The CIT(A) estimated the profit percentage at 40%, relying on judgments from the Madhya Pradesh and Gujarat High Courts. The tribunal noted that there cannot be a fixed profit percentage for any business and found the 40% estimation unreasonable. Considering the facts and the accepted profit rate of 4% on declared turnovers, the tribunal deemed a 12.5% profit estimation on suppressed turnover reasonable, modifying the CIT(A)'s order accordingly. Disallowance under Section 40(a)(ia) of the Income Tax Act: For AY 2013-14, the AO made a disallowance of ?22,000/- under Section 40(a)(ia), which the CIT(A) deleted, citing a lack of incriminating material from the search to justify the addition. The tribunal upheld this, noting that the AO did not specify whether the assessment order had been passed earlier and found no evidence supporting the disallowance. The tribunal agreed with the CIT(A) that the AO could only consider undisclosed income based on seized material or other information, dismissing the Revenue's contentions. Conclusion: The appeals of the assessee were partly allowed for statistical purposes, and all the appeals of the Revenue were dismissed. The tribunal directed the AO to re-examine and exclude future sales on unsold plots from the suppressed turnover and to apply a 12.5% profit rate on the determined suppressed turnover. The disallowance under Section 40(a)(ia) was deleted due to a lack of supporting evidence.
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