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2019 (5) TMI 742 - AT - Income TaxEstimation of net profit - Rejection of books of accounts - HELD THAT - Facts of every year are separate and one just cannot apply results of preceding year on the current year but looking to the fact that type of business is the same and there is no future thrust to the assessee s business as the sales have increased drastically and no evidence have been placed on record to prove as to why there is a sharp decrease in the net profit even when other assessee s running similar type of business are showning better net profit rate. CIT(A) has referred and relied on judgment in the case of Trilok Chand Girdharilal Party vs. ITO 2014 (3) TMI 807 - RAJASTHAN HIGH COURT confirming the action of the assessing officer of rejecting the trading results and invoking the provisions of Section 145(3) as no proper sale vouchers were maintained and fairly estimated the net profit. Hon'ble Court confirmed the view taken by the Ld. AO adopting average gross profit rate which was upheld by CIT(A) and ITAT. We therefore find merit in the finding of CIT(A) calculating net profit rate 2.16% being average of net profit rate declared by assessee for 5 years at 2.77%, 1.33%, 1.54%, 1.77% and 3.5% thereby deleting the addition of ₹ 60,57,651/- Rejection of claim u/s 54B - no evidence placed in support to seek claim - HELD THAT - The assessee sold land and received sale consideration of ₹ 14,32,000/- thereon. Cost of acquisition of the land and transfer expenses were shown at ₹ 8,14,555/-. The short term capital gain is arising at ₹ 6,17,445/-. The assessee made a claim of exemption u/s 54B of the Act at ₹ 6,17,445/- but no evidence placed in support thereof before both the lower authorities. Even during the course of hearing before the Tribunal assessee has not made any submissions with regard to claim of deduction u/s 54B of the Act at ₹ 6,17,445/-. There seems no reason to interfere in the finding of Ld. CIT(A) confirming the addition. - Decided against assessee. Unexplained unsecured loan u/s 68 - HELD THAT - During the course of hearing before the Tribunal no other evidences have been put forth by the assessee in order to prove identity, creditworthiness and genuineness of the alleged unsecured loan. We, therefore, find no reason to interfere in the finding of the CIT(A) confirming the addition Unexplained investments u/s 69 - before the CIT(A) assessee filed the details along with proof of taking house loan for the purchase of flat. DR failed to rebut the finding of the Ld. CIT(A) - HELD THAT - The alleged purchase of flat cannot be categorized under the unexplained investments u/s 69 as the same have been recorded in the regular books of accounts along with housing loan taken for financing the purchase of the flat. No interference is therefore, called for in the finding of the CIT(A) deleting the addition. Penalty u/s 271(1)(c) - estimated profits made by the AO by applying net profit rate of 3.5% on the sales disclosed by the assessee - HELD THAT - From going through the assessment order it is discernable that AO rejected the books u/s 145(3) for not maintaining quantitative records and sales vouchers. No doubt has been raised for the purchase made by the assessee from the Excise Department. It is well established fact that the assessee engaged in the Liquor contractor business have to prepare regular quantitative details to be furnished to the Excise Authority. The regular stock is taken. No anomaly has been found in the audited books of account. Addition has been made only by estimating profits. No adverse finding has been given for any instances which could prove that assessee has concealed income or furnish inaccurate particulars of income. Levying penalty on the estimated profits was not justified and is uncalled for. Therefore, Ld. CIT(A) has rightly deleted the penalty levied u/s 271(1)(c) on the addition for estimated profits and no interference is therefore called for. Incorrect claim u/s 54B - In the income tax return filed by the assessee inaccurate particulars of income were furnished in order to claim deduction/exemption 54B of the Act. Till the hearing before the Tribunal Ld. counsel for the assessee has been unable to prove with adequate material that claim made was a bonafide claim. The assessee furnished inaccurate particulars of income, making an incorrect claim u/s 54B. AO was justified in levying penalty u/s 271(1)(c) and this action was rightly confirmed by the Ld. CIT(A). Ground no.1 of assessee s appeal stands dismissed.
Issues Involved:
1. Rejection of Books of Accounts 2. Estimation of Net Profit 3. Claim under Section 54B 4. Addition of Unexplained Unsecured Loan under Section 68 5. Addition of Unexplained Investment under Section 69 6. Levy of Penalty under Section 271(1)(c) Detailed Analysis: 1. Rejection of Books of Accounts: The assessee's books of accounts were rejected by the Assessing Officer (AO) due to the lack of proper quantitative and sales details. The CIT(A) upheld this decision, stating that the books were incomplete and inaccurate. The Tribunal found no material defect pointed out by the AO but maintained the rejection due to the lack of regular sale bills and quantitative details. 2. Estimation of Net Profit: The AO estimated the net profit at 3.5% of the total turnover, which was higher than the 1.06% declared by the assessee. The CIT(A) reduced this to 2.16%, based on the average net profit rate over five years. The Tribunal upheld the CIT(A)'s decision, noting that the drastic decline in net profit rate was unexplained despite increased sales and the number of shops. The Tribunal emphasized the need for consistency and found the CIT(A)'s approach reasonable. 3. Claim under Section 54B: The assessee's claim for exemption under Section 54B was rejected due to a lack of supporting evidence. The CIT(A) and the Tribunal both upheld this rejection. The Tribunal noted that the assessee failed to provide any submissions or evidence to support the claim, leading to the dismissal of this ground. 4. Addition of Unexplained Unsecured Loan under Section 68: The AO added ?47,77,000 as unexplained unsecured loans under Section 68, citing the assessee's failure to establish the identity, creditworthiness, and genuineness of the loan creditors. The CIT(A) confirmed this addition, noting that the assessee did not provide reasonable cause for not furnishing evidence during the assessment stage. The Tribunal upheld this decision, as no further evidence was provided to prove the genuineness of the loans. 5. Addition of Unexplained Investment under Section 69: The AO added ?60,19,920 as unexplained investment for a flat purchase. The CIT(A) deleted this addition after the assessee provided proof of a housing loan used for the purchase. The Tribunal agreed with the CIT(A), finding no reason to categorize the flat purchase as unexplained investment since it was recorded in the regular books of accounts. 6. Levy of Penalty under Section 271(1)(c): The AO levied a penalty of ?33,50,000 for estimated profits and an incorrect claim under Section 54B. The CIT(A) deleted the penalty on estimated profits but upheld the penalty for the incorrect claim. The Tribunal concurred, stating that penalty on estimated profits was unjustified as it was based on estimation without adverse material. However, the penalty for the incorrect claim under Section 54B was upheld due to the assessee's failure to demonstrate a bona fide reason for the inaccurate claim. Conclusion: The Tribunal dismissed all cross appeals, upholding the CIT(A)'s decisions on the rejection of books, estimation of net profit at 2.16%, rejection of the Section 54B claim, addition of unexplained unsecured loans under Section 68, deletion of unexplained investment under Section 69, and the partial levy of penalty under Section 271(1)(c). The order was pronounced in the open court on 08.05.2019.
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