2019 (9) TMI 550 - AT - Income Tax

Estimation of turnover - GP addition on unrecorded sales - HELD THAT - In First Appellate proceedings has enhanced GP addition by extrapolating sales for the month of October, 1997 to the entire year. The contentions of the assessee is that October being the month of Diwali festival the sales are at peak. Hence, sales during festival months/seasons cannot be extrapolated to the entire year. We find merit in the contentions of the assessee. Merely for the reason that there were high volume of sales in the month of October on account of festival, the sales cannot be extrapolated to the other months for computing annual turnover. This would give unrealistic figures of annual turnover and there would be aberration in computation of profits. The sales recorded during festival month at the most can be extrapolated to 3-4 calendar months. In so far as the remaining calendar months regular sales figure have to be adopted. Without going into the merits of calculations furnished by the assessee we deem it appropriate to restore this issue back to the file of Assessing Officer for re-computation of annual turnover in line with our aforesaid observations. Accordingly, ground Nos. 1 and 2 of the appeal by the assessee are allowed for statistical purpose. Unexplained expenditure u/s. 69C on account of unexplained expenditure - HELD THAT - We are of considered view that once GP addition has been made by estimating unaccounted sales turnover, addition u/s. 69C is not warranted. The unaccounted expenditure could have been made by assessee from income generated from unaccounted sales. Our view is supported the judgment rendered in the case of Commissioner of Income Tax Vs. Jawanmal Gemaji Gandhi 1983 (10) TMI 17 - BOMBAY HIGH COURT Addition u/s. 69B on account of unexplained initial investment - HELD THAT - Assessee has given calculation on the basis of turnover computed after extrapolating sales of festival month to three calendar months and regular sales for remaining 9 months. Since, we have restored the issue of GP addition and computation of annual turnover back to the file of Assessing Officer, the calculation of initial investment has to be re-worked based on the annual turnover computed as per the directions of Tribunal. We deem it appropriate to restore the issue back to the file of Assessing Officer. The Assessing Officer shall grant reasonable opportunity of hearing to the assessee, in accordance with law. Telescopic effect - HELD THAT - Unaccounted cash found during the search operation has been offered to tax by the assessee as part of undisclosed business income. The additions made during assessment proceedings are in respect of undisclosed business transactions. The GP addition is made on turnover determined by extrapolation of sales. We are of considered view that the assessee deserves the benefit of telescopic effect on GP additions against cash seized and offered to tax. Therefore, we find merit in the contentions of the assessee in seeking the benefit of telescopy of cash seized against addition on account of gross profits on unaccounted sales. In principle, we allow ground No. 6 of the appeal. However, we deem it appropriate to restore this issue back to the file of Assessing Officer for limited purpose of giving telescopic effect to the GP after re-computation. Condonation of delay - appeal is time barred by 465 days - HELD THAT - The Hon ble Supreme Court of India in the case of Ram Nath Sao @ Ram Nath Sahu and Others Vs. Gobardhan Sao and Others 2002 (2) TMI 1280 - SUPREME COURT has held that acceptance of explanation furnished seeking condonation of delay should be the rule and refusal an exception, more so when no negligence or inaction or want of bonafide can be imputed to the defaulting parties. Taking a pedantic and hyper technical view of the matter, the explanation furnished should not be rejected when stakes are high and/or arguable points of facts and law are involved in the case, causing enormous loss and irreparable injury to the party against whom the lis terminates either by default or inaction. The Hon ble Apex Court in various other decisions has taken similar view in liberally accepting the explanation furnished by the assessee for condoning the delay in filing of appeal. Thus delay of 465 days in filing of appeal is condoned. Levying penalty u/s. 271(1)(c) - HELD THAT - A perusal of the orders by Commissioner of Income Tax (Appeals) initiating penalty proceedings and the order levying penalty clearly indicate that the charge for levy of penalty are not in coherence. The penalty has been initiated for concealment, whereas it has been levied for both the charges of section 271(1)(c) i.e. concealment of income and furnishing inaccurate particulars of income. The Hon ble Bombay High Court in the case of Commissioner of Income Tax Vs. Samson Perinchery 2017 (1) TMI 1292 - BOMBAY HIGH COURT has held that where satisfaction has been recorded for one breach u/s. 271(1)(c) and the penalty has been levied for another, such order levying penalty u/s. 271(1)(c) is not permissible. - Decided in favour of assessee

Summary

Issues Involved:
1. Gross Profit (GP) addition on unrecorded sales.
2. Unexplained expenditure under Section 69C.
3. Unexplained investments under Section 69B.
4. Telescopic effect of additions.
5. Penalty under Section 271(1)(c).

Detailed Analysis:

1. Gross Profit (GP) Addition on Unrecorded Sales:
The assessee contested the GP additions made by the Assessing Officer (AO) and enhanced by the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) extrapolated the sales for the month of October 1997 to the entire year, which the assessee argued was unreasonable due to the peak sales during the Diwali festival. The Tribunal found merit in the assessee's contention and ruled that sales during festival months should not be extrapolated to the entire year. The issue was remanded back to the AO for re-computation of annual turnover, considering the festival and non-festival months separately.

2. Unexplained Expenditure under Section 69C:
The AO made additions under Section 69C for unexplained expenditure. The Tribunal held that once GP addition is made by estimating unaccounted sales turnover, additional unexplained expenditure under Section 69C is not warranted. The Tribunal's view was supported by the judgment of the Bombay High Court in the case of Commissioner of Income Tax Vs. Jawanmal Gemaji Gandhi. Consequently, the additions under Section 69C were deleted.

3. Unexplained Investments under Section 69B:
The CIT(A) made additions under Section 69B for unexplained initial investments based on extrapolated turnover. The Tribunal remanded this issue back to the AO for re-calculation of initial investments based on the revised annual turnover computed as per the Tribunal's directions.

4. Telescopic Effect of Additions:
The assessee sought the benefit of telescopic effect, arguing that the unaccounted cash found during the search operation was part of undisclosed business income. The Tribunal agreed that the assessee deserved the benefit of telescopic effect on GP additions against the cash seized and offered to tax. The issue was remanded back to the AO for limited re-computation to give the telescopic effect.

5. Penalty under Section 271(1)(c):
The Tribunal examined the penalty orders and found discrepancies in the charges for initiating and levying penalties. The CIT(A) initiated penalties for concealment of income but levied penalties for both concealment and furnishing inaccurate particulars of income. The Tribunal, referencing the Bombay High Court's decision in Commissioner of Income Tax Vs. Samson Perinchery, ruled that such incoherence in charges is impermissible. Consequently, the penalties were set aside.

Conclusion:
The appeals of the assessee for the assessment years 1998-99 to 2004-05 were partly allowed for statistical purposes, with issues remanded back to the AO for re-computation and consideration. The penalty appeals for the assessment years 1998-99 to 2000-01 were allowed, resulting in the setting aside of the penalties levied under Section 271(1)(c).