2020 (2) TMI 455 - AT - Income Tax

NP Determination - undisclosed turnover - Survey u/s 133A of the Act was conducted at the business premises of the assessee and statement u/s 133A were recorded - HELD THAT - Assessee was carrying out its business from 2005 onwards and neither any books of accounts were maintained nor returns were filed. The gross receipts were calculated on the basis of receipts appearing in the bank statement held by the assessee in Axis Bank. Whether the Ld. A.O is justified in applying 8% net profit rate - In the assessment completed u/s 143(3) of the Act for Assessment Yea₹ 2006-07 and 2007-08, we find that on the undisclosed turnover the Ld. A.O has computed net profit @5% and has also not disturbed the profit shown by the assessee @5% on the disclosed turnover. Though the estimation of net profit rate on turnover of the gross receipts of the assessee depends on various facts and circumstances and case to case basis but looking to the Rule of consistency wherein the assessee is carrying out the similar type of business not maintaining any books of accounts and also considering the fact that the Ld. A.O in assessee s own case has accepted the net profit @5%, it will not be justified to apply 8% net profit rate for subsequent assessment years even when the turnover has almost doubled. Net profit rate of 5.24% shown by the assessee for Assessment Year 2008-09 should be accepted and the same should be applied for Assessment Year 2009-10 also. By application of net profit rate of 5.24% for Assessment Yea₹ 2008-09 and 2009.10 on the declared turnover of ₹ 2,72,27,334/- and ₹ 2,14,68,304/-, net profit subject to tax will works out to ₹ 14,26,712/- and ₹ 11,24,940/-. In the result as regards the first common issue, appeal of the assessee for Assessment Year 2008-09 stands allowed Undisclosed income - statement recorded during survey proceedings relied upon - HELD THAT - we observe that the corroborative evidence found during the course of survey have already been taken into account for computing the net profit of the assessee for Assessment Year 2009- 10. Revenue authorities failed to correlate the addition of ₹ 2,00,000/- with any corroborative evidence. Thus the addition seems to be made purely on the basis of statement given during survey proceedings - Both the lower authorities were not justified in confirming the addition for undisclosed income made on the basis of statement given during the course of survey. The impugned addition thus deserves to be deleted.

Summary

Issues Involved:
1. Application of Net Profit Rate by the Assessing Officer (AO) and Commissioner of Income Tax (Appeals) (CIT(A)).
2. Addition of undisclosed income based on statements recorded during survey operations.

Issue-wise Detailed Analysis:

1. Application of Net Profit Rate:
The primary issue was whether the CIT(A) was justified in confirming the AO's application of an 8% Net Profit (NP) rate instead of the NP rates declared by the assessee (5.24% for AY 2008-09 and 2.34% for AY 2009-10). The assessee argued that the AO had accepted a 5% NP rate in earlier assessments for AY 2006-07 and 2007-08. The Tribunal noted that the assessee did not maintain books of accounts and the gross receipts were calculated based on bank statements. The Tribunal emphasized the "Rule of Consistency," noting that the AO had previously accepted a 5% NP rate for similar business activities. Given the doubled turnover and the lack of significant changes in business operations, the Tribunal concluded that the 8% NP rate applied by the AO was unjustified. The Tribunal decided that the NP rate of 5.24% should be accepted for both AY 2008-09 and 2009-10, resulting in the appeal being allowed for AY 2008-09 and partly allowed for AY 2009-10.

2. Addition of Undisclosed Income Based on Survey Statements:
The second issue concerned the addition of ?2,00,000 for AY 2009-10, which the AO based on statements made during a survey conducted under section 133A. The assessee had declared an undisclosed income of ?10,00,000 during the survey, which included an estimated profit of ?8,00,000. The AO added the remaining ?2,00,000 as undisclosed income. The Tribunal observed that the total gross receipts had already been taxed and that the addition of ?2,00,000 was not supported by any incriminating material, relying solely on the survey statements. Citing judicial precedents, including the Supreme Court's ruling in CIT V/s Kader Khan (352 ITR 480) and other relevant cases, the Tribunal highlighted that statements made during surveys under section 133A have no evidentiary value without corroborative evidence. The Tribunal concluded that the addition of ?2,00,000 was unjustified and deserved to be deleted, thus allowing the appeal on this ground.

Conclusion:
The Tribunal allowed the appeal for AY 2008-09 and partly allowed the appeal for AY 2009-10, directing the application of a 5.24% NP rate for both years and deleting the addition of ?2,00,000 for AY 2009-10. The order was pronounced in the open court on 07.02.2020.