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2020 (2) TMI 884 - AT - Income Tax


Issues Involved:
1. Disallowance of deduction under Section 80IB(10) of the Income Tax Act.
2. Rejection of books of accounts under Section 145(3) and addition of unrecorded receipts.

Detailed Analysis:

1. Disallowance of Deduction under Section 80IB(10):
The assessee's grounds relating to the disallowance of ?5,02,25,387 under Section 80IB(10) were not pressed. The learned counsel for the assessee conceded that the original return of income was not filed within the statutory period required to claim the deduction under Section 80IB(10). Consequently, these grounds of appeal were dismissed as not pressed.

2. Rejection of Books of Accounts and Addition of Unrecorded Receipts:
The primary contention revolved around the rejection of the assessee’s books of accounts and the addition of ?4,72,02,368 as unrecorded receipts.

Facts and Findings:
- The assessee, engaged in the construction business, initially declared a turnover of ?567.44 lakhs and other income of ?123.49 lakhs, with a net profit of ?25,54,547.
- A survey under Section 133A revealed discrepancies between the original and revised Profit & Loss Accounts, showing a significant increase in turnover and expenses.
- The AO noted the assessee’s revised turnover at ?25,94,55,680 and additional expenditure of ?4,29,02,369, leading to the rejection of the books under Section 145(3) due to unreliable cash payments and vouchers.
- The AO added ?4,72,02,368 as unaccounted receipts based on impounded materials showing gross receipts of ?10,39,86,000 against the declared ?5,67,83,632.

CIT(A) Observations:
- The CIT(A) upheld the AO’s rejection of the books, noting the significant discrepancies and the use of unverified cash vouchers.
- The CIT(A) confirmed the addition of ?4,72,02,368 as unaccounted receipts, rejecting the assessee’s claim for deduction of unaccounted expenses.

Tribunal’s Analysis:
- The Tribunal acknowledged the discrepancy between the declared and actual gross receipts, but emphasized that only the profit embedded in such receipts should be taxed, not the entire amount.
- Citing precedents, the Tribunal noted that the entire sales could not be added as income; only the net profit embedded in the sales should be considered.
- The Tribunal referred to various judicial pronouncements, including the Gujarat High Court’s rulings in CIT v. President Industries and DCIT v. Panna Corporation, to support the view that only the profit element in the on-money receipts should be taxed.

Conclusion:
- The Tribunal concluded that the CIT(A) was not justified in confirming the addition of the entire on-money receipts.
- It was deemed reasonable to estimate a net profit rate of 6% on the total on-money receipts of ?4,72,02,368.
- The AO was directed to tax the net profit at 6% of the on-money receipts, amounting to ?28,32,142.

Result:
The appeal of the assessee was partly allowed, with the Tribunal directing a reassessment of the net profit on the unaccounted receipts at a rate of 6%. The order was pronounced in the open court on 13.02.2020.

 

 

 

 

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