2020 (6) TMI 127 - AT - Income Tax

Estimation of profits - Finding of the Tribunal on the itemised additions related to the business profits of the assessee/ appropriate GP rate - HELD THAT - We have two rates for quantifying the additional profits i.e. 0.61% of CIT(A) and 0.51% of the Tribunal for the assessment year 2006-07. The turnover is found increased for the assessment year 2007-08. Considering the same, we are of the opinion that the additional profits at 0.51% needs to be revised marginally. If the same is done, we find the decision of the CIT(A) with 0.61% of additional profits should be considered proper and appropriate. In summary, we proceed to hold that the order of CIT(A) with 10% should be fair and reasonable on this issue of quantification of the business profits. Therefore, we proceed to confirm the manner of quantification of business profits at the rate of 10%. Accordingly, since we confirmed the order of the CIT(A), the relevant grounds/additional grounds raised by the assessee are dismissed. Accordingly, we order the Assessing Officer to quantify the profits of the business and delete all the business linked itemised additions. Additions u/s 40(a)(ia) - transport charges incurred related to the purchase of earth (murum) - HELD THAT - We find there is need for undertaking the comparative analysis of facts of the cases cited above. For the said reason, we find it relevant to remand this issue to the file of the Assessing Officer. The Assessing Officer shall decided the issue after granting reasonable opportunity of being heard to the assessee in accordance with set principles of natural justice. Accordingly, this issue is allowed for statistical purposes. Quantification of the business profits of the assessee for A.Y. 2007-08 as well as the GP estimation as done by the CIT(A) - HELD THAT - Additions and relied heavily on the order of the Tribunal 2019 (9) TMI 861 - ITAT MUMBAI . Further, we also approved the estimation of profits at a percentage of profits. We have also approved the requirement of taxing the additional profits applying the rate of 0.61% on the total turnover of ₹ 137.13 crores of the assessee for the assessment year 2007-08. In the process, we slightly deviated from the 0.51% for assessment year 2006-07. In effect, the said grounds no.1 to 5 of the Revenue should be considered as adjudicated while dealing with the grounds no.2 to 7 of the assessee s appeal. Miscellaneous receipts - HELD THAT - On perusal of the Chart furnished before us on the gross receipts mentioned at sl. No. (a) to (f) of the Chart, we find some of the receipts should be taxed at the rate of 10% as done by the CIT(A) and others need to be taxed at the rate of 100%. Keeping the prima-facie opinion to the scrutiny of the authorities, we find it relevant to remand to the file of the Assessing Officer as requested by the counsels. We dismiss the AR s contention not admitting the said ground since the issue cannot be said to be used for the first time considering the finding of the Assessing Officer in his odder and the manner of making of additions by way of itemised additions. Rejecting the legal jurisdictional issue raised by the ld. AR, we are of the considered opinion that this aspect of the taxation on such receipts requires to be remanded to the file of the Assessing Officer for fresh adjudication of the issue after granting reasonable opportunity of being heard to the assessee in accordance with set principles of natural justice. Accordingly, ground no.6 is allowed for statistical purposes. Addition u/s 69C - expenditure stated as MLA Balance - HELD THAT - We find it is escapable discretion that the word used as MLA Balance . In our considered view that the expression balance cannot be described as payment made in this regard. We perused the relevant discussion given by the CIT(A) on this issue and find the decision of the CIT(A) is fair and reasonable and it does not call for any interference. Accordingly, ground nos.1 and 2 of the Revenue are dismissed.

Issues Involved:
1. Inflation of expenses and understatement of profits.
2. Validity of item-wise additions versus estimation of profits.
3. Application of Section 40(a)(ia) and other specific disallowances.
4. Treatment of additional income disclosed during search.
5. Telescoping benefits.
6. Inclusion of miscellaneous receipts in gross turnover.

Issue-wise Detailed Analysis:

1. Inflation of Expenses and Understatement of Profits:
The assessee's business premises were searched under Section 132, revealing incriminating evidence of inflated expenses and understated profits. The Assessing Officer (AO) made various item-wise additions based on seized documents, leading to a significant increase in assessed income compared to declared income. For instance, for A.Y. 2006-07, the AO added ?5.86 crores due to discrepancies found in the Nashik branch's records. The CIT(A) instead estimated net profits at 10% of gross receipts, which the Tribunal later revised to 8%, acknowledging the lack of precise quantification of inflated expenses.

2. Validity of Item-wise Additions versus Estimation of Profits:
For A.Y. 2007-08, the AO's item-wise additions led to an assessed income of ?28.09 crores against a declared income of ?12.32 crores. The CIT(A) replaced these additions with an estimated net profit of 10% of total turnover. The Tribunal upheld this approach, emphasizing that precise quantification of inflated expenses was not available. The Tribunal adopted a net profit rate of 8% for A.Y. 2006-07 and found the CIT(A)'s 10% estimation for A.Y. 2007-08 reasonable, considering the increased turnover.

3. Application of Section 40(a)(ia) and Other Specific Disallowances:
The AO disallowed ?37,73,903 under Section 40(a)(ia) for non-deduction of TDS on transport charges. The Tribunal partly upheld this disallowance, confirming ?18,52,908 and remanding the remaining ?19,20,995 for fresh adjudication. Other disallowances under Sections 69C, 40A(3), and 14A were also contested, with the Tribunal providing specific directions for each.

4. Treatment of Additional Income Disclosed During Search:
The assessee disclosed ?6.5 crores during the search for A.Y. 2008-09. The CIT(A) included this in the turnover and estimated profits at 14% of the total turnover. The Tribunal upheld the inclusion of this disclosed amount and applied an additional profit rate of 0.51% over the net turnover, consistent with the approach for A.Y. 2006-07.

5. Telescoping Benefits:
The assessee sought telescoping benefits, arguing that the disclosed income should offset other additions. The Tribunal rejected this, stating that the income disclosed for A.Y. 2008-09 could not be used to offset additions for A.Y. 2007-08.

6. Inclusion of Miscellaneous Receipts in Gross Turnover:
The AO included various miscellaneous receipts in the gross turnover and taxed them at 10%. The Tribunal remanded this issue to the AO for fresh adjudication, directing that some receipts should be taxed at 100% and others at the estimated profit rate.

Separate Judgments:
- For A.Y. 2006-07, the Tribunal revised the CIT(A)'s profit estimation from 10% to 8%.
- For A.Y. 2007-08, the Tribunal upheld the CIT(A)'s 10% profit estimation and remanded specific disallowances for fresh adjudication.
- For A.Y. 2008-09, the Tribunal confirmed the inclusion of ?6.5 crores disclosed income and applied an additional profit rate of 0.51%.

Conclusion:
The Tribunal's composite order addressed multiple assessment years, emphasizing the need for reasonable profit estimation due to the lack of precise quantification of inflated expenses. The item-wise additions by the AO were largely replaced by profit estimations, with specific disallowances remanded for fresh adjudication.

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