2020 (7) TMI 208 - AT - Income Tax

Taxation of turnover - Undisclosed income on account of booking of bogus expenses - AO took the profit @10% of the gross receipt - HELD THAT - Where one turnover can be taxed in the hands of two different assessee one being partnership firm M/s. Satyam Builders and another being proprietary concern of the assessee namely satyam Builders. Our answer is emphatically No. Therefore, the ld AO is directed to delete the addition in the hands of the assessee to the extent of the turnover considered in case of Ms/. Satyam Builder a partnership firm. Therefore, the ld AO will reduce the addition in the hands of the assessee on the turnover which has already been taxed in the hands of M/s. Satyam Builders as a firm. What should be the percentage of the gross receipt to be taken as net income from the suppressed turnover? - In case of M/s. Satyam builders, partnership firm, in the assessment proceeding u/s 143(3) read with section 147 of the Act for Ay 2008-09, the ld AO himself accepted it @8%. There is no change in the business model of the partnership firm as well as the business of the assessee. Therefore, we direct the ld AO to adopt the profit ratio of 8% as net profit on the gross receipts. Accordingly, ground Nos. 4 and 5 of the appeal are allowed.

Issues:
1. Validity of reassessment proceedings.
2. Estimation of gross profit.
3. Double taxation on the same receipts.
4. Addition of cash withdrawal and unexplained bank deposit.
5. Benefit of turnover in partnership firm.
6. Profit ratio on gross receipts.

Validity of Reassessment Proceedings:
The appeal was filed against the order of the CIT(A) for the Assessment Year 2008-09. The assessee challenged the initiation of reassessment proceedings and the subsequent order, claiming non-compliance with statutory conditions. The reasons for reopening the case included allegations of undisclosed income through bogus expenses. The assessee's income was reassessed based on cash withdrawals and unexplained deposits. The CIT(A) upheld the validity of the reopening but directed the AO to examine double taxation issues. The Tribunal directed the AO to delete the addition in the assessee's hands to the extent already taxed in the partnership firm.

Estimation of Gross Profit:
The dispute also involved the estimation of gross profit at 10% by the AO, which the assessee contested, requesting a reduction to 8%. The Tribunal noted that the partnership firm had been assessed at an 8% profit ratio previously, and as there was no change in the business model, directed the AO to adopt the 8% profit ratio for the assessee as well. Consequently, the Tribunal allowed the appeal on this ground.

Double Taxation on the Same Receipts:
The CIT(A) acknowledged double taxation concerns, directing the AO to examine and provide relief accordingly. The Tribunal further clarified that turnover should not be taxed in the hands of both the partnership firm and the individual assessee. The AO was instructed to reduce the addition in the assessee's hands concerning the turnover already taxed in the partnership firm.

Addition of Cash Withdrawal and Unexplained Bank Deposit:
The AO had added the cash withdrawal and unexplained bank deposit to the assessee's income, which the CIT(A) later deleted. The Tribunal upheld the CIT(A)'s decision on this matter.

Benefit of Turnover in Partnership Firm:
The assessee requested the benefit of turnover in the partnership firm to be considered in his case as well. The Tribunal directed the AO to reduce the addition in the assessee's hands based on the turnover already taxed in the partnership firm.

Profit Ratio on Gross Receipts:
The Tribunal directed the AO to adopt an 8% profit ratio on the gross receipts, aligning with the assessment of the partnership firm. Grounds 4 and 5 of the appeal were allowed based on this decision.

In conclusion, the Tribunal partially allowed the assessee's appeal, directing adjustments in the reassessment proceedings, estimation of gross profit, and addressing double taxation concerns. All other grounds were dismissed as not pressed.

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