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2022 (7) TMI 740 - AT - Income TaxRejection of books of accounts - net profit estimation - HELD THAT - We find that the book results of the assessee were rejected by the ld. AO u/s.145(3) of the Act. This action of the AO was upheld by the ld. CIT(A). We find that the said book results of the assessee had been rejected with valid reasons which have already been stated supra. No evidences were filed by the assessee either before the ld. AO or before the ld. CIT(A) or before us to controvert the said findings of the lower authorities. Hence, we uphold the action of the lower authorities in rejecting the book results u/s.145(3) of the Act. Accordingly, the ground raised by the assessee in its cross objections are dismissed. NP estimation - Once the book results are rejected u/s.145(3) of the Act and net profit @1% is estimated by the ld. AO, then there cannot be further disallowance that could be made separately on account of commission expenses, travelling and conveyance expenses and depreciation by looking into the same entries in the books. Hence, we hold that the ld. CIT(A) had rightly deleted the disallowance made on account of commission, travelling and conveyance and depreciation. Accordingly, the grounds raised by the Revenue are dismissed. Addition made u/s.69C on account of bogus purchases - alleged seized materials found during the course of search - HELD THAT - The book results of the assessee had been rejected by the lower authorities for not addressing the defects pointed out by the lower authorities. Hence, once the book results are rejected as stated supra, there cannot be separate addition that could be made on account of purchases which are already reflected in the book results, based on alleged seized material. Hence, we direct the ld. AO to delete the addition made on account of bogus purchase as the said issue also gets subsumed in the net profit estimated at 1% of turnover. Accordingly, the ground Nos. 11 12 raised by the assessee in its cross objections are allowed. Validity of the search assessment on the ground that notice u/s.143(2) of the Act was not served - HELD THAT - The assessee before the ld. CIT(A) had challenged the non-issuance of notice u/s 143(2) of the Act which had been rightly adjudicated by the ld. CIT(A). Before us, the assessee had challenged the non-service of notice u/s 143(2) of the Act. This fact was never raised before the lower authorities and not raised before us by way of an additional ground. No further evidences in this regard were produced by the assessee in support of this contention. Hence we hold that this ground raised before us does not emanate from the orders of the lower authorities . Hence, the ground raised by the assessee in its cross objections is hereby dismissed as not maintainable. Validity of search assessment framed in the hands of the assessee by challenging on the ground that search assessment is barred by limitation u/s.153B - As per assessee search assessment completed on 28/03/2013 is barred by limitation in terms of Section 153B - HELD THAT - We find that this objection was also raised by the assessee before the ld. CIT(A) and the ld. CIT(A) addressed the issue in detail by stating that though the search was conducted on 23/02/2010, the last authorisation of search was issued on 19/04/2010 and panchanama was duly drawn thereon and there were seizure of books of accounts and certain documents on the said date. Hence, the search conducted on 19/04/2010 was a valid search. While this is so, the date for completion of assessment should be reckoned from 19/04/2010, in which case, the last date to complete assessment would be 31/03/2013. In the instant case, the search assessment has been completed on 28/03/2013 and hence, the objection raised in this regard by the assessee is devoid of merits and hence dismissed. Disallowance made on account of proportionate interest - HELD THAT - As stated in earlier grounds of the Revenue, once the net profit is estimated @1% of turnover, there cannot be further addition made on account of business income either by way of disallowance of interest on borrowed funds or by way of adding notional interest income on loans and advances. This is in view of the fact that the said interest addition would get subsumed in the determination of net profit @1% of turnover. Hence, we direct the ld. AO to delete the addition made in the sum of Rs.3,14,160/-. Accordingly, the ground Nos. 13 14 raised by the assessee in its cross objections are allowed. Addition made in the search assessment completed u/s.153A - HELD THAT - We hold that a statement recorded u/s.132(4) of the Act does not constitute any incriminating material found during the course of search within meaning of Section 153A to 153D of the Act. Reliance in this regard is placed on the decision in the case of PCIT vs Best Infrastructure (India) (P) Ltd. 2017 (8) TMI 250 - DELHI HIGH COURT - In view of the above, we hold that no additions could be made in the search assessment completed u/s.153A of the Act for the A.Y.2007-08. Hence, the grounds raised by the Revenue are dismissed
Issues Involved:
1. Deletion of disallowance of commission expenses. 2. Deletion of disallowance of travelling and conveyance expenses. 3. Deletion of disallowance of depreciation on fixed assets. 4. Addition on account of bogus purchases. 5. Validity of search assessment and service of notice under Section 143(2). 6. Validity of search assessment under Section 153A. 7. Disallowance of proportionate interest. 8. Principles of natural justice and sufficient opportunity. Detailed Analysis: 1. Deletion of Disallowance of Commission Expenses: The Revenue challenged the deletion of disallowance of Rs. 25,59,209/- out of commission expenses. The Assessing Officer (AO) had disallowed 50% of the commission expenses due to lack of supporting details. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance, stating that since the book results were rejected and profits were estimated at 1% of turnover, no separate disallowance could be made based on the same books. The Tribunal upheld the CIT(A)'s decision, confirming that no further disallowance could be made once profits were estimated. 2. Deletion of Disallowance of Travelling and Conveyance Expenses: The AO disallowed 50% of the travelling and conveyance expenses amounting to Rs. 13,22,370/- due to lack of details. The CIT(A) deleted the disallowance on the same grounds as the commission expenses, which was upheld by the Tribunal. 3. Deletion of Disallowance of Depreciation on Fixed Assets: The AO disallowed depreciation of Rs. 2,02,55,475/- due to lack of details. The CIT(A) deleted the disallowance, reasoning that once the book results were rejected and profits estimated, no further disallowance could be made. The Tribunal upheld this decision. 4. Addition on Account of Bogus Purchases: The AO made an addition of Rs. 84,38,546/- for bogus purchases based on seized materials. The CIT(A) upheld this addition. However, the Tribunal found that these purchases were reflected in the books and considered while arriving at the book results. Since the purchases were accounted for, the Tribunal directed the AO to delete the addition, stating it was subsumed in the net profit estimation. 5. Validity of Search Assessment and Service of Notice under Section 143(2): The assessee challenged the search assessment's validity, claiming non-service of notice under Section 143(2). The Tribunal found that the CIT(A) had confirmed the issuance of notices on 16/09/2010 and 27/09/2010. The Tribunal dismissed the assessee's ground, stating it was not maintainable as it was not raised before lower authorities or supported by evidence. 6. Validity of Search Assessment under Section 153A: The assessee argued that the search assessment was invalid due to lack of incriminating material. The Tribunal noted that for abated assessments (A.Y. 2009-10), the AO need not rely on incriminating materials. The Tribunal upheld the assessment's validity, dismissing the assessee's grounds. 7. Disallowance of Proportionate Interest: The AO disallowed Rs. 3,14,160/- as proportionate interest on loans advanced without charging interest. The Tribunal held that once profits were estimated, no further disallowance could be made. The Tribunal directed the AO to delete the addition. 8. Principles of Natural Justice and Sufficient Opportunity: The assessee claimed insufficient opportunity was provided, violating natural justice principles. The Tribunal found that the CIT(A) had given sufficient opportunities and addressed all issues in detail. The Tribunal dismissed this ground as devoid of merit. Conclusion: - Revenue's Appeal for A.Y. 2009-10: Dismissed. - Assessee's Cross Objections for A.Y. 2009-10: Partly allowed. - Revenue's Appeal for A.Y. 2007-08: Dismissed. - Assessee's Cross Objections for A.Y. 2007-08: Allowed. Summary Table: | ITA NO / CO NO. | AY | APPEAL BY | RESULT | |-----------------|--------|-----------|--------------| | ITA No.2647/Mum/2016 | 2007-08 | Revenue | Dismissed | | CO No.343/Mum/2018 | 2007-08 | Assessee | Allowed | | ITA No.2649/Mum/2016 | 2009-10 | Revenue | Dismissed | | CO No.345/Mum/2018 | 2009-10 | Assessee | Partly Allowed | Order pronounced on 15/07/2022 by way of proper mentioning in the notice board.
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