2017 (4) TMI 1643 - AT - Income Tax

Validity of assessment u/s 153A - Incriminating material was found during the search or not? - HELD THAT - The department has not found any incriminating document or unexplained cash, stock or other assets or unexplained credit or unexplained expenses. In these cases the assessee filed return u/s 139(1) on 29/10/2005 for AY 2005-06 and on 21/10/2009 for AY 2009-10. The last date of issue of notice u/s 143(2) of Income Tax Act was 31-10-2006 and 30/09/2010 respectively. The search was conducted on 11/11/2010. Since no incriminating documents were found for the AY 2005-06 and AY 2009- 10 and no assessment proceedings were pending before the AO, therefore, no assessment could have been made. See Kabul 2015 (9) TMI 80 - DELHI HIGH COURT GP estimation - Rejection of books of accounts - unaccounted sales - AO estimation of unaccounted sales by extrapolating the GP rate of 72% - HELD THAT - Assessee has made certain disclosure of income during certain assessment years. The AO has also found defects in the books of account and we have sustained the rejection of books of account. Considering all these aspects, we are of the view that estimating the profit @ 58% on the declared sales shall meet the ends of justice. In the result, the Ground No. 3 of the assessee's appeal is partly allowed. However, wherever the disclosure made in the return of claim u/s 153A of the Act is over and above the estimated income on the basis of profit @ 58%, same shall be maintained. The appeal filed by the assessee stands partly allowed. Maintainability of revenue appeal on low tax effect - Reduction of GP rate - HELD THAT - Revenue has questioned only reduction of GP rate. The Revenue has not questioned the reduction of sales made by ld CIT(A). Furthermore, the Revenue has not questioned the quantum of relief given by ld. CIT(A). In view of the above facts and circumstances, it is held that the grievance of the revenue is on the reduction of GP rate made by the ld. CIT (A) from 72% to 62% and the tax effect should be calculated on the basis of grounds of appeal raised by the Revenue. We noticed from the above chart that the tax effect is not more than Rs. 10 lacs in the appeal filed by the revenue, which are dismissed in limine, in view of Circular No. 21/2015 F No 279/Misc. 142/2007-ITJ (Pt) 10th December, 2015. Thus the above appeals of Revenue are dismissed.

Summary

Issues Involved:
1. Validity of assessment under section 153A.
2. Rejection of books of accounts and application of section 145(3).
3. Estimation of Gross Profit (GP) rate.
4. Maintainability of Revenue's appeals based on tax effect.

Detailed Analysis:

1. Validity of Assessment under Section 153A:
The assessee challenged the validity of assessments for AY 2005-06, 2008-09, and 2009-10 on the ground that no incriminating material was found during the search. The Tribunal observed that for AY 2005-06 and AY 2009-10, no incriminating documents or unexplained assets were found. The assessments were already completed, and no proceedings were pending. Citing decisions of Hon'ble Rajasthan High Court and Hon'ble Delhi High Court, the Tribunal held that no additions could be made in the absence of incriminating material. Thus, the appeals for AY 2005-06 and AY 2009-10 were allowed.

2. Rejection of Books of Accounts and Application of Section 145(3):
The assessee's books of accounts were rejected by the AO due to the non-maintenance of stock records. The CIT(A) upheld this rejection. The Tribunal noted that the assessee was not maintaining quantitative details of raw material and finished goods, which justified the rejection of books. The Tribunal relied on various judicial precedents to support this decision, affirming the rejection of books of accounts for AY 2008-09 and AY 2011-12.

3. Estimation of Gross Profit (GP) Rate:
The AO applied a GP rate of 72% on estimated sales, while the CIT(A) reduced it to 62%. The Tribunal found that the department had evidence of unaccounted sales only for certain years and not for the entire period. The Tribunal decided to estimate the GP rate at 58% for the declared sales, considering the competitive market and the nature of the business. This adjustment was applied for AY 2008-09 and AY 2011-12. The Tribunal also noted that the unaccounted sales were already considered in the additional income declared by the assessee.

4. Maintainability of Revenue's Appeals Based on Tax Effect:
The Revenue's appeals for AY 2005-06 to AY 2010-11 were challenged by the assessee on the ground of low tax effect, citing Circular No. 21/2015. The Tribunal observed that the tax effect in these appeals was not more than Rs. 10 lakhs. The primary ground of the Revenue was the reduction of the GP rate from 72% to 62% by the CIT(A). Since the tax effect was below the threshold, the appeals were dismissed in limine.

Conclusion:
- The appeals for AY 2005-06 and AY 2009-10 were allowed as no incriminating material was found.
- The rejection of books of accounts for AY 2008-09 and AY 2011-12 was upheld.
- The GP rate was adjusted to 58% for AY 2008-09 and AY 2011-12.
- The Revenue's appeals for AY 2005-06 to AY 2010-11 were dismissed due to low tax effect.
- The appeal for AY 2011-12 was dismissed as the issue was already decided in the assessee's favor.

Order Pronounced:
The appeals filed by the Revenue were dismissed, and the appeals of the assessee in ITA No. 633 and 635/JP/2016 were allowed, while ITA No. 634 and 636/JP/2016 were partly allowed.