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2017 (2) TMI 1553 - AT - Income TaxValidity of assessment reference made for special audit and validity of assessment order - HELD THAT - It is noted from the order of the ld. CIT (A) that assessee has not brought any positive material to show that the approval given by ld. CIT (Central, Jaipur is without application of mind and the ld. CIT (A) also noted that the opinion of the AO that the accounts of the assessee are complex and based on objective consideration. Therefore, the ld. CIT (A) rejected the contentions of the assessee are rejected and dismissed both the ground Nos 1 and 2 of the assessee. Looking into the present facts and circumstances of the case, we concur with the order of the ld. CIT (A) on this issue. Thus Ground No. 1 and 2 of the assessee are dismissed. Addition by estimating the profit rate @ 24% on estimated sales sales as worked out by Special auditor - HELD THAT - CIT (A) has estimated the higher gross profit @ 24% on estimated sales of Rs. 26 crores. The assessee had computed the gross turnover of Rs. 25,06,61,673/- on the basis of seized documents and books of account and has pointed out several mistakes and instances of double counting of sales computed by the Special Auditor in the estimates of gross turnover. The ld. CIT (A) as well as AO have not pointed out any defect in the calculation of gross turnover by the assessee on the basis of seized records. Therefore, It will be in the interest of equity and justice that weighted average gross profit rate of last four years i.e. 16.98% should be taken into consideration on turnover of Rs. 25,06,61,673/- which gives gross profit of Rs. 4,25,62,352/-. It is also noted that the assessee had declared the gross profit of Rs. 1,18,43,142/- in the trading account filed with the return and further the assessee had declared Rs. 2,46,00,000/- in the return filed u/s 153A on account of undisclosed income from unaccounted sales/purchase. Therefore, the trading addition of Rs. 61,19,120/- (Rs. 4,25,62,352/- minus (1,18,43,142 2,46,00,000) is sustained on the basis of weighted average gross profit rate on the basis of past history of the assessee. Decided in favour of assessee. Disallowance u/s 40A(3) - profit was estimated by rejecting the books of account - HELD THAT - AO has rejected the book of account of the assessee for all practical purpose. In the case of the assessee, the profit has been estimated therefore, further addition u/s 40A(3) cannot be made. Singhal Builders Contractor 2010 (9) TMI 723 - ITAT, JAIPUR has held that once an income of the assessee is estimated by applying the gross profit rate or net profit rate then no disallowance can be made u/s 40A(3) or any other provision - Also see Shri Shankar Khandelwal 2011 (8) TMI 1301 - ITAT JAIPUR - Decided against revenue. Disallowance u/s 40(a)(ia) - HELD THAT - When books of account of the assessee was not relied and it was rejected by the AO. Now based on the reliance on the same books disallowance u/s 40(a)(ia) is not proper. See M/s Teja Constructions 2009 (10) TMI 593 - ITAT HYDERABAD Treating the share capital received as non-genuine - HELD THAT - AO made similar addition on same facts and ground in AY 2006-07 2008-09. The appeal of the assessee for AY 2006-07 had been decided by ld CIT (A) in favour of the assessee and addition was deleted. The department has not filed appeal in Tribunal against the appeal order for AY 2006-07. The addition in appeal for AY 2008-09 was confirmed by ld CIT (Appeal), Central Jaipur. The assessee filed appeal before Hon ble ITAT, Jaipur Bench, Jaipur. The appeal of the assessee was decided by 2015 (12) TMI 1526 - ITAT JAIPUR wherein the addition confirmed by ld CIT (A) was deleted - Decided in favour of assessee. Disallowance form expenses named as Bill premium debited in books of accounts Jadavji - HELD THAT - CIT (A) had deleted this addition correctly as observing chart Purchases from M/s Baheti Gems and Mr Girdhari are included. Further the assessee has given plausible explanation for the genuine purchase from these parties and justification of bill premium mentioned in the seized records. The AO has not controverted this explanation in his remand report. Therefore, addition made by AO on account of bill premium cannot be sustained and AO is directed to delete this addition. Disallowing 15% of total expenses found recorded in the books of account named as Jadavji - HELD THAT - We feel that the ld. CIT (A) has rightly deleted the addition in view of the decision of G.K. Contractor 2009 (1) TMI 840 - RAJASTHAN HIGH COURT wherein held even if the assessee has failed to discharge his onus of proof in explaining the cash credits shown in the books of account as market outstanding , the AO having estimated the higher profit rate on total contract receipts after rejection of the books of account invoking the provisions of s. 145(3), no separate additions can be made on account of unexplained cash credit u/s 68 - Hence, we find no reason to interfere with the order of the ld. CIT (A) on this issue. Thus Ground No. 6 of the Revenue is dismissed. Non -Adjustment of the seized cash lying in PD account against the self assessment tax liability - HELD THAT - It is noted that similar issue has also been decided in favour of the assessee in the case of DCIT vs. Late Smt. Sudha Patni 2016 (10) TMI 1399 - ITAT JAIPUR - Hence, we concur with the findings of the ld. CIT (A) on this issue. Thus Ground No. 7 of the Revenue is dismissed. Trading addition - estimating GP rate @ 20% on declared sales as against 14.01% declared by the assessee - HELD THAT - It may be mentioned that in the case of the assessee for the assessment year 2010-11, we have adopted the method of weighted average applying the gross profit rate of 16.98%. Hence, there is no change in the facts and circumstances of the case, the gross profit rate of 16.01% should also be adopted in this case also taking into past history of the assessee by considering the gross profit, turnover for the 2006-07 to 2012-13.Accordingly, the ground no. 2 to 5 of the assessee's are partly allowed.
Issues Involved:
1. Validity of the special audit reference under Section 142(2A) of the Income Tax Act. 2. Validity of the assessment order under Section 144 read with Section 153A of the Income Tax Act. 3. Trading addition based on estimated gross profit rate. 4. Disallowance under Section 40A(3) of the Income Tax Act. 5. Disallowance under Section 40(a)(ia) of the Income Tax Act. 6. Addition on account of bogus share capital. 7. Addition of bill premium expenses. 8. Disallowance of expenses recorded in books named "Jadavji." 9. Adjustment of seized cash against self-assessment tax liability. Detailed Analysis: 1. Validity of the Special Audit Reference and Assessment Order: The assessee contended that the reference for special audit under Section 142(2A) was invalid as it was based on the recommendation in the appraisal report without the Assessing Officer (AO) applying his mind. The CIT(A) and Tribunal upheld the validity of the special audit, noting that the AO had formed an opinion regarding the complexity of the accounts and that the CIT (Central), Jaipur had duly considered the objections raised by the assessee before approving the special audit. The Tribunal concurred with the CIT(A) that the approval was not without application of mind. 2. Trading Addition Based on Estimated Gross Profit Rate: The AO made a trading addition by estimating a gross profit rate of 26.21% on sales, which was reduced by the CIT(A) to 24%. The Tribunal further reduced the gross profit rate to 16.98% for AY 2010-11 and 16.01% for AY 2011-12, considering the average gross profit rates of past years. The Tribunal sustained a trading addition of Rs. 61,19,120/- for AY 2010-11 and Rs. 58,53,506/- for AY 2011-12. 3. Disallowance under Section 40A(3): The AO disallowed expenses under Section 40A(3) for cash payments exceeding the prescribed limit. The CIT(A) restricted the disallowance to Rs. 3,35,092/- for AY 2010-11 and Rs. 1,20,751/- for AY 2011-12, noting that the profit was estimated by rejecting the books of account. The Tribunal upheld the CIT(A)'s decision, citing judicial precedents that no separate disallowance under Section 40A(3) can be made when income is estimated by applying a gross profit rate. 4. Disallowance under Section 40(a)(ia): The AO made disallowances under Section 40(a)(ia) for non-deduction of tax at source. The CIT(A) restricted the disallowance to Rs. 4,81,614/- for AY 2010-11, noting that the profit was estimated by rejecting the books of account. The Tribunal upheld the CIT(A)'s decision, following judicial precedents that no separate disallowance under Section 40(a)(ia) can be made when income is estimated by applying a gross profit rate. 5. Addition on Account of Bogus Share Capital: The AO made additions for bogus share capital introduced through Kolkata-based companies. The CIT(A) deleted the addition, following the Tribunal's decision for AY 2008-09, where similar additions were deleted. The Tribunal upheld the CIT(A)'s decision, noting that the facts were similar to AY 2008-09. 6. Addition of Bill Premium Expenses: The AO disallowed bill premium expenses, treating them as incurred for procuring bogus bills. The CIT(A) deleted the addition, noting that the purchases were genuine and the bill premium was part of the purchase cost. The Tribunal upheld the CIT(A)'s decision. 7. Disallowance of Expenses Recorded in Books Named "Jadavji": The AO disallowed 15% of total expenses recorded in the books named "Jadavji." The CIT(A) deleted the addition, noting that the profit was estimated by rejecting the books of account. The Tribunal upheld the CIT(A)'s decision, following judicial precedents that no separate disallowance can be made when income is estimated by applying a gross profit rate. 8. Adjustment of Seized Cash Against Self-Assessment Tax Liability: The AO did not adjust the seized cash against the self-assessment tax liability. The CIT(A) directed the AO to adjust the seized cash against the self-assessment tax liability and recompute the interest under Section 234B accordingly. The Tribunal upheld the CIT(A)'s decision, following judicial precedents that seized cash can be adjusted against existing tax liabilities. Conclusion: The Tribunal partly allowed the appeals of the assessee and dismissed the appeals of the Revenue, upholding the CIT(A)'s decisions on various issues, including the validity of the special audit, trading additions, disallowances under Sections 40A(3) and 40(a)(ia), addition on account of bogus share capital, and adjustment of seized cash against self-assessment tax liability.
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