1997 (3) TMI 143 - AT - Income Tax

Summary

Issues Involved:
1. Estimation of income and gross profit (GP) from M/s Meghalaya Timber Industry.
2. Addition of unexplained peak credit/deposit.

Issue-wise Detailed Analysis:

1. Estimation of Income and Gross Profit (GP) from M/s Meghalaya Timber Industry:

The first objection raised by the assessee was against the order of the CIT(A) confirming the assessment order passed by the AO, where the income from M/s Meghalaya Timber Industry was estimated at Rs. 3 lakhs with a GP estimated at 15% of the estimated sales, allowing a deduction of 1/3rd of the estimated GP as trading expenses.

The AO, after considering the submissions and documents provided by the assessee, concluded that no regular and proper books of account were maintained. The AO estimated the total sales at Rs. 30 lakhs and the GP at 15% of the sales, resulting in a net profit of Rs. 3 lakhs. This estimation was based on the sales register K-4, which showed sales of Rs. 27,65,000, and included sale-proceeds of firewood, coal, and sawdust. The CIT(A) upheld this estimation, agreeing that the books of account could not be accepted as representing the true state of affairs.

Upon appeal to the Tribunal, the assessee argued that the estimation of sales and GP by the Revenue authorities was too high and not justified. The assessee contended that the sales should be based on the seized register K-13, which showed sales of Rs. 23,50,981, and that the GP rate should not exceed 10%, as evidenced by comparable cases. The Tribunal found that the total sales estimated by the Revenue authorities was fair and reasonable, but agreed with the assessee that the GP rate should be adjusted. The Tribunal concluded that the GP rate should be reasonably estimated at 11% of the estimated sales and the net profit at 3.5% of the total sales. The AO was directed to modify the assessment order accordingly.

2. Addition of Unexplained Peak Credit/Deposit:

The next objection was against the addition of Rs. 94,114 as unexplained peak credit/deposit. The AO added Rs. 15,465 from the general pool account and Rs. 78,649 on account of unexplained deposits, based on peak credit as worked out by the assessee. The CIT(A) upheld this addition, finding that regular books of account and vouchers were not available for examination, making it difficult to examine the scheme of the general pool account.

The assessee argued before the Tribunal that the peak credit of earlier years should be considered for explaining the sources of peak credits in the present assessment year and that the AO's estimation of sales, GP, and net profit should preclude further additions under section 68 of the Act. The Tribunal, however, found that the additions were justified based on the seized books of account and the lack of full details and particulars furnished by the assessee. The Tribunal upheld the orders of the Revenue authorities, rejecting the contention that intangible additions in the form of enhanced business profit could be treated as sources of investment.

Conclusion:

In conclusion, the Tribunal partly allowed the appeal by adjusting the GP rate to 11% and the net profit to 3.5% of the estimated sales, while upholding the addition of unexplained peak credit/deposit.