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2013 (11) TMI 893 - AT - Income TaxUndisclosed income - Unaccounted turnover - Held that - In estimating any escaped turn, it is inevitable that there is some guess work. The AO while making the best judgment assessment, no doubt, should arrive at his conclusion without any bias and on a rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation - AO was justified in arriving at the said turnover of Rs 167.23 Cr following the formula of 35 65 of accounted and unaccounted sales turnovers. As such assessee gave in writing in favour of adopting Rs 167.23cr as the gross turnover too. Thus, the exercise of extrapolation is justified and reasonable. Therefore, the determination of the unaccounted sales turnover at Rs 108.70 cr is proper and it does not call for any interference - Decided against assessee. Best Judgement assessment - Held that - AO/CIT(A) must have some material/data to support the estimation of the Net profit of the Project. Other side of determination of material based net profit is obviously granting of relief on account of the hidden expenditure for earning of said net profit of the project. Scope of Reasonable Expenditure - Held that - The underlined logic is that the unaccounted expenditure is always unevidenced and never maintained. Therefore, transferring onus on to the assessee in matters of this kind is not approved. Ex consequenti, it is for the AO allow necessarily reasonable deduction towards such unaccounted expenditure without demanding evidences, considering the nature of industry and also evidences relating to extents of net profits earned by the assessee. Considering the above legal position on the matter, we are of the clear-cut opinion, the AO s conclusions on this issue are certainly erroneous. Reasonableness of 40% adopted by the CIT(A) - Held that - the search material based-NP percentage stands on higher pedestal and hence superior and credible in quality and acceptability vis a vis the 40% picked up by the CIT(A) from nowhere and without any basis. In that sense, the basic requirements relating to best judgment assessments are out of their mind when they considered both Rs 108.70 cr or 40% of Rs 167.23 cr as the assessable income of the project Prime Mall. Therefore, we have no hesitation in rejecting the estimation of NP adopting the said baseless 40%. Various available percentages of net profit - Held that - What is fair and reasonable estimation of profits of the project than what is based on the assessee s own books of account on one hand and the assessee s seized documents on the other? Ex consequeinti, we restrict ourselves to the data pertaining to the assessee s own case ie average NP 13.735% ie data emanating from the returns filed u/s 153A of the Act and NP of 23.99%. Thus, we are of the opinion, the reasonable percentage of profits of the project Prime Mall lies somewhere in the range of said NPs ie 13.735%-23.99%. - the average of the 13.735% and 23.99% must give rise to a reasonable percentage of NP ie 17.08%. It is directly linked to material gathered in search on one side and audited books of course in respect of accounted sales of Rs 58.53cr on the other. - AO directed to work out the taxable profits of the project Prime Mall accordingly. - Decided in favor of assessee.
Issues Involved:
1. Determination of taxable profits of the Prime Mall project. 2. Addition of unexplained credits under Section 68 of the Income Tax Act. 3. Addition on account of the sale of car parking. 4. Charging of interest under Sections 234B and 234C of the Income Tax Act. Detailed Analysis: 1. Determination of Taxable Profits of the Prime Mall Project: The core issue in all the appeals was the determination of taxable profits from the Prime Mall project. The Appellate Tribunal consolidated the appeals for different assessment years (AY 2004-05 to AY 2007-08) due to their interconnected nature. Arguments and Findings: - The assessee argued against the extrapolation of unaccounted sales and the adoption of a 65% unaccounted to 35% accounted sales formula by the AO. - The AO based the determination on seized documents (Annexures A to L) and concluded that the assessee received 65% of the sale consideration in cash, which was unaccounted. - The CIT(A) partially agreed with the AO but reduced the addition by estimating the net profit at 40% of the total sales (accounted and unaccounted). - The Tribunal found that the CIT(A)'s adoption of 40% as net profit was arbitrary and without basis. Instead, the Tribunal considered the average net profit percentages from the assessee's returns and the figures from the seized documents, adjusting the net profit to 17.08%. Conclusion: - The Tribunal directed the AO to adopt a net profit rate of 17.08% over the year-wise sales accrued, forming part of the gross sales turnover of Rs 167.23 crore. The Tribunal also allowed statutory deductions under Section 40B of the Income Tax Act. 2. Addition of Unexplained Credits Under Section 68: The AO made additions under Section 68 for unexplained credits, which the CIT(A) confirmed. Arguments and Findings: - For AY 2004-05, the addition of Rs 2.85 lakhs was made for a loan from Smt. Nenbai L Gala. The Tribunal found that the assessee should be given another opportunity to establish the creditworthiness and genuineness of the transaction. - For AY 2006-07, an addition of Rs 12.48 lakhs was made for a loan from Shri Kishore Lehrani. The Tribunal upheld the CIT(A)'s decision, confirming the addition as the assessee failed to establish the genuineness of the transaction. Conclusion: - The Tribunal allowed the appeal for AY 2004-05 for statistical purposes, giving the assessee another opportunity to provide evidence. For AY 2006-07, the Tribunal dismissed the appeal, confirming the addition. 3. Addition on Account of Sale of Car Parking: The AO made an addition of Rs 3 crore for the alleged sale of car parking, which the CIT(A) deleted. Arguments and Findings: - The AO based the addition on provisional statements (Annexures K and L) indicating the sale of car parking. - The CIT(A) found no direct evidence of such sales and noted that car parking was meant for common use and not for sale. Conclusion: - The Tribunal agreed with the CIT(A) and found the addition unjustified due to the lack of corroborative evidence. The Tribunal dismissed the revenue's appeal on this issue. 4. Charging of Interest Under Sections 234B and 234C: The CIT(A) confirmed the charging of interest under Sections 234B and 234C. Arguments and Findings: - The assessee contested the charging of interest. - The Tribunal did not provide specific details on this issue in the summary judgment. Conclusion: - As the Tribunal did not explicitly address this issue in detail, it can be inferred that the charging of interest as confirmed by the CIT(A) stands. Summary: The Tribunal provided a detailed analysis of each issue, ultimately directing the AO to adopt a net profit rate of 17.08% for the Prime Mall project, allowing statutory deductions, and giving the assessee another opportunity to provide evidence for unexplained credits under Section 68 for AY 2004-05. The Tribunal dismissed the appeals regarding the addition on account of the sale of car parking and upheld the CIT(A)'s decision on unexplained credits for AY 2006-07. The charging of interest under Sections 234B and 234C was not explicitly overturned, implying its confirmation.
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