2015 (8) TMI 364 - AT - Income Tax

Addition on net profit figure - addition based on print out sheet, taken out from the CPU of the assessee company s computer, found during the course of survey u/s 133A - Held that - Just one figure in the print out taken from the CPU/hard disk i.e. Net profit figure, cannot be added to the income of the assessee for the following reasons. (1) There is no corroborative evidence to support this figure of Net Profit; (2) The other documents found in the CPU prove that this figure is wrong. All the transactions are accepted as correct. Then the question of not accepting the result of such transactions for assessing total income does not arise. (3) The G.P. rate arrived at by taking this figure of Net profit is absurd and abnormal. It is an improbable figure. (4) Only real income can be taxed and not hypothetical incomes; (5) The burden is on the revenue to prove that a particular figure is income and this burden is not discharged in the present case. (6) The stocks found during survey do not support the stock figure in the P&L account and balance sheet found in the CPU/print out. The reconciliations of all the purchases and sales are not found fault with by the A.O. When the quantitative details of opening stock, purchases, sales are accepted then the closing stock should b arrived at from the figures only. (7) There is no allegation of fabrication of books. The results derived from the books of accounts should form the basis of assessing total income. (8) Stray and random figures cannot from the basis of determining income when these are proved to be wrong figures. In the case on hand the books of accounts have not been rejected. Under those circumstances substituting the book results with a random figures obtained from the document found i.e. P&L account in the CPU is incorrect. There are a catena of judgements which lay down that when books of accounts are not rejected, the question of estimating income does not arise. Here the figure of profit cannot be replaced without rejecting the books of accounts. Thus we delete the impugned addition of ₹ 3,06,91,356/- made by the AO as confirmed by the First Appellate Authority. - Decided in favour of assessee.

Summary

Issues Involved:
1. Adequate Opportunity of Being Heard
2. Addition of Undisclosed Income
3. Excessiveness of Addition
4. Levy of Interest u/s 234

Detailed Analysis:

1. Adequate Opportunity of Being Heard:
The assessee contended that the assessment order was passed without providing proper and adequate opportunity of being heard, as the seized CPU/hard disc was unsealed and operated on the same day the assessment order was passed. The Tribunal noted that the original assessment was completed under section 147, and the matter was previously remanded by the ITAT for fresh consideration with adequate opportunity for the assessee to be heard. The Tribunal emphasized that the assessment should be fair and objective, and the assessee must be given a proper chance to present their case.

2. Addition of Undisclosed Income:
The AO made an addition of Rs. 3,06,91,356/- based on a net profit figure found in a printout from the CPU of the assessee's computer, discovered during a survey. The assessee argued that this figure was derived from a rough document and that there were discrepancies in the stock figures. The Tribunal observed that the AO accepted other figures from the books of accounts and the CPU printouts, except for the net profit and closing stock. The Tribunal found that the net profit figure was not corroborated by any other evidence and was inconsistent with the reconciled stock details provided by the assessee. The Tribunal concluded that the addition was based on an unrealistic and improbable figure, unsupported by any substantive evidence.

3. Excessiveness of Addition:
The assessee argued that the addition of Rs. 3,06,91,356/- was excessive. The Tribunal noted that the gross profit rate derived from the disputed net profit figure was abnormally high and unrealistic. The Tribunal emphasized that only real income could be taxed, not hypothetical figures. The Tribunal found that the AO did not reject the books of accounts and, therefore, substituting the book results with a random figure from a rough document was incorrect. The Tribunal held that the burden of proving that a particular figure is income lies with the revenue, which was not discharged in this case.

4. Levy of Interest u/s 234:
The assessee contested the levy of interest under section 234, arguing that it was illegal and excessive. However, the Tribunal's primary focus was on the substantive addition of undisclosed income, and the decision on the interest levy was contingent on the outcome of the main issues. Since the Tribunal deleted the addition of Rs. 3,06,91,356/-, the question of interest levy became moot.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the addition of Rs. 3,06,91,356/- made by the AO and confirmed by the First Appellate Authority. The Tribunal emphasized the need for corroborative evidence, the improbability of the net profit figure, and the requirement to base assessments on real income rather than hypothetical figures. The Tribunal also highlighted the importance of providing the assessee with a fair opportunity to present their case.