2016 (2) TMI 427 - AT - Income Tax

Reopening of assessment - Held that - There was linkage of the documents with the statement tendered by the assessee evidencing that income had escaped assessment. It is not the case in the present appeals that addition has been made merely on the basis of statement recorded by the Revenue, rather, there was enough material on record which could be unearthed on the basis of survey followed by the statement of the assessee to show that the assessee made purchases/sale which were not entered in the regular books of accounts, resulting into escapement of income, therefore, of the opinion that, so far as, initiation of proceedings u/s 147 r.w.s. 148 of the Act are concerned, the ld. Assessing Officer was justifiably within his jurisdiction under the parameter of the law to reopen the assessment, therefore, affirm the stand of the ld. First Appellate Authority. - Decided against assessee Trading addition - Held that - Adding the respective amounts being 50% of the gross profit is concerned, find that ad-hoc addition has been made on the basis of trading account. There is no dispute to the fact that while tendering the statement, the assessee admitted to have carried out purchase and sale, which were not entered in regular books of accounts. The Assessing Officer has added 50% of the gross profit on ad-hoc basis. In the modern era of cut throat competition, 50% of the gross profit is not expected. Even, while coming to a particular conclusion, neither the Assessing Officer has cited any comparable case in a identical business nor has compared the same with any other assessment years, therefore, to meet the ends of justice, to cut short the litigation, feel the 20% of the gross profit will be sufficient to safeguard the interest of the Revenue in place of 50% sustained by the ld. Commissioner of Income Tax (Appeals), because, on the basis of evidence for a particular period, extrapolation of the income to the whole period of reassessment is not justified So far as, the contention of the ld. counsel for the assessee, that net profit rate should be adopted and not the gross profit is concerned, not agreeing with this proposition, because, in the present set off cases, the assessee has not declared anything and the whole profit was earned as the purchase and sales were not even entered in the books of accounts by the assessee. Thus, this ground of the assessee is not having any merit, therefore, dismissed. Even otherwise, the 20% has been reduced from 50% sustained by the ld. CIT(A) and that to on gross profit and not on net profit. - Decided partly in favour of assessee

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act, 1961.
2. Addition of 50% of the gross profit for the respective assessment years.

Issue-Wise Detailed Analysis:

1. Reopening of Assessment under Section 147:

The assessee challenged the reopening of assessment under Section 147 read with Section 148 of the Income Tax Act, 1961, arguing that the reopening was based merely on the statement of the assessee recorded during the survey under Section 133A, which was later retracted. The counsel for the assessee relied on several judicial decisions, including CIT vs Kelvinator of India Ltd. (2010) and Rallis India Ltd. vs ACIT (2010), to support the contention that the reopening was bad in law.

On the other hand, the Revenue argued that the reopening was justified as it was not solely based on the statement but also on various documents such as bills, receipts, and loose papers found during the survey, which indicated unaccounted purchases and sales. The statement of the assessee confirmed these findings.

The Tribunal examined the provisions of Section 147, which allows the Assessing Officer to reassess income if there is a "reason to believe" that income has escaped assessment. The Tribunal noted that the Assessing Officer has wide powers to initiate reopening proceedings if there is new material or evidence that suggests income has escaped assessment. The Tribunal cited several judicial decisions to support this view, including CIT vs Jet Airways India Pvt. Ltd. (2010) and Majinder Singh Kang vs CIT (2012).

The Tribunal found that the reopening was justified as there was sufficient material on record, including the assessee's statement and the documents recovered during the survey, to indicate that income had escaped assessment. The Tribunal also noted that the retraction of the statement by the assessee after more than two years was not credible and appeared to be an afterthought. Therefore, the Tribunal upheld the reopening of the assessment under Section 147.

2. Addition of 50% of the Gross Profit:

The second issue was the addition of 50% of the gross profit for the respective assessment years, which the assessee contested as being arbitrary and excessive. The Tribunal noted that the Assessing Officer made an ad-hoc addition based on the trading account, considering the assessee's admission of unaccounted purchases and sales.

The Tribunal observed that in the modern competitive business environment, a 50% gross profit margin is unrealistic. The Tribunal also noted that the Assessing Officer did not provide any comparable cases or evidence to justify the 50% addition. To ensure fairness and reduce litigation, the Tribunal decided that a 20% gross profit margin would be sufficient to safeguard the Revenue's interests. The Tribunal cited several judicial decisions to support this view, including Samrat Bear Bar vs ACIT (2000) and CIT vs Mahesh Chand (199 ITR 247).

The Tribunal rejected the assessee's contention that the net profit rate should be adopted instead of the gross profit, stating that the entire profit was unaccounted as the purchases and sales were not recorded in the books of accounts. Therefore, the Tribunal reduced the addition from 50% to 20% of the gross profit and dismissed the assessee's appeal on this ground.

Conclusion:

The Tribunal upheld the reopening of the assessment under Section 147, finding it justified based on the material evidence and the assessee's statement. However, the Tribunal reduced the addition from 50% to 20% of the gross profit to ensure fairness and meet the ends of justice. The appeals of the assessee were partly allowed.

This order was pronounced in the open Court in the presence of the representatives of both sides at the conclusion of the hearing on 19/01/2016.

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