2016 (5) TMI 1257 - AT - Income Tax

Estimation of profit on the sales @ 0.5% - Held that - As per information received in pursuance to enquiry made under section 133(6) with the parties to whom the assessee claimed to have sold goods, all of them are not only existing entities but are having PAN and all of them confirmed of having transacted with the assessee. It is also found that one of the parties is a listed company. The learned Commissioner (Appeals) also found that the assessee is of a man of small mean and in fact an employee of Shri Ashok Jain. That being the case, in our view, 5% net profit rate adopted by the Assessing Officer for a non existent business is on a very higher side. Moreover, it is observed by us in assessee s own case for assessment year 2008 09, the Assessing Officer has estimated the net profit from the very same business at 0.03%. Taking that as an indicator, in our view, the estimation of profit @ 0.5% by the learned Commissioner (Appeals) is reasonable, hence, calls for no interference. - Decided against revenue Addition on account of unexplained outstanding balance of creditors - CIT(A) delted the addition - Held that - Commissioner (Appeals) felt it necessary to conduct enquiry himself and obtain information for enabling him to dispose off the appeal, in our view, no fault can be found with such procedure adopted by the learned Commissioner (Appeals). A reading of the statutory provisions referred to above makes it clear that not only the learned Commissioner (Appeals) is empowered to conduct such enquiry for obtaining information but there is also no need for him to confront the same to the Assessing Officer. Therefore, in our view, the learned Commissioner (Appeals) was not required to obtained a remand report from the Assessing Officer on the basis of information obtained by him under section 133(6) before deciding the issue. Moreover, the learned Commissioner (Appeals) after examining the evidence brought on record having found that the creditors appearing in assessee s books are genuine there was no logic in again remanding the matter to the Assessing Officer. In the aforesaid facts and circumstances, we do not see any reason to interfere with the order of the learned Commissioner (Appeals) in deleting the addition made under section 68 - Decided against revenue

Summary

Issues Involved:
1. Withdrawal of assessee's appeal and cross objection.
2. Estimation of profit on sales by the assessee.
3. Addition on account of unexplained outstanding balances of creditors.

Detailed Analysis:

1. Withdrawal of Assessee's Appeal and Cross Objection:
- The assessee submitted a letter dated 19th May 2016, seeking permission to withdraw the appeal and cross objection filed by the assessee.
- The Departmental Representative had no objection to the withdrawal.
- Consequently, the cross objection (C.O. no.78/Mum./2015) and the appeal by the assessee (ITA no.92/Mum./2013) were dismissed as withdrawn.

2. Estimation of Profit on Sales:
- The Revenue challenged the decision of the learned Commissioner (Appeals) in estimating the profit on the sales at 0.5% instead of 5%.
- The assessee, engaged in the business of polished diamonds and other precious items, had filed a return of income declaring a total income of ?1,77,610.
- The Assessing Officer (AO) noticed significant cash withdrawals and deposits, suspecting the assessee was a name lender for another person, Shri Ashok Jain.
- The AO inferred that the assessee was not engaged in any business activities but was used by another person for issuing accommodation bills, estimating the profit at 5% on the total sales of ?76,01,11,881, resulting in a profit of ?3,85,05,594.
- The Commissioner (Appeals) found that the assessee was merely a benamidar and reduced the profit estimation to 0.5%, quantifying the addition at ?38,00,559.
- The Tribunal upheld the Commissioner (Appeals)'s decision, noting that the AO had estimated the net profit from the same business at 0.03% in the previous year, making the 0.5% estimation reasonable.

3. Addition on Account of Unexplained Outstanding Balances of Creditors:
- The AO added ?8,95,22,222 to the assessee's income as unexplained cash credit under section 68, due to the failure to prove the identity, creditworthiness, and genuineness of the creditors.
- The Commissioner (Appeals) verified the information provided by the creditors through notices under section 133(6), confirming their transactions with the assessee.
- The Tribunal found that the Commissioner (Appeals) acted within his powers under section 251 and rule 46A, and the enquiry conducted was necessary for the disposal of the appeal.
- It was established that the creditors were genuine entities with regular PAN and confirmed their transactions with the assessee.
- The Tribunal dismissed the Revenue's appeal, agreeing with the Commissioner (Appeals) that the creditors were genuine and the addition under section 68 was unwarranted.

Conclusion:
The Tribunal dismissed both the assessee's appeal and cross objection and the Revenue's appeal, upholding the Commissioner (Appeals)'s decisions on the estimation of profit and the deletion of the addition on account of unexplained outstanding balances of creditors. The judgment emphasized the importance of proper verification and the powers of the Commissioner (Appeals) to conduct independent enquiries.