2016 (7) TMI 269 - AT - Income Tax

Undisclosed business - entitlement to telescoping benefit - Held that - We find lot of force in the arguments of the Learned AR that the profit determined is nothing but the income earned by the assessee from his undisclosed business. This receipt is outside the books of the assessee. Correspondingly, any payments / investments made outside the books of the assessee would be entitled for telescoping and hence we direct the AO to delete the additions made towards investment in security deposit with M/s Ultratech Cement Ltd and difference in bank balance. Similarly we hold that since the profit determined at ₹ 5,81,730/- would be profit from undisclosed sources, there should not be any separate additions made towards excess purchases and difference in sundry creditors balances as the same are to be construed only for the undisclosed businesses. The Learned DR was not able to bring any contrary evidence to this effect before us. Hence we direct the AO to delete the additions made towards undisclosed purchases and towards difference in sundry creditors balances. Addition towards cash deposits made by the assessee in the Savings Bank Account - Held that - . We find that both the parties have agreed for setting aside of this issue to the file of the Learned AO. We accordingly direct the Learned AO to compare the turnover disclosed by the assessee in its regular books and in the returns and compare the same with the cash deposits made in the bank account with Axis Bank. If the turnover disclosed is more than the cash deposits with Axis Bank, then no addition need to be made. If the turnover disclosed is less than the cash deposits, then the profit percentage on the difference amount is to be estimated and taxed accordingly. Hence the grounds raised by the assessee are allowed for statistical purposes.

Summary

Issues involved:
1. Initiation and completion of assessment procedures
2. Validity of appeal completion without reasonable opportunity
3. Profit determination based on percentage
4. Disallowance of security deposit
5. Disallowance of advertisement expenses
6. Disallowance of difference in bank balance and job charges
7. Disallowance of sundry creditors
8. Disallowance of purchase amount
9. Addition on account of low drawings
10. Contradictory profit determination

Issue 1: Initiation and completion of assessment procedures
The appeals challenged the initiation and completion of assessment procedures as bad in law and void ab initio. The appellant argued that the proceedings were flawed, and the CIT's ex parte completion without providing a reasonable opportunity was unjust. The issues were taken up together due to their identical nature.

Issue 2: Profit determination based on percentage
The appellant contested the profit determination based on guesswork, specifically challenging the method of determining profit on a percentage basis. The appellant argued that the percentage-based calculation was arbitrary and lacked a factual basis.

Issue 3: Disallowance of security deposit
The appellant objected to the disallowance of a security deposit based on guesswork. The appellant argued that the security deposit was not adequately accounted for, leading to an unjust disallowance.

Issue 4: Disallowance of advertisement expenses
The appellant disputed the disallowance of expenses related to advertisements, claiming that the disallowance was unjustified and lacked a valid basis.

Issue 5: Disallowance of difference in bank balance and job charges
The appellant challenged the disallowance of the difference in bank balance and job charges, arguing that the disallowance was arbitrary and not supported by sufficient evidence.

Issue 6: Disallowance of sundry creditors
The appellant contested the disallowance of sundry creditors, claiming that the disallowance was based on guesswork and lacked proper justification.

Issue 7: Disallowance of purchase amount
The appellant objected to the disallowance of a specific purchase amount, arguing that the disallowance was arbitrary and not adequately explained.

Issue 8: Addition on account of low drawings
The appellant disputed an addition made on account of low drawings, arguing that the addition was based on estimation without a valid basis.

Issue 9: Contradictory profit determination
The appellant raised concerns about a contradictory profit determination where certain expenditures were added back after profit calculation, leading to inconsistencies and challenging the validity of the assessment.

Judgment Summary:
The ITAT Kolkata addressed multiple issues raised by the appellant related to assessment procedures, profit determination, disallowances, and additions. The Tribunal found merit in the appellant's arguments regarding the profit determination and disallowances based on guesswork. It directed the AO to delete certain additions made towards undisclosed sources, emphasizing that the profit from undisclosed business covered various aspects and should not be subject to separate additions. The Tribunal also set aside an issue for further examination by the AO to compare turnover disclosed by the appellant with cash deposits, highlighting the need for a proper assessment based on factual evidence. The appeals were partly allowed and allowed for statistical purposes, providing relief to the appellant on several contested issues.