2017 (5) TMI 249 - AT - Income Tax

Gross profit determination - CIT(A) reducing the gross profit determined by the AO at the rate of 4% to 1.5% of the gross turnover - Held that - The assessee has offered gross profit on such undisclosed business @ 1% whereas the AO has taken gross profit @ of 4%. However, on perusal of assessment order, we find that the estimated rate @ of 4% towards the gross profit was adopted by the AO without adducing any reason. On the contrary, the ld. CIT(A) has reduced the rate of gross profit from of 4% to 1.5% by having reliance in the assessment order in the case of MDPL, engaged in the similar business, where the gross profit was shown @ less than 1.5% and the same was accepted by the Revenue. At the outset, we find that the AO has adopted the rate of gross profit without any basis. On the contrary, the ld CIT(A) has adopted the scientific approach for determining the gross profit on the undisclosed income. As such, we find no infirmity in the order of ld CIT(A) and we uphold the same. Hence, this ground of appeal of the Revenue is dismissed. Addition on undisclosed investment made in the land - Held that - We note that CIT-A has confirmed the undisclosed sales of ₹ 1,86,57,135/-, ₹ 7,67,35,863/- and ₹ 8,14,26,433/- in the assessment years 2007-08, 2008-09, and 2009-10 which was worked out by the AO in his assessment orders passed under section 153A of the Act respectively. We also observed that the ld. CIT-A have also upheld the order of the AO in assessing the gross profit on such undisclosed sales as well as addition on account of undisclosed investment. Thus the ld. CIT-A was of the opinion that the cash payments as recorded in the impounded document SPB/19 has to be treated as made out of the receipts recorded in SPB/19 which have already been considered by the AO. In other words, according to the ld. CIT-A the cash payments as recorded in the impounded document SPB/19 has to be treated as explained in view of the receipts recorded in SPB/19 which have already been considered by the AO. The aforesaid factual finding was not controverted by the ld. DR. Therefore we fully agree with the reasons given by the ld. CIT-A - Decided against revenue

Summary

Issues Involved:
1. Validity of proceedings initiated and completed under Section 153A/143(3) of the Income Tax Act, 1961.
2. Reduction of gross profit rate from 4% to 1.5% of the undisclosed turnover.
3. Addition of ?34 lakhs as undisclosed investment in land.
4. Peak credit determination for the assessment year 2008-09.

Detailed Analysis:

1. Validity of Proceedings under Section 153A/143(3):
The assessee challenged the validity of the proceedings initiated and completed under Section 153A/143(3) of the Income Tax Act, 1961. The grounds raised included the lack of a valid search warrant and the survey being conducted at a third party's premises. However, during the hearing, the assessee's representative agreed to the order of the CIT(A) and did not challenge the validity of the assessment framed under Section 153A. Consequently, the Tribunal found no merit in the argument and dismissed the issue.

2. Reduction of Gross Profit Rate:
The Revenue contested the CIT(A)'s decision to reduce the gross profit rate from 4% to 1.5% of the undisclosed turnover. The search and seizure operation revealed undisclosed turnover from trading activities. The AO estimated the gross profit at 4%, while the assessee offered 1%. The CIT(A) reduced the rate to 1.5%, considering that Magna Dealers Private Limited, engaged in similar business, had a gross profit rate accepted by the Revenue at less than 1.5%. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the scientific approach adopted for determining the gross profit on the undisclosed income.

3. Addition of ?34 Lakhs as Undisclosed Investment in Land:
The AO added ?34 lakhs as undisclosed investment in land based on seized documents showing payments made to an individual. The assessee argued that these payments were already considered in the undisclosed sales and thus should not be separately added. The CIT(A) agreed, noting that the AO had already accounted for the receipts in the undisclosed sales and that the payments should be treated as explained by the receipts. The Tribunal concurred with the CIT(A) and dismissed the Revenue's appeal, relying on the Supreme Court's judgment in CIT vs. K.Y. Pilliah & Sons, which supports the Tribunal's role as the final fact-finding authority.

4. Peak Credit Determination for AY 2008-09:
The assessee raised an issue regarding the exclusion of an addition of ?2,56,727 for AY 2008-09 while determining the peak credit for the year under consideration. However, the Tribunal observed that this issue did not arise from the AO's order and dismissed it as infructuous.

Conclusion:
- Revenue's appeal was dismissed.
- Assessee's appeal and cross-objection were dismissed.

Order Pronounced:
The order was pronounced in the open court on 03/05/2017.