2020 (5) TMI 139 - AT - Income Tax

Addition based on survey statement - rejection of books - addition based on statement recorded and diaries impounded during survey, without verifying the veracity of the same - HELD THAT - Admittedly, a diary was found during the course of survey recording the transactions of receipts. Undisputedly, part of the transactions were disclosed in the regular books of accounts as business receipts. There is no dispute about the fact that the diary found during the course of survey belongs to the assessee in pursuance to the provisions of section 292C. Similarly the contents of such diary are also true as per the provisions of section 292C. This fact has not been disputed by assessee at the time of hearing before us. Thus it is proved beyond doubt that the diary belongs to the assessee and its contents are true. Determine the income of the assessee based on the contents recorded in such diary - Only element of profit embedded in such business receipts which can be added to the total income of the assessee. Rate of profit should be adopted for determining the income - Assessee has given a chart showing the amount of profit for the last 3 years along with detail of its sister concern namely Sanvira Infrastructure engaged in similar line of business and there average profit comes at 6.29% and 7.27% respectively. In our considered view average profit of sister concern will be justifiable as the same is showing profit in all 3 year where as the assessee is showing profit in current year only. We set aside the finding of the CIT (A) and direct the AO to tax the element of profit embedded in such business receipts at the rate of 7.21% by treating the same as net profit chargeable to tax. The ground of appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Legitimacy and reliability of the survey statement.
2. Validity of incriminating material (Diaries) and refusal to send them for forensic examination.
3. Rejection of books and addition of ?1,42,58,000 as unaccounted income.
4. Incorrect quantification of income.
5. Addition of gross receipts versus net profits.
6. Breach of law and principles of natural justice.
7. Levying of interest under section 234A/B/C.
8. Initiation of penalty under section 271(1)(c).

Detailed Analysis:

1. Legitimacy and Reliability of the Survey Statement:
The assessee contended that the survey statement was recorded under questionable circumstances and was unreliable. However, the Tribunal noted that the diary found during the survey contained transactions amounting to ?2,05,50,000, of which ?62,92,000 was already recorded in regular books. The Tribunal upheld that the diary belonged to the assessee and its contents were true, as per section 292C of the Act.

2. Validity of Incriminating Material and Forensic Examination:
The assessee argued that the diaries were created during the survey at the instance of the Income Tax Department and requested a forensic examination to verify their authenticity. The Tribunal observed that the assessee failed to provide substantial evidence to support this claim and upheld the CIT(A)'s decision, confirming the addition based on the survey statements and incriminating materials.

3. Rejection of Books and Addition of ?1,42,58,000 as Unaccounted Income:
The AO rejected the books of accounts and added ?1,42,58,000 as unaccounted income based on the survey findings. The CIT(A) confirmed this addition, noting that the assessee retracted the survey statement after a considerable period without substantial evidence. The Tribunal found that the transactions in the diary represented business receipts, and the entire amount could not be added as income. Instead, only the profit element embedded in such receipts should be considered.

4. Incorrect Quantification of Income:
The assessee argued that the quantification of income was factually and legally incorrect, leading to excessive taxation. The Tribunal agreed, stating that adding the entire receipts would result in exorbitant profits, which is unrealistic in the assessee's line of business.

5. Addition of Gross Receipts Versus Net Profits:
The Tribunal held that only the net profit embedded in the gross receipts should be added to the total income, not the entire receipts. This decision was supported by precedents from the Hon'ble Jurisdictional High Court in cases like CIT vs. Samir Synthetics Mill and CIT vs. Gurubachhan Singh J Juneja, where only the profit element was taxed in similar circumstances.

6. Breach of Law and Principles of Natural Justice:
The assessee claimed that the lower authorities ignored various submissions and explanations, breaching the principles of natural justice. The Tribunal did not explicitly address this issue but implicitly considered the assessee's arguments by partially allowing the appeal.

7. Levying of Interest Under Section 234A/B/C:
The CIT(A) confirmed the AO's action of levying interest under section 234A/B/C. The Tribunal did not provide a detailed discussion on this issue but upheld the lower authorities' decision.

8. Initiation of Penalty Under Section 271(1)(c):
The CIT(A) confirmed the AO's action of initiating penalty under section 271(1)(c). The Tribunal did not explicitly address this issue but implicitly upheld the lower authorities' decision by partially allowing the appeal.

Conclusion:
The Tribunal directed the AO to tax only the net profit embedded in the business receipts at a rate of 7.21%, providing partial relief to the assessee. The appeal was partly allowed, and the findings were applied to a similar appeal (ITA No. 2352/Ahd/2017), which was also partly allowed. The order was pronounced on 11/03/2020 at Ahmedabad.