2022 (11) TMI 215 - AT - Income Tax

Determination of income of the assessee - Estimation of income - AO completed the assessment by adopting the turnover of the assessee as adopted on M/s. Serajuddin Co., and granting the assessee a reduction of 30% towards expenses - HELD THAT - Details in the diary only show the details for 4 months. It is also an admitted fact that no books of accounts and vouchers have been maintained by the assessee, which is evident from the fact that the search did not bring out any books of account. However, in the assessment order, the AO refers to profit and loss account in his order. How this profit and loss account has been prepared is not ascertainable. AO had no details with him except the turnover of the assessee, which has also been extracted from the books of account of M/s. Serajuddin Co. This being so, a perusal of the order of the ld CIT(A) clearly shows that he has taken into consideration all the issues to come to the conclusion in paras 5.1 5.2 of his order that the estimation of income of the assessee is the best method to determine the income of the assessee. We find no reason to interfere with these findings of the ld CIT(A) in respect of estimation of income insofar as neither the assessee nor the revenue has been able to dislodge the findings of the ld CIT(A). Percentage of the net profit as determined by the CIT(A) at 10% - A perusal of the order of the ld CIT(A) clearly shows that the highest percentage disclosed by the assessee is 6%. This being so, we are of the view that the interest of justice would be served if the estimation of the percentage of net profit is taken at 8% as against 10% directed by the ld CIT(A) and we do so. The findings of CIT(A) in regard that he is not pressing the legal grounds taken in Ground Nos.1 to 5 of cross objections. Consequently, Ground Nos.1 to 5 of cross objections stand dismissed as not pressed. Ld AR submitted that Ground Nos.6 to 8 are against the estimation as done by the ld CIT(A) at 10%. As we have reduced the estimation of the net profit of the assessee from 10% to 8%, Ground Nos.6 to 8 on merits stands partly allowed.

Summary

Issues:
- Assessment based on turnover and expenses
- Non-cooperation of assessee in assessment proceedings
- Seized documents and lack of vouchers
- Estimation of income by AO and CIT(A)
- Cash back payments to another party
- Discrepancies in billing rates and actual rates
- Lack of evidence for cash payments
- Estimation of net profit percentage

Assessment based on turnover and expenses:
The Revenue filed appeals against the Orders of the CIT(A) regarding the assessment of the assessee's income. The Assessing Officer completed the assessment by adopting the turnover of the assessee as adopted on another party and granting a reduction of 30% towards expenses. The remaining turnover was treated as the income of the assessee, with a portion protectively assessed in the hands of both the assessee and the other party. The CIT(A) estimated the income of the assessee at 10% of the total receipts, considering the lack of cooperation from the assessee during assessment proceedings. The Revenue argued that the AO's assessment should be upheld, and that of the CIT(A) reversed.

Non-cooperation of assessee in assessment proceedings:
During the search and seizure operation, the assessee did not file a return of income despite notices. The AO noted discrepancies in claimed expenses and lack of vouchers. The seized documents did not support the claimed expenses, raising doubts about the accuracy of the assessee's financial records. The AO and CIT(A) considered the lack of cooperation from the assessee in providing necessary documentation for assessment.

Seized documents and lack of vouchers:
Seized documents revealed discrepancies in billing rates and actual rates, indicating potential irregularities in financial transactions. The absence of vouchers for expenses cast doubt on the accuracy of the assessee's claims. The AO highlighted the lack of supporting documents during the assessment process, leading to uncertainties in determining the actual income.

Estimation of income by AO and CIT(A):
The AO estimated the income of the assessee based on turnover and expenses, while the CIT(A) further estimated the income at 10% of total receipts due to non-cooperation and lack of evidence from the assessee. The CIT(A) considered all aspects and concluded that income estimation was the best method given the circumstances. The Tribunal found no reason to interfere with the CIT(A)'s findings on income estimation.

Cash back payments to another party:
The Revenue presented a diary showing cash back payments to another party, suggesting financial transactions between the assessee and the other party. The assessee denied making any payments, emphasizing the lack of evidence supporting such claims. The Tribunal considered the diary's contents but found discrepancies in the presented information and the lack of concrete evidence supporting the Revenue's assertions.

Discrepancies in billing rates and actual rates:
The seized documents revealed discrepancies in billing rates and actual rates, indicating potential inflation of rates for financial gain. The Tribunal scrutinized the documents to assess the accuracy of the billing practices and questioned the authenticity of the financial transactions based on the information presented.

Estimation of net profit percentage:
The CIT(A) directed the estimation of net profit percentage at 10%, which the Tribunal deemed excessive based on the highest percentage disclosed by the assessee at 6%. The Tribunal adjusted the net profit estimation to 8% for fairness and justice. The Tribunal dismissed certain legal grounds and partially allowed others based on the revised net profit percentage.

In conclusion, the Tribunal dismissed the Revenue's appeals and partially allowed the cross objections filed by the assessee, emphasizing fair estimation practices and the importance of supporting documentation in income assessments.