9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (4) TMI 1260 - AT - Income TaxUndisclosed income - Difference between the business income as per the Profit Loss Account submitted during the survey and the income declared in the return - use of approximate profit and loss account prepared during the survey - actual audited accounts were later on submitted which were different as income declared during the survey was based on incomplete accounts - HELD THAT - As during the assessment proceedings and also before this Bench the assessee submitted a reconciliation statement explaining that the earlier declaration was based solely on information drawn from unaudited books of account. Upon finalization of the accounts the assessee observed a reduction in the turnover initially declared at the time of the survey. Specifically the turnover was revised resulting in a difference of Rs. 38, 04, 310/-. AR confirmed that the assessee had declared a net profit rate of 7.76% during the relevant assessment year. It was fairly conceded by the Ld. AR that the net profit margin should be applied to the difference in gross receipts since certain expenses were necessarily incurred to earn those receipts and cannot be disregarded. The issue being entirely factual and the turnover computed by the survey team having been duly accepted the difference between the gross receipts declared in the return of income and those determined during the survey amounts to Rs. 38, 04, 310/-. Accordingly applying the net profit rate of 7.76% to this difference the resultant income to be added comes to Rs. 2, 95, 214/- which is rounded off to Rs. 2, 95, 300/-. Consequently the addition made by the Ld. AO to the extent of Rs. 85, 88, 540/- is hereby deleted and the addition is sustained only to the extent of Rs. 2, 95, 300/- which is directed to be added to the total income of the assessee. Decided partly in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of Addition of Rs. 85,88,540/- as Undisclosed Income Legal Framework and Precedents: Under the Income-tax Act, 1961, income must be disclosed fully and correctly. Section 143(3) empowers the assessing officer to assess income based on evidence. Section 292C provides that statements recorded during survey proceedings are admissible and carry evidentiary value. Judicial precedents emphasize that income tax is levied on real income and profits actually earned, not on tentative or projected figures. Court's Interpretation and Reasoning: The assessing officer relied on the brown loose-leaf diary seized during the survey, which recorded receipts from CT scans, X-rays, and OPD services, showing a discrepancy of Rs. 85,88,540/- compared to the books of account. The partner of the firm admitted under oath that this amount represented undisclosed income. The tribunal noted that the assessee's subsequent explanation that this figure was a tentative projection prepared for loan purposes was inconsistent with the admission under oath and was unsupported by corroborative evidence like bank statements for expenses post-survey. Key Evidence and Findings: The brown diary, the assessee's admission under oath, and the discrepancy in books of accounts constitute strong evidence. The assessee's audited accounts and reconciliation were considered but did not sufficiently rebut the survey findings. Application of Law to Facts: The tribunal applied the principle that admissions during survey proceedings, supported by documentary evidence, are reliable. The absence of evidence to substantiate the claim that expenses were incurred after the survey date weakened the assessee's case. Treatment of Competing Arguments: The assessee argued that the addition was based on incomplete and tentative accounts and that actual audited accounts showed lower income and higher expenses. The tribunal acknowledged these submissions but emphasized that the admitted figure of Rs. 85,88,540/- was from an incomplete account and that the final audited turnover was lower. The tribunal accepted that the net profit margin should be applied to the difference in gross receipts rather than the entire admitted amount. Conclusion: The addition of Rs. 85,88,540/- as undisclosed income was not sustainable in entirety. However, a portion of the difference between the survey turnover and the declared turnover, adjusted by the net profit margin, was liable to be added. Issue 2: Reliance on Brown Loose-leaf Diary as Corroborative Evidence Legal Framework and Precedents: Evidence seized during survey proceedings, including diaries and books of account, can be relied upon if found credible and corroborated by other material. The burden of proof lies on the assessee to disprove the correctness of such evidence. Court's Interpretation and Reasoning: The tribunal found that the brown diary recorded actual receipts and was not merely a tentative projection as claimed by the assessee. The diary was corroborated by the admission of the partner during survey proceedings. The assessee's contention that the diary was tentative and not corroborative was rejected due to lack of supporting evidence. Key Evidence and Findings: The diary entries, admission under oath, and absence of contradictory evidence from the assessee. Application of Law to Facts: The tribunal treated the diary as reliable evidence of undisclosed income, consistent with the statutory framework and judicial precedents. Treatment of Competing Arguments: The assessee's argument that the diary was tentative and prepared for loan purposes was considered but found unsubstantiated. Conclusion: The brown loose-leaf diary was rightly relied upon as corroborative evidence of undisclosed income. Issue 3: Use of Tentative Profit and Loss Account vs. Audited Accounts Legal Framework and Precedents: Income tax is levied on real income as per audited accounts, subject to verification. Tentative accounts prepared during survey are indicative but not conclusive. Court's Interpretation and Reasoning: The tribunal recognized that the tentative profit and loss account prepared during the survey did not reflect the full expenses incurred by the assessee, many of which were accounted for only after the survey date. The assessee submitted detailed reconciliations and proofs of expenses such as depreciation, electricity, oxygen gas, professional fees, salary, and interest on loans, which were not considered in the tentative accounts. Key Evidence and Findings: Audited profit and loss account, detailed reconciliations, and documentary proofs of expenses submitted by the assessee. Application of Law to Facts: The tribunal accepted that the audited accounts represent the true and correct income and expenses, and that the tentative accounts are inherently uncertain and incomplete. Treatment of Competing Arguments: The assessing officer and CIT(A) relied on the survey's tentative accounts for additions, but the tribunal found merit in the assessee's submissions regarding actual expenses and adjusted the addition accordingly. Conclusion: The tentative profit and loss accounts cannot be used as the sole basis for additions; audited accounts and reconciliations must be given due weight. Issue 4: Computation of Income Addition Based on Difference in Gross Receipts Legal Framework and Precedents: Income additions based on survey findings must consider actual expenses and profit margins. The net profit margin applied to the difference in gross receipts is a recognized method to compute undisclosed income. Court's Interpretation and Reasoning: The tribunal noted that the difference between the survey turnover (Rs. 1,48,13,190/-) and the declared turnover (Rs. 1,13,08,880/-) was Rs. 38,04,310/-. The net profit margin declared by the assessee was 7.76%. Applying this margin to the difference yielded an addition of Rs. 2,95,214/-, rounded to Rs. 2,95,300/-. Key Evidence and Findings: Survey turnover, declared turnover, net profit margin from audited accounts. Application of Law to Facts: The tribunal applied the net profit margin to the difference in turnover rather than the entire admitted amount, reflecting a fair and reasonable approach consistent with the principle of taxing real income. Treatment of Competing Arguments: The assessee's argument for deletion of the entire addition was partially accepted, while the revenue's stand for addition was partially sustained. Conclusion: The addition is restricted to Rs. 2,95,300/- based on the net profit margin applied to the difference in turnover. Issue 5: Consideration of Carried Forward Losses and Remuneration to Partners Legal Framework and Precedents: Under the Income-tax Act, losses from earlier years can be carried forward and set off against current income. Remuneration to partners is allowable subject to limits under section 40(b)(v). Court's Interpretation and Reasoning: The assessee submitted that the assessing officer did not consider carried forward losses totaling Rs. 17,45,881/- nor did he adjust remuneration paid to partners amounting to Rs. 6,14,854/-. The tribunal noted that these claims were supported by documentary evidence and returns filed. Key Evidence and Findings: Return of income showing carried forward losses, audited accounts showing partner remuneration within statutory limits. Application of Law to Facts: The tribunal observed that the assessing officer failed to consider these factors in computation, which would have reduced taxable income. Treatment of Competing Arguments: The revenue did not dispute these claims in detail, and the tribunal found merit in the assessee's submissions. Conclusion: The carried forward losses and partner remuneration should be duly considered in assessment. 3. SIGNIFICANT HOLDINGS "Income-tax is a tax on the real income, i.e., the profits arrived at on commercial principles subject to the provisions of the Income-tax Act." "Income Tax Department can tax assessee only on real income earned by assessee and not on tentative income derived by Income Tax Department based on loose paper or without any corroborative evidence." "The brown loose diary which Survey party of Income tax Department treated as income is merely Tentative Projection of Gross Receipts... The Department has never verified the said Day to day Receipt Books which indicates the Actual Collection made by Assessee." "The addition of Rs. 85,88,540/- as undisclosed income is deleted, and the addition is sustained only to the extent of Rs. 2,95,300/-, which is directed to be added to the total income of the assessee." "The net profit margin of 7.76% declared by the assessee is applied to the difference in gross receipts to arrive at the correct addition." "The assessing officer failed to consider carried forward losses and remuneration paid to partners which are allowable deductions under the Income-tax Act."
|
