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TMI Blog2013 (11) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... % and therefore only 20% was offered by it to tax. Let us therefore examine as to whether net profit as shown in the audited profit & loss account is real profit or illusory profit. Real profits are those which are not illusory. In the case before us, the assessee has indeed collected the impugned sum in cash on sale of plots. Such collections are not illusory. They are real and represent the return in money in the hands of the assessee from its own business. When a return is furnished and accounts are put in, in support of that return, the accounts should be taken as the basis for assessment and that an assessee cannot discard his own profit & loss account and balance sheet and more particularly the Audit Report in Form No.3CB signed by a Chartered Accountant in terms of section 44AB of the Income-tax Act. Apparent state of affairs shown in the profit & loss account would have to be treated as real unless the contrary is proved. It is reiterated too often by the courts/tribunals that the onus to prove that the apparent is not real is on the party who claims it to be so. The assessee has not discharged the aforesaid burden Application of rate of net profit is one of the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer on the above point." 2. Relevant facts of the case as culled out from the records are as under: (i) The assessee is a partnership firm. It is engaged in the business of real estate development. Search and seizure operations u/s 132 of the Income-tax Act were carried out at the business and residential premises of Seth Group including the partners of the assessee-firm on 15-09-2009. The assessee-firm is one of the business concerns of the said Group. (ii) It was found that the assessee-firm had developed a project known as "Rushav Vatika" at Ahmedabad. During the course of search, incriminating materials were found evidencing receipt of on-money (being cash component of the transactions) on sale of plots over and above the money received through cheques. On being confronted, the assessee-firm admitted to have realized on-money (being cash component of the transactions) on sale of plots, which has since been quantified at Rs.5,19,86,163/- as "Additional cash sales disclosed during search" and credited as such to the audited profit loss account over and above the amount received throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own in the audited profit loss account and accordingly offered such reduced amount of net profit to tax. 3. The Assessing Officer ("AO" in short) however did not accept the aforesaid treatment given to the impugned sum in the Computation of Income and therefore brought the impugned sum being entire collection of on-money in cash to the charge of income tax. Since the assessee had already offered a sum of Rs.1,03,97,233/- being 20% of the on-money for tax, the AO brought the remaining sum, i.e., Rs.4,15,88,930/-, to the charge of income-tax, with the following observations: "6. The reply of the assessee has been considered, but the same is not acceptable. Vide para (2) of the above submission, the assessee had taken the plea that, the entire undisclosed sales should not be treated as income since sales do not constitute income, particularly when no evidence of undisclosed income is found. However, this is false, in light of the detailed discussion of incriminating evidence made in the first part of this order. Further the assessee had not furnished any details of expenses to justify his offering of only 20% profit from sale of plots. In fact, all the expenses have already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here could be no supporting evidence required in respect of unaccounted expenditure. However, this contention is also not acceptable because, the entire cost of development has already been accounted for by the assessee in its books. Hence, there is no reason to believe that the assessee has actually incurred expenditure out of case sales. 6.3 Vide para (3) supra, the assessee had contended that, percentage of profit on sales is around 10% in respect of builders and developers and under the presumptive scheme of taxation for construction business, the rate of profit provided for in the Act is 8% and that, the department itself, in the assessee's own group cases in earlier years, had adopted such percentage profit at 10% and therefore, the profit margin of 20% is justified. However, this argument is not acceptable because, no real estate development activity was carried out on these plots. These plots were purchased and basic amenities developed thereon, and sold thereafter. Hence, the resemblance of assessee's activities to a builder, for this particular venture, is not correct. So far as the assessee's contention that the department had accepted 10% profit in earlier sear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant and have gone through the assessment order passed by the Assessing Officer. 6.1 The AO has determined the on-money receipts arising from sale of plots in Rushabh Vatika project at Rs.5,19,86,163/-. The quantum of on-money receipts is not disputed by the appellant. The appellant has disclosed net income @ 20% on the unaccounted receipts in the return of income. However, the AO has taxed the entire unaccounted receipts of Rs.5,19,86,163/- as income of the assessee, not disclosed in the books of account. The appellant having already disclosed profit of Rs.1,03,97,233/- @ 20% on unaccounted receipts, the balance amount of Rs.4,15,88,930/- is added by the AO to the total income. 6.2 The germane issue that needs to be decided is as to whether the entire unaccounted receipts can be taxed as income or only the profit element on such unaccounted sales/unaccounted receipt/on-money receipts can be brought to tax. This is a fact that the details relating to unaccounted expenditure have not been found during the course of search proceedings. However, that does not mean that there would be no associated expenditure at all for the purpose of making unaccounted sales. The definit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to explain the suppression of production of 18,80,500 meters of cloth. We also fully agree that any addition that is to be made is not in respect of the sale consideration but only in respect of the profit. As in this case no evidence has been brought out on record which may prove that the assessee has claimed all the expenses in the profit and loss account it is a case only of suppression of the sale consideration. In our opinion, in this regard, the judgment of the jurisdictional High Court in the case of CIT v. President Industries [2002] 258 ITR 654 (Guj.) is fully applicable.' Considering the concurrent findings of CIT(A) as well as Tribunal regarding the amount of addition on account of papers found during the search, it has been held by the Hon'ble High Court of Gujarat that there is no merit in the Department's appeal since whether there was any suppression of sale or not is basically a question of fact. Thus, in the above case the addition was justified on account of suppression of the sale consideration but only to the extent of profit. 6.4 So far as the contention of the AO, that in the present case complete evidence of on-money receipts in respect of all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unaccounted sales. The entire unaccounted sales has not been offered/disclosed as income as is evident from the perusal of the statement recorded. 6.7 It is further noted that the appellant has shown the gross profit of Rs.67,34,398/- on its accounted sales of Rs.3,69,66,577/- in respect of Rushabh Vatika Project. Thus, the gross profit shown on the accounted sales is 18.22%. Therefore, the contention of the appellant, that for the same scheme of land plots, the Department has taxed the income @ 12% for block period ending on 12.09.2002 which has become final, is not justified so far as the present year is concerned wherein disclosed gross profit on accounted sales is 18.22%. It is also an admitted fact that in respect of unaccounted sales, the margin of profit is always higher. 6.8 In view of the above and considering the order of the Settlement Commission in respect of Silver Springs wherein profit has been estimated @ 30% instead of 20% offered in the return of income, it would be fair and reasonable to adopt the same rate of estimated profit even in the case of Rushabh Vatika Project of the appellant. The total unaccounted sales in the present case is Rs.5,19,86,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 11.04.2013. We most respectfully request that above matter kindly be adjourned to a date convenient to the Bench. Yours Sincerely, Sd./- Illegible For M.J. Rindani Associates CC to Sr. D.R." 7. The said firm of chartered accountants could however neither produce a duly executed power of attorney by which it was authorized by the assessee-firm to represent it before this Tribunal nor could give any cause for seeking adjournment. 8. Section 288 of the Income-tax Act contains provisions relating to "Appearance by authorized representative" before the Income-tax authorities as well as before this Tribunal. According to sub-section (1) of section 288, any assessee who is "entitled or required to attend" before any income-tax authority or this Tribunal in connection with any proceeding under the Income-tax Act otherwise than when required under section 131 to attend personally for examination on oath or affirmation may, subject to the other provisions of section 288, attend by an authorized representative. Sub-section (2) of section 288 defines "authorized representative" as a person authorized by the assessee in writing to appear on his behalf, being a person specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate in which case they can request for adjournment. It is a fairly settled proposition of law of adjournments that adjournments cannot be sought at leisure or pleasure of a party to proceeding and that adjournment can be granted only if sufficient cause is shown for seeking adjournment. The aforesaid principle is now statutorily recognised by Rule 1 of Order XVII of the Code of Civil Procedure which provides that the Court may, if sufficient cause is shown, at any stage of the suit grant time to the parties or to any of them, and may from time to time adjourn the hearing of the suit for reasons to be recorded in writing. The adjournment application filed by the said firm of chartered accountants does not contain any cause for seeking adjournment. In the absence of "sufficient cause" being shown in the application for adjournment, the application for adjournment cannot be entertained. 11. A court or tribunal has general power to postpone or adjourn a hearing to such time and place, and on such terms, as are just. An adjournment is, for the most part, a matter of discretion for the court. This means that the court does not have to grant an adjournment but must consider what the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uinely made all reasonable efforts to avoid the need for adjournment; or (v) in matters where relevant details including legal position governing the issue are on record and the matter can be disposed of on merits even without the presence of the parties. The adjournment request received from M/s M.J. Rindani Associates deserves to be rejected on each of the aforesaid grounds. 14. It is relevant to mention that the tax implication in the matter under appeal is well above 10 millions of rupees. The assessee-firm has already got substantial relief from the first appellate authority {i.e., CIT(A)} on the basis of elaborate submissions, both on facts and in law, made before him. It is no longer under pressure to get the appeal filed by the Revenue disposed off at an early date as the appeal filed by the Revenue may go against the assessee in which case the assessee would be liable to discharge entire tax liability including the one which has been knocked down by the ld. CIT(A). It is now the Revenue which is aggrieved by the order of the first appellate authority. The assessee had more than one month after service of notice of hearing to prepare for the hearing and be ready to atte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the sustainability of the order passed by the CIT(A), which is essentially based on facts, can safely be reached. They are as under: (i) Incriminating materials were found at the time of search evidencing receipt of a part of sale consideration in cash on sale of plots (being the impugned sum), which has been duly accepted by the assessee. (ii) No material was found at the time of search or even thereafter to show that any extra expenditure was incurred over and above those shown in the books of account and profit loss account prepared on that basis on development of plots sold. (iii) The assessee also could not furnish any detail or evidence either before the AO or before the ld. CIT(A) to show that any expenditure other than that shown in the audited profit loss account was incurred or that the cost of sales was higher than the one shown in the profit loss account. (iv) The impugned sum has been credited to profit loss account and therefore stands treated by the assessee-firm itself as part of its net profit. (v) Net profit inclusive of the impugned sum as credited to audited profit loss account stands not only incorporated as sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 573 (Guj.), the Hon'ble jurisdictional High Court has held that the basic principle is the same in law relating to income-tax as well as in civil law, namely, if there is no challenge to the transaction represented by the entries, then it is not open to the Revenue or other side to contend that what is shown by the entries is not the real state of affairs. 19. It therefore follows that when a return is furnished and accounts are put in, in support of that return, the accounts should be taken as the basis for assessment and that an assessee cannot discard his own profit loss account and balance sheet and more particularly the Audit Report in Form No.3CB signed by a Chartered Accountant in terms of section 44AB of the Income-tax Act. Section 44AB has been inserted in the Income-tax Act with effect from 1.4.1985 to provide for audit of accounts in cases specified therein. Rule 6G(1)(b) and (2) of the Income-tax Rules provides that the report of audit of the accounts of a person required to be furnished u/s 44AB shall be in Form No.3CB and the particulars which are required to be furnished u/s 44AB shall be in Form No.3CD. Perusal of Report of Audit in Form No.3CB shows that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunals that the onus to prove that the apparent is not real is on the party who claims it to be so. The assessee has not discharged the aforesaid burden. Resultantly, it has to be held that the net profit of the assessee as shown at Rs.5,31,03,690/- in its audited profit loss account is the amount of net profit on which tax has to be levied subject to the adjustments carried out in the assessment order. And we hold accordingly. 21. As stated earlier, net profit from the business of the assessee has been shown at Rs.5,31,03,690/- inclusive of the impugned sum in its audited profit loss account. The aforesaid net profit has been worked out by the Tax Auditor after providing for all expenses. The assessee has not furnished any detail, material or evidence either before the AO or before the ld. CIT(A) or otherwise placed them on record to show that the details of expenses and profit incorporated in the said profit loss account are incorrect. In this view of the matter, the AO was justified in taking the net profit as shown in the audited profit loss account as profit of the business of the assessee and taxing the same accordingly. 22. We shall now consider whether there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, by any stretch of imagination, be said to be illusory or unreal profit of the assessee from its business. Net profit shown in the audited profit loss account represents real profits of the assessee's business worked out after excluding all the expenses from sales/turnover/receipts. In the face of such incontrovertible facts on record, it is difficult for us to hold that the impugned sum is not real profit 23. We shall now examine as to whether there is any basis in the action of the assessee in offering 20% of the impugned sum to tax before the AO and resultantly in excluding remaining 80% of the impugned sum from its net profit as shown in the audited profit loss account. No plausible explanation or detail or evidence for seeking such exclusion has been given by the assessee either before the AO or the ld. CIT(A). The only ground on which such exclusion could be sought would perhaps be on the ground that 20% of the impugned sum represents net profit while remaining 80% represents expenses. In this connection, reference may be made to the provisions of section 37 of the Income-tax Act which deals with deduction of expenses incurred wholly and exclusively for the purposes o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tail or evidence and therefore do not justify his order for exclusion of 70% of the impugned sum, for several reasons some of which are as under: (i) It is true that such expenses are inevitable but it is equally true that the assessee has maintained books of account in which such expenses, as rightly observed by the AO, have been recorded. It is not even the case of the ld. CIT(A) that such expenses have not been recorded in the books maintained by the assessee. Neither the ld. CIT(A) has given any basis to show that the assessee has incurred any expenditure over and above those recorded in the books nor has the assessee furnished any detail or evidence in support thereof. It was therefore not open to the ld. CIT(A) to imagine certain state of affairs, which are completely inconsistent with the audited books and the materials on record as also statutory provisions, and then allow relief to the assessee as he has done in the matter under appeal. (ii) If the ld. CIT(A) had any material outside the audited books of account to support his aforesaid findings, it was incumbent upon him to bring them on record to support his finding and thereafter inquire into the nature an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y recorded the amount of sale price in its books following recovery of incriminating materials at the time of search and therefore the net profit shown on that basis in the audited profit loss has rightly been certified by the Tax Auditor as giving a true and fair view of the profit of the assessee from its business in the year under appeal. Rate of net profit cannot be applied so as to reduce the net profit shown in the audited profit loss account unless the expenses, sales, turnover, receipts, etc. shown in audited profit loss account are proved to be incorrect. Application of rate of net profit is one of the methods to assess the income of an assessee where the books of account maintained by the assessee are found by the AO to be incorrect or incomplete or not in conformity with the accounting standards notified by the Central Government or in the circumstances mentioned in sub-section (3) of section 145. In the case before us, neither the AO has invoked section 145(3) nor has the assessee led any evidence to prove that the items shown in the books of account or profit loss account and balance sheet drawn on that basis are incorrect. Therefore, the question of applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r distribution amongst partners and the other for income-tax authorities. 27. Perusal of the appellate order (Para 5) passed by the ld. CIT(A) shows that three judgments were cited by the assessee before the ld. CIT(A) in support of its submission that only net profit rate could be applied on the impugned sum. These judgments are: (i) CIT v. Gurubachhan Singh J. Juneja 302 ITR 63 (Guj.); (ii) CIT v.President Industries, 258 ITR 654 (Guj.); and (iii) 201 ITR 008 8. First two judgments deal with assessment of profit on unaccounted sales outside the books of account. In the case before us, we are not concerned either with quantification of sales outside the profit loss account or with application of net profit on sales detected outside the profit loss account. In the case before us, both the sales, expenses and resultant net profit are duly reflected in the audited profit loss account and therefore the fact-situation in the case of the assessee before us is altogether different from those in the aforesaid first two judgments. As regards third judgment, the assessee has not given full citation. However, we have perused the judgment available at page 8 of volume 201 of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to establish that the said audit report was incorrect. (ii) He also failed to notice that the assessee-firm itself has shown the impugned sum as part of its net profit in the audited profit loss account and therefore it was liable to be included in its entirety for tax purposes subject to statutory allowances/disallowances and not 70% thereof. There is no reference to the audited profit loss account and audit report in the entire operative portion of his order, i.e., Para 6 of the order of CIT(A). He thus failed to consider the most relevant evidence, i.e., audited profit loss a/c. (iii) He acted upon those submissions of the assessee which were neither supported by any detail nor evidence. He straightaway applied certain decisions referred to by the assessee without examining as to whether the case of the assessee fits in those fact-situations or not. (iv) Having noted that there was no evidence to establish that the assessee-firm had incurred any expenditure to earn the impugned sum, the ld. CIT(A) still allowed 70% of the impugned sum as expenditure ignoring the fact that the claim for such deduction was not only inconsistent with the assessee's own a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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