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TMI Blog2016 (5) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... ted sales accepted by the ld.CIT(A). The ld.AO is directed to re-work out the income of the assessee on the basis of 5% net profit rate on the sales worked out by the assessee and accepted by the CIT(A) in both these years. - ITA. No. 274, 275 and 276/AHD/2010, ITA. No. 667 and 668/AHD/2010 - - - Dated:- 6-5-2016 - Shri Rajpal Yadav, Judicial Member And Shri N. K. Billaiya, Accountant Member For the Petitioner : Shri Tushar A. Hemani For the Respondent : Shri A.R. Rewar, Sr. DR ORDER Per Rajpal Yadav, Judicial Member The assessee and the Revenue are in cross-appeals against separate orders of even dated 30.10.2009 passed by the ld.CIT(A) in the Asstt.Years 2001-02 and 2002-03. In the Asstt.Year 2004-05, the assessee alone is in appeal against the order of the ld.CIT(A) dated 30.10.2009. Since common issues are involved in all the appeals, therefore, we heard them together, and deem it appropriate to dispose of these appeals by this common order. 2. The grounds of appeal taken by both the appellants in their crossappeals are not in consonance with the Rule 8 of the Income Tax (Appellate Tribunal) Rules, 1963 - they are descriptive and argumentative in na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Add: Expense not allowable (para 6b) Rs.2489779 Expenditure disallowed (as per para 6.c3) Rs.37815844 Disallowances u/s.40AE (as per para 6.d) Rs.1610273 41915896 Revised total income 56630483 Asstt.Year 2003-04: 7. On the basis of details available with the return of income and the details filed in response to the notice u/s.142(1) of the IT.Act income of the assessee is computed as under: Total income as per revised return of income u/s.148 2650787 Income as discussed above in para 5.a 2627629 17342216 Add: 20% excess epense in cash u/s.40A(3) (Para.6(c1) 775705 Excess expenses (Para 6.(c2)) 35322889 Maximum of the above (para 6.c3) 35322889 Add: cash expenses of freights u/s.40A(3) para 6.(d) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and over and above ₹ 6,39,04,493/- has been collected by it in cash during the relevant period from the purchasing parties outside the books of accounts. As such the total turnover of the appellant during the relevant period after taking into consideration Annexure A-7 and the regular books of accounts was to the tune of ₹ 23,72,60,660/-. 7.12 There is no doubt about the fact that the books of accounts maintained by the appellant, for the relevant, period are defective in the sense that they do no, reflect correct and complete picture of the appellants transactions. The aforesaid would reflect that the appellant tried to offset all the cash receipts over an amount recorded in books of accounts to the extent of ₹ 6,39,04,493/- by debiting various expenses in cash namely Director's Salary etc. which can be seen a Sr.Nos 16, 19, 20, 21, 22, 23 , 26, 27 and 30 to 37. Most of these expenses reflected in regular books of accounts. Admittedly the appellant has not maintained any supporting documents for such expenses, in absence of such documents cannot be ascertained as to whether these expenses have been debited to exhaust the extra cash on sales collected b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh on sales collected by the appellant or for the purposes of business. Therefore, on the basis of these figures the peak theory applied by the appellant cannot be accepted as it considers those expenses which are not supported by necessary documents. 6. The ld.CIT(A) has accepted the stand of the assessee, as far as the quantification of unaccounted sales are concerned. The ld.CIT(A), thereafter, adopted a net profit rate of 8% of the alleged turnover/sales to estimate the profit earned by the assessee on recorded as well as unrecorded sales. As far as other disallowance made by the AO in the computation of income extracted (supra), the ld.CIT(A) has observed that once the books of accounts are rejected, the income of the assessee is to be estimated, then no separate disallowance is required to be made on the basis of books of accounts or on the basis of any specific entry, because, the estimate in itself will take care of the expenses. Accordingly ld.CIT(A) has deleted various disallowance made by the AO under section 40A(3) of the Act relying upon the following judgments: i) CIT Vs Banwarilal Bansidhar, 229 ITR 229 (All) ii) CIT Vs. Smt. Santosh Jain, 296 ITR 324 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied upon the orders of the AO. He contended that the AO has worked out the profit on the basis of Annexure- A/7, that ought not to have been disturbed by the CIT(A). 11. We have considered rival submissions and gone through the record. Section 145 of the Income Tax Act is the relevant provision for this issue, therefore, it is pertinent to take note of this section. It reads as under : 145. (1) Income chargeable under the head Profits and gains of business or profession or Income from other sources shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time [accounting standards] to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) [or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee], the Assessing Officer may make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial which the [Assessing] Officer has gathered, [shall, after giving the assessee an opportunity of being heard, make the assessment] of the total income or loss to the best of his judgment and determine the sum payable by the assessee [* * *] on the basis of such assessment : [Provided that such opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the assessment should not be completed to the best of his judgment : Provided further that it shall not be necessary to give such opportunity in a case where a notice under sub-section (1) of section 142 has been issued prior to the making of an assessment under this section.] [(2) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 144A. This instruction has been reproduced by the AO in para-5 of the assessment order. The ld.Additional Commissioner has nowhere mentioned as to why the working given by the assessee cannot be accepted. More so, he has not given any reasoning as to how the duplicate entries taken in Annexure-A/7 as well as in the books, would be taken care. He simply treated Annexure-A/7 as gospel truth. On the other hand, the ld.CIT(A) has ironed out the anomalies or the error in the entries in an Annexure-A/7. We do not find any error in the finding of the ld.CIT(A) to this extent. The next aspect is application of net profit rate. On one hand, the assessee is armed with two sets of circumstances, viz. (i) net profit rate accepted by the Settlement Commission, after a discussion with both the parties, and secondly, average net profit rate as worked out on the basis of entries recorded in the books as well as as worked out in Annexure-A/7. The average in Annexure-A/7 is 3.44% of the entries mentioned therein. In our opinion, ends of justice would meet, if we apply net profit rate at 5% of the unaccounted sales accepted by the ld.CIT(A). The ld.AO is directed to re-work out the income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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