9911796707
TMI Blog2016 (5) TMI 1009X X X X Extracts X X X X X X X X Extracts X X X X ..... 5% on contract receipts - Held that:- CIT(A) has rightly estimated the net profit of 10% in respect of trading business and 12.3% in respect of contract receipts by taking into account the net profit declared by the assessee for the assessment year 2006-07. We do not see any error or infirmity in the order passed by the CIT(A) as far as estimation of net profit for assessment year 2008-09 and 2009-10. Hence, we inclined to uphold the order of the CIT(A) and rejected the ground raised by the assessee as well as revenue for the assessment year 2008-09 & 2009-10. Additional income towards inflation of labour charges at the time of search - Held that:- CIT(A) held that the assessing officer is not correct in estimating the net profit of 15%. On over all appreciation of facts, such as disclosure of additional income on estimate basis, actual turnover achieved by the assessee, the disclosure made by the assessee is quite reasonable and do not require any interference. Therefore, the action of the A.O. in estimating the 15% on the total turnover is rejected and business profit admitted by the assessee are directed to be accepted. The facts remains before us. The assessee has not brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation on assets - CIT(A) held that in the absence of credible evidences, the claim of the assessee in respect of depreciation cannot be entertained - Held that:- The assessee has failed to brought on record any evidences to prove that the findings of the fact recorded by the CIT(A) is incorrect. Therefore, we are of the opinion that the CIT(A) is rightly rejected the claim of the assessee. We do not see any error or infirmity in the order passed by the CIT(A) with regard to the deduction of depreciation. Hence, we inclined to uphold the order of the CIT(A) and reject the ground raised by the assessee. Charging of interest u/s 234A & 234B - Held that:- The A.O. without adjusting the seized cash, has computed the interest u/s 234A& 234B of the Act. Though, the assessee claims that the A.O. has not adjusted seized cash for the tax liability, the assessee has not furnished any details with regard to the quantum of amount to be adjusted for each assessment years. In the absence of any details, we are of the opinion that the issue needs to be re-examined by the A.O. in the light of the above discussions. Therefore, we set aside the issue to the file of the A.O. and direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period and also represents the actual payment made and inflated expenditure, under each head of expenditure. The assessee further agreed that he has inflated 10% under the head labour payments which he was utilized for investments in unaccounted assets and cash seized during the course of search. With this background, during the course of assessment proceedings, the A.O. asked the assessee to furnish books of accounts and other relevant documents in support of the expenditure claimed. During the course of assessment proceedings, the assessee could not produce any books of accounts and also stated that no books of accounts were available and hence, the same cannot be furnished. However, other information called for was produced. After examining the information so produced, the A.O. has issued a show cause notice and asked to explain in the absence of books of accounts and other details the expenditure claimed shall not be disallowed. 4. In response to show cause notice, the assessee filed his written submission dated 20.12.2011 and submitted that there was no incriminating material seized during the course of search and as such no additions can be made u/s 153A of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot required to confine his assessment on the material found during the course of search, as was the case in the old procedure of block assessment. The A.O. further held that from the bare reading of the section 153A of the Act and the Board circular no.7 of 2003 dated 5.9.2003, it is abundantly clear that provisions of section 153A of the Act were introduced to overcome the controversies raised in the old procedure of block assessment with regard to the meaning of undisclosed income and income relatable to material found during the course of search, etc. The present procedure provides that the completed assessment would be resurfaced and the pending assessment or reassessment relating to any assessment year falling within the period of 6 assessment years shall stand abated and reopened. The assessments or the reassessments of all those 6 years, whether completed or abated will be made in accordance with the provisions of section 153A of the Act. Such reopening of completed reassessment u/s 153A of the Act is automatic on the initiation of search and the A.O. is not required as per law to record any reasons that income has escaped assessment. In support of his arguments, he relied u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of Hon ble A.P. High Court, in the case of M/s. Indwell Constructions Vs. CIT reported in 232 ITR 776. Similarly, during the course of assessment proceedings, the A.O. noticed that the assessee has shown income from other sources being miscellaneous receipts, interest on deposits, foreign exchange gain and other miscellaneous receipts. Therefore, the A.O. has made separate additions towards income from other sources, in addition to the estimation of net profit from the business. 7. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee submitted that the assessment order passed by the A.O. u/s 143(3) r.w.s. 153A of the Act is bad in law, as the same said to have been passed u/s 144 r.w.s. 153A of the Act. The assessee further submitted that the assessing officer is not at all correct in making additions to the returned income as the assessment for the assessment year 2004-05 to 2007-08 is not pending as on the date of search, consequently not abated. More so, the materials relevant to these assessment years have not been found during the course of search. The assessee further submitted that the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separate additions towards income from other sources, being interest on fixed deposits, miscellaneous income and foreign exchange gain, when the income from the business is estimated on the gross receipts. The assessee further submitted that the interest was earned on the fixed deposits kept in the bank towards bank guarantee. Therefore, the interest earned on fixed deposit should be considered as part of business receipts and no separate additions can be made under the head income from other sources. As regards the foreign exchange gain, the assessee submitted that the foreign exchange gain arises because of fluctuation in foreign currency in the course of import of machinery spare parts. Therefore, it is essentially a part of business operations, therefore, the A.O. was not correct in making separate additions towards these items, when profit is estimated on the gross receipts. 10. The CIT(A) after considering the submissions of the assessee, rejected the legal ground raised by the assessee by holding that there is no such provisions in the Act for the A.O. to confine his reassessment only for the abated assessments and not for the pending assessments. The CIT(A) further hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chase and sale as well as expenses incurred in the trading business. It is very difficult to accept the contention as well as the profit disclosed by the assessee in the return. The facts of the case deserve estimation of net profit on reasonable basis. Accordingly, the CIT(A) has directed the assessing officer to estimate the net profit of 10% on trading business for the assessment years under appeal i.e. for the assessment year 2004-05, 2005-06, 2007-08 2009-10. However, the commission income of ₹ 2,03,780/- for the assessment year 2004-05 and ₹ 84,195/- for the assessment year 2007-08 require to be deleted from the total income, as the same cannot be assessed again after estimating the net profit. 12. As far as contract receipts are concerned, the CIT(A) held that the assessee was subject to survey u/s 133A of the Act for the assessment year 2006-07. During survey, the department has noticed the inflation of labour expenses and assessee has accepted additional income of ₹ 63.12 lakhs for the assessment year 2006-07. Even in the action u/s 132 of the Act, the department has found document reflecting the inflation of labour expenditure. The assessee has admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he turnover of ₹ 25.75 crores only and incurred labour expenditure of ₹ 3,64,83,127/-. Although, there is a merit in the contention of the assessee about excess disclosure of income towards inflation of labour payments, the same cannot be entertained in view of the fact that the assessee consciously disclosed additional income at the time of search and the same was reiterated by filing returns of income. Having filed the return of income disclosing the income admitted in his statement, the assessee cannot plead for reversal of such disclosure of income. With these observations, the CIT(A) has rejected the contention of the assessee for proportionate reduction of additional income admitted during the course of search and directed the A.O. to accept the return of income filed by the assessee in response to notice u/s 153A of the Act. Therefore, the action of the A.O. in estimating 15% on the total turnover is rejected and the business profit admitted by the assessee is directed to be accepted. 14. As regards the separate additions towards income from other sources being interest income, miscellaneous receipts and foreign exchange gain, the CIT(A) held that the action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of hearing, the Ld. A.R. of the assessee submitted that he did not press ground nos.1 2 and additional grounds, challenging the validity of assessment proceedings. Therefore, ground nos.1 2 and additional grounds are dismissed as not pressed for all the assessment years. 16. The next issue came up for our consideration is additions to returned income, where the assessments are not pending as on the date of search. The assessee raised a common ground for all the assessment years, except for the assessment year 2008-09 and agitated the additions made by the A.O. to the returned income, where assessments are not pending and there was no seized materials and also in the cases of abated assessments where no seized materials are available. The Ld. A.R. submitted that for the assessment year 2004-05, 2005-06 2007-08, the assessments for those years as on the date of search was not pending. The assessee case was subject to search on 14.7.2009 and as on the date of search, the assessment for the assessment year 2004-05 to 2007-08 are not pending and the time limit for issue of notice u/s 143(2) of the Act has been expired. Therefore, when the assessments are not pending, no addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d supporting vouchers for expenditure claimed in the profit loss account. It is also a fact that in the course of search proceedings, the documents found reveals that the assessee has inflated 10% labour charges for the assessment year 2008-09 2009-10. The Ld. D.R. further submitted that the assessee himself has admitted inflation of labour expenditure and disclosed additional income and further followed by furnishing return of income declaring higher income. Therefore, there was a clear under statement of income from business which was invested in the form of landed property and also kept in the form of unaccounted cash which was seized during the course of search. Hence, the assessee cannot claim that there was no seized material so as to reassess the income of those assessment years. The Ld. D.R. further submitted that section 153A of the Act is a mandatory provision, which does not allow any discretion to the assessing officer. The A.O., after search has to reopen the assessment of all the six years and free to examine the facts of the case for the purpose of computing the true income of the assessee. In all those six years, there is no scrutiny assessment. Therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was seized materials. 20. The A.O. has passed reassessment orders u/s 153A/153C of the Act for all the six assessment years immediately preceding the year in which search was conducted. According to the A.O., as per the provisions of section 153A of the Act, there is no limitation or restriction provided in the new procedure of search assessments on the powers of A.O. for making assessment/reassessment and the A.O. is not required to confine his assessments on the material found during the course of search as was the case in the old procedure of block assessments. The new procedure of block assessment was explained by way of provisions of section 153A of the Act. As per section 153A of the Act, the A.O. shall assess or reassess the total income of the specified six assessment years irrespective of the fact that the assessment of the said years were completed or pending as on the date of search. Therefore, the A.O. has reassessed the income of six assessment years and recomputed the profits afresh after considering the relevant facts available on record. It was the contention of the assessee that the A.O. cannot disturb the completed assessments unless there was a seized materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on record, we find that there was no incriminating documents found during the course of search in respect of assessment year 2004-05 to 2007-08. Therefore, we are of the opinion that the A.O. was not correct in reassessing the total income of the assessment year 2004-05 to 2007-08 in the absence of any seized materials. Accordingly, we direct the A.O. to delete the additions made for the assessment year 2004-05, 2005-06 2007-08. 23. It is pertinent to discuss herein the case laws relied upon by the assessee. The assessee has relied upon the ITAT, special bench decision in the case of All Cargo Global Logistics Ltd. Vs. DCIT (2012) 137 ITD 287. The coordinate bench of this Tribunal, while deciding the issue in favour of the assessee held as under: In assessments that are abated, the AO aretains the original jurisdiction as well as jurisdiction conferred on him u/s 153A for which assessments shall be made for each of the six assessment years separately. In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means (i) books of acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in the case of Parashuram Pottery works Co. Ltd (supra). 23. We have earlier noticed that the Hon ble jurisdictional Andhra Pradesh High Court has also upheld by the orders passed by the Tribunal by following the decision rendered by the Special bench in the case of All Cargo Global logistics Ltd (supra) in the following cases:- (a) Sree Lalitha Constructions (J1TA No 368 of 2014) (b) M/s. Hyderabad House Pvt Ltd (ITTA No.266 of 2013) (c) M/s. AMR India ltd (FITA No.357 /v/2014) Further we agree with the contentions of the assessee that the decision rendered by the jurisdictional High Court in the case of Gopal Das Bhadruka (supra) have been rendered on the facts prevailing in those cases, since the issue relating to concluded assessments and pending assessments was not before the I1on ble Andhra Pradesh High Court On the contrary, the above said three decisions of the jurisdictional High Court comes to the support of the assessee s contentions with regard to the legal proposition agitated before us, besides the decisions rendered by various other High Courts. Accordingly, we are of the view that the scope of enquiry in the case of unabated ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2004-05 to 2007-08 in the absence of any incriminating materials. Hence, we delete the additions made by the A.O. for the assessment year 2004-05, 2005-06 2007-08. Accordingly, the ground raised by the assessee is allowed. 27. The next issue, came up for our consideration is estimation of net profit from the business. The Ld. A.R. submitted that the A.O. is not correct in estimating the income at a very high percentage of 10% on trading business of machinery spare parts and 15% on contract receipts without disclosing the basis for adopting such rate of net profit. The Ld. A.R. further submitted that the A.O. has estimated the income by applying the net profit rate without bringing any comparable cases and also without any basis. The assessee is into the business of trading in machinery spare parts, wherein the net profit margin is between 5 to 6%. Similarly, the net profit margin in the case of execution of work contract is 7% to 8% which is evident from the financial statements filed for the previous years. The A.R. further submitted that the assessee had admitted additional income during the course of search and filed return of income. However, in the rarest of rare cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(A) ignored the basic fact that the assessee has not produced any books of accounts for any assessment years. When the books of accounts are not produced and expenditure is not substantiated with any documentary evidence, the book results declared by the assessee cannot be accepted. Therefore, the CIT(A) was completely erred in adopting the net profit of the assessee for the earlier assessment year to estimate the net profit for all the assessment years. It was further submitted that when specifically asked by the A.O., the assessee could not produce any comparable cases to support his arguments. The A.O. on the other hand, relied upon various comparable cases, wherein he found that under similar cases, the assessee s have disclosed net profit of 15% to 26%. The A.O. after considering the similar comparable cases has adopted minimum net profit of 15% and applied to the assessee s case. Therefore, the A.O. order should be upheld. 29. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The A.O. estimated net profit of 10% on trading turnover and 15% on contract receipts. The A.O. was of the opinion t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... working results filed by the assessee, we find that the assessee has declared a net profit of 7.43% to 8.56% in the original return of income. The assessee has filed revised return u/s 153A of the Act disclosing additional income declared during the course of search towards inflation of labour charges. The net profit declared by the assessee as per the revised returns works out to 11.36% to 11.45% for the assessment years 2008-09 to 2009-10. The financial results of assessment year 2010-11 cannot be compared for the reason that the additional income was applied on estimation basis. During the course of search proceedings, which was held on 14.7.2009, the assessee has offered an additional income of ₹ 1.5 crores towards inflated labour charges on the assumption that his estimated turnover would be around ₹ 40 crores. However, at the end of the financial year, the assessee could achieve the turnover of ₹ 25.75 crores only. Therefore, the assessee has contended that though he has admitted additional income of ₹ 1.5 crores and filed the return, the net profit percentage of assessment year 2010-11 cannot be compared, as there was a difference in estimated turno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010-11. The assessee has declared additional income of ₹ 1.5 crores towards inflation of labour charges at the time of search. During the course of search proceedings, while recording the statement u/s 132(4) of the Act, the assessee has stated that he has expected a turnover of ₹ 40 crores for the assessment year 2010-11, based on such estimation admitted additional income of ₹ 1.5 crores. However, at the end of the year, the assessee could achieve the turnover of ₹ 25.75 crores only. Therefore, the assessee contended that though it had admitted additional income of ₹ 1.5 crores, because of substantial difference in turnover which is the basis of offering additional income, the proportionate additional income should be deleted. The CIT(A) held that though there is a merit in the contention of assessee that there is a substantial reduction in the turnover for the relevant assessment year, the proportionate additional income towards inflated labour charges should be deleted, the fact that the assessee has consciously admitted the additional income during the course of search cannot be ignored. Therefore, the CIT(A) held that the assessing officer is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing bank guarantee, still interest received on fixed deposits is only incidental to the business activity, but not the main activity of the assessee. Therefore, interest on bank deposits and other receipts should be assessed as income from other sources, but not under the head income from business. 35. We have heard both the parties and perused the materials available on record. The A.O. has made separate additions towards income from other sources being, interest on fixed deposits, foreign exchange gain and miscellaneous receipts. It was the contention of the assessee that these receipts are part of business and incidental to the business, therefore, should be considered for the purpose of estimation of income. Once the A.O. has estimated the income from the business on gross receipts, separate additions towards income from other sources being interest on fixed deposits and other receipts is not correct. It was the contention of the A.O. that these receipts are not form part of business activity of the assessee. Whether assessee does business or not the interest on fixed deposits are separate receipts which need to be considered under the head income from other sources. We do n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is partly allowed. 37. As regards the claim of depreciation on assets for the assessment year 2007-08 to 2010-11, the Ld. A.R. submitted that the A.O. was erred in not allowing separate deductions towards depreciation, when net profit is estimated from the business. It was the contention of the A.O. that the assessee has not produced any evidence substantiating the claim of depreciation on various assets. During the course of appellate proceedings, the assessee could not produce any evidence substantiating the claim of depreciation. The CIT(A) held that in the absence of credible evidences, the claim of the assessee in respect of depreciation cannot be entertained. The facts are same even before us. The assessee has failed to brought on record any evidences to prove that the findings of the fact recorded by the CIT(A) is incorrect. Therefore, we are of the opinion that the CIT(A) is rightly rejected the claim of the assessee. We do not see any error or infirmity in the order passed by the CIT(A) with regard to the deduction of depreciation. Hence, we inclined to uphold the order of the CIT(A) and reject the ground raised by the assessee. 38. The next issue came up ..... X X X X Extracts X X X X X X X X Extracts X X X X
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