9911796707
TMI Blog2016 (6) TMI 455X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover, against which no profit has been admittedly disclosed by the assessee. We further observe that the expenses claimed by the assessee are in the nature of semi-variable expenditure, so that they would vary with the increase in the volume, though not in linear proportion thereto. As such, to contend, as does the assessee, that its’ profit be estimated at 11.95%, i.e., as reported for A.Y. 2005-06, or justifying its results with reference thereto, is not acceptable in-as-much as the expenditure would not stand to increase in the same proportion (of sales). The turnover for A.Y. 2005-06, assuming the entire of it as of other than STBs, to our mind, represents a normative level (attained after over a decade of being in business), based on which the income for the subsequent years could be estimated. The expenditure can be said to have stabilized at 88% of the turnover. The excess turnover would therefore entail expenditure not to the extent of 88% (100-12) thereof. We estimate the same at 2/3 thereof, i.e., at say 58.66% or (say) 60%. As such, the additional turnover would entail a margin of 40%. The additional turnover (over that for A.Y. 2005-06), i.e., 17.33 lacs (Rs.79.87 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides another of service and maintenance of water purifiers (M/s. Unicom Corporation), stated to be run by his wife (refer statement, placed at PB pgs.5-9). The cable TV business was 15 years old, with a strength of about 2053 primary (main) connections and 1414 secondary (additional) connections. Some connections had to be provided free of cost - which was usually to the office bearers of the housing society (whereat cable TV network facility was provided) or to other influential persons of the area, the total of such (free) connections being between 100-150. The charge per connection is ₹ 350/-, though a lesser amount is also charged. Set top boxes (purchased from Hathway) are also provided, and which have nil to nominal (Rs.200 to ₹ 300) margin. The assessment for A.Y. 2006-07 was reopened by issue of notice u/s. 148 on 25.8.2008, also issuing notice u/s. 143(2) for A.Y. 2007-08 on the same day. The assessee, for A.Y. 2006-07, while admitting undisclosed trade receipt of ₹ 19.70 lacs, claimed to have incurred expenditure at ₹ 20.07 lacs, so that he had in fact incurred a loss of ₹ 36,806, pressing for the dropping of the proceedings u/s. 148 on that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office, and which explained the non-recovery of any such note-books in survey. It is only the net income, i.e., net of expenses, that could be brought to tax. The net profit ratio, which under the circumstances becomes the only reasonable measure to estimate income, for A.Ys. 2006-07 and 2007-08, taking the total income and expenditure for those years into account, works to 11.67% and 11.28% (of the gross receipt) respectively, as against 11.95% and 9.62% for A.Ys. 2005-06 and 2008-09 respectively, since accepted u/s. 143(3) (PB pg.1). The ld. Departmental Representative (DR) would, on the other hand, submit that the assessee's case is wholly unevidenced and based on surmises. 4. We have heard the parties, and perused the material on record. 4.1. The unaccounted receipt of business for both the years under reference is admitted. The Revenue has disallowed the expenditure, which the assessee states to have incurred, likewise, i.e., out of books, on the ground of the same being not substantiated, further observing that the same are only regular business expenditure, i.e., of the same nature and falling under the same heads of account where-under the accounted expenditure is booked. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or further verification as and when called for.' This statement by the assessee, and particularly the reference to a note-book therein, as well as its' production (for verification), has not been impugned or contradicted by the Revenue in any manner. True, the nature of the unaccounted expenditure being the same, i.e., as of that accounted for, there is no justification for keeping the same outside books, and which in turn is stated to be the reason for suppression of turnover, leading the Revenue to infer that no such expenditure had in fact been incurred. The existence of the note-book is not questioned, nor is, consequentialy, its realibility. Why could not, we wonder, the Revenue question the assessee on the same, subjecting it to further examination - being produced for verification, impounding the same even at that stage. Why, for instance, was it not found during survey in February, 2008, being ostensibly maintained in the regular course of business and, further, not subject to theft, the police complaints filed being in fact in 2006 & 2009 (PB pg. 3). Further on, the assessee clearly states of taking into account the said expenditure while surrendering income (at ₹ 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve for A.Y. 2007- 08 (at ₹ 1,03,242/-/PB pgs.29, 30), which do not impact the operating results, have been segregated and would be given effect to separately, i.e., do not outlet the estimation process. 4.3 To begin with, we have examined and consider the assessee's disclosure for A.Y. 2007-08 as inadequate. He claims an expenditure of ₹ 42.12 lacs on an undisclosed turnover of ₹ 47.03 lacs, offering thus ₹ 4.91 lacs (and not ₹ 5 lacs) as income. However, the expenditure includes ₹ 18 lacs on STBs. Even assuming the same to have been supplied without any margin, yielding no income, it would imply the STB sale at ₹ 18 lacs, as in fact assumed by the A.O. That leaves a balance cost of ₹ 24.12 lacs on an admitted turnover of ₹ 47.03 lacs, implying an additional profit of ₹ 22.91 lacs (Rs.47.03 lacs - ₹ 24.12 lacs), while the assessee 'discloses' only ₹ 5 lacs. Considering the said turnover to include STB sale at ₹ 18 lacs is presumptuous on the part of the A.O., whose case is essentially of disallowance of expenditure. No disclosure has been made by the assessee for A.Y. 2006-07. We may next proceed to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnover would therefore entail expenditure not to the extent of 88% (100-12) thereof. We estimate the same at 2/3 thereof, i.e., at say 58.66% or (say) 60%. As such, the additional turnover would entail a margin of 40%. The additional turnover (over that for A.Y. 2005-06), i.e., ₹ 17.33 lacs (Rs.79.87 lacs - ₹ 62.54 lacs) would yield a profit of 40%,while the balance turnover of ₹ 62.54 lacs would a normative rate of 12%, i.e., at a total profit of ₹ 14.44 lacs or at a net profit of a little over 18%. To this would stand to be added, of-course, the profit on the turnover on STBs, if any, as indicated above. Similarly for A.Y. 2007-08, the second year. We decide accordingly, and the assessee gets part relief. 4.4 Before parting though, we may clarify a few aspects. We have, in arriving at our assessment of the additional expenditure at 2/3 of the normative expenditure, also taken into account the fact that the additional turnover would include both primary (main) as well as secondary (additional) connections (subscriptions), and that the latter fetch a lower price. This in fact is only on account of the fact that the additional connects do not entail additio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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