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TMI Blog2020 (3) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 - SUPREME COURT] , therefore, we upheld the same. However, we held that the assessee is entitled to consequential relief if any as arise out on giving effect to this order if any. Rejection of books of accounts - estimation of income - Income supported by the audited financial statement while reducing the estimation of business income to 8.5% of the gross receipts as against 12% of the gross receipts adopted by the Ld. AO, which is very highly excessive and liable to be reduced - HELD THAT:- We find that the assessee could not produce books of accounts and supporting vouchers of expenses and there was huge expenses debited in Profit Et Loss Account. Hence, we are of the considered opinion that the AO has rightly rejected book result under the provisions of section 145 Estimation of percentage at 8.5% - rate of gross profit is disclosed at 8.94% in A.Y. 2011-12, 8.98% in A.Y. 2012-13 , 7.43% in A.Y. 2013-14, 7.12% in A.Y. 201415 and 7.12% in A.Y. 2015-16 of which average comes to 7.918%. CIT(A) was not justified adopting rate at 8.5% of gross receipts by upholding the addition on this account. Since, the average gives a rate of 7.918%, which is almost equal presumpti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar which provides jewellery holding by female member and male members and children in particular quantity as not be served meaning thereby as explained, we are of the considered opinion that no addition can be sustained on this account. Accordingly, 1/3rd addition made in the case of the assessee on account of jewellery is deleted. - I.T.A Nos.1768 to 1770/BANG/2017 - - - Dated:- 26-2-2020 - Smt. Beena Pillai, Judicial Member And Shri O.P. Meena, Accountant Member For the Appellant : Shri V. Srinivasan, Advocate For the Respondent : Sri. S.T Seshadri, Sr. D.R ORDER PER O. P. MEENA, AM: 1. These three appeals by the Assessee are directed against the order of learned Commissioner of Income tax (Appeals)-11, Bangalore (in short the CIT (A) ) all dated 29.06.2017 for the Assessment Year 2013-14, 2014-15 and 2015-16 respectively, which in turn has arisen from the assessment order passed under section 153C read with section 143 (3) all dated 30.11.2016 of income Tax Act,1961 (in short 'the Act') by the Deputy Commissioner of Income-Tax, Central Circle - 2(4) Bangalore (in short the AO ) 2. The appeal bearing ITA No.1768 1769/BANG/2017 relate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year under appeal to reject the income reported by the appellant and make an estimate especially when the assessment for the year under appeal had not abated in terms of the second proviso to sec. 153A of the Act and hence, the partial addition sustained by the learned CIT[AJ is also opposed to law and hence, the same requires to be deleted. 3C. Without prejudice to the above, the income sustained by the learned CITIA] at 8.5% of the gross receipts is highly excessive and liable to be reduced substantially. 4. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies himself liable to be charged to interest u/s. 234-A, 234-8 and 234-C of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled. 5. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs. 4. Ground No.1: is general in nature hence, it does not require a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance in the decision of the jurisdictional High Court of Karnataka in the case of CIT Vs IBC Knowledge Park Pvt. Ltd. (2016) 69 taxman.com (Kar) and CIT. Vs M/s Lancy Constructions (2016) 66 taxman.com 264 (Kar). However, the AO observed that the prepositions laid down by the jurisdictional high Court in the case of CIT Vs IBC Knowledge Park Pvt. Ltd and CIT Vs M/s Lancy Constructions are distinguishable on facts. The AO observed that the material in the form of valuable assets such as cash and jewellery found were belonging to Sri Vittalnath Reddy (third party during the course of search in the case of Sri P. Gopinath Reddy. The satisfaction was recorded by the AO having jurisdiction over Sri P.Gopinath Reddy and communicated to the AO of Sri Vittalnath Reddy (third party) along with the seized documents and other incriminating material. On receipt of aforesaid material belonging to third party (Sri P. Vittalnath Reddy), the AO having jurisdiction over the third party issued notice u/s 153C based on incriminating material and after being satisfied with the same bearing on the determination of total income of the assessee i.e. Shri P. Vittalnath Reddy, for the relevant assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 20140-15, hence it cannot be said that there was requisite satisfaction reached by the AO based on the material seized in the course of search to undertake the provisions of ec.153C of the Act. Further, it was argued that the ld.AO has failed to furnish the copies of satisfaction note recorded by him against Shri P.Gopinath Reddy and others as well as satisfaction note recorded by the AO to justify the assumption of jurisdiction u/s 153C of the Act, as requested by the assessee. Therefore, relying on the decision of the Hon'ble Supreme Court in the case of Manish Maheshwari reported in 289 ITR 341(SC) and M/s Calcutta Knitwears reported in 362 ITR 673, the proceedings initiated are bad in law and liable to be cancelled. However, the ld.CIT (A) observed that he has called for and verified the assessment record of the persons searched that Sri P.Gopinath Reddy and also assessment record of the assessee and found that AO of Sri P Gopinath Reddy has recorded the satisfaction that there was seized cash and jewellery belong to the assessee that was found and sized at the time of search and this has been handed over to the AO of the assessee. The ld.CIT(A) further observed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is satisfied that such papers etc. are incriminating and further that such papers etc. belong to the persons other than searched person. Since in the case of assessee, no papers/documents relating to the assessee were found during the search. Therefore, relying on the decision in the case of M/s IBC Knowledge Park (P) Ltd.(Supra) the proceedings u/s 153C of the Act are not valid. The Id. counsel further submitted that it is admitted fact that the assessee has not maintained any books of accounts nor any incriminating materials relating to the assessee has been found and seized. Therefore, no proceeding u/s 153C of the Act can be initiated against the assessee. It was further contended that only the cash and jewellery were found and seized which were relating to financial year 2014-15 relevant to assessment year 2015-16. Therefore, such seized assets whether explained or unexplained does not give rise to initiation of proceedings u/s 153C of the Act, in respect of the assessment under appeal. The ld. counsel further placed reliance in the case of CIT Vs Sinhgad Technical Education Society reported in 397 ITR 344 in support of his contentions. Therefore, in absence of non-recov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A. Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to 5 [subsection (1) of] section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person. 11. Considering the above provision of the Act and findings of CIT (A) who has held once the some material found belonging to the appellant having bearing on the assessment of income, the AO has no choice but duty bound to issue notice u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oning for rejection of books of accounts and estimation of income at 12% of the gross receipts that the assessee has not maintained any books of accounts for any of the year. Further, in the course of search, the assessee was not found maintaining any books of accounts and same was stated in his statement u/s 132(4) of the Act. Further, in the case of search, the assessee was found to have cash of ₹ 20,85,080/ - jewellery weighing 5823.71 gms worth of ₹ 1,51,29,897/-. Therefore, the ld.CIT(A) observed that it can be concluded that the assessee has generated asset with unaccounted income and therefore, the book result in the past are not reliable and correct hence, the AO has rightly rejected the books of accounts. Further, the assessee has contended that the AO has not cited any comparative cases to justify adoption of the business income at 12% of the gross receipts. Reference is made to the presumptive rate of 8% prescribed u/s 44AD of the Act, which support the logical estimate that could be made in the event of rejection of the books of accounts. The details of the return of income filed, turnover, income reported and the percentage of income reported in gross recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved that the addition made by the AO for the assessment year 2009-10,2010-11,2011-12 and 2012-13 is unaccounted for as the assessee has offered average income at 9% of the turnover for these year. Consequently, the addition made on this account for assessment year 2009-10 to 2012-13 was deleted. However, for the assessment year2013-14, 2014-15 and 2015-16 the income shown by the assessee was found to be lower than the average income of 9% of the turnover that has been disclosed by the assessee in the earlier years. The reason for the fall in income has not been properly explained by the assessee by maintaining books of accounts and substantiating the income reported in the return of income for the year. However, it is pleaded that from 01-10-2013, the BBMP has discontinued the contract system of solid waste management through contractors and was undertaking the activity by itself. Therefore, there was drop in the profits and turnover. However, considering these facts, as there is a change in the business model a deduction of 0.5% of the turnover was considered as allowable hence, Id. CIT (A) upheld the rejection of books of accounts and directed the AO to estimate the business i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, we upheld the same. However, we held that the assessee is entitled to consequential relief if any as arise out on giving effect to this order if any. This ground is therefore, disposed-off accordingly. 21. In the result, the appeal of the assessee is partly allowed for A.Y.2013-14. I.T.A.No. 1769/BANG/2017/A.Y. 2014-15:- 22. Ground No.1: is general in nature hence, it does not require any specific adjudication. 23. Ground No. 2 A Et 2B is relates to initiation of proceedings under section 153C of the Act. 24. This ground is covered by our findings as recorded in assessment year 2013-14, in I.T.A.No. 1768/BANG/2017 wherein we have held that initiation of proceedings under section 153C was in order. Hence, this grounds of appeal is therefore, dismissed. 25. Ground No. 3A Et 3C: relates to upholding the rejection of income reported by the Appellant, which is supported by the audited financial statement while reducing the estimation of business income to 8.5% of the gross receipts as against 12% of the gross receipts adopted by the Ld. AO, which is very highly excessive and liable to be reduced. 26. Succinct facts are that the assessee has claimed huge ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 7.12% as against the preceding assessment year at 7.43%. The decline in rate is on account of increase in turnover for ₹ 5.81 crores to ₹ 6.58 crores during the year under consideration. Further the business of solid waste was discontinued in year under appeal, hence, there was drop in profit for the year under consideration. Hence, the rate adopted is very higher as compare to earlier year's. Hence, same may be reduced. 29. Per contra, Ld. D.R. relied on order of the Ld. CIT (A). 30. We have heard the rival submissions and perused the relevant material on record. We find that the assessee could not produce books of accounts and supporting vouchers of expenses and there was huge expenses debited in Profit Et Loss Account. Hence, we are of the considered opinion that the AO has rightly rejected book result under the provisions of section 145 of the Act. Hence, same is upheld. However, so far the estimation of percentage at 8.5% is concerned, we find that the rate of gross profit is disclosed at 8.94% in A.Y. 2011-12, 8.98% in A.Y. 2012-13 , 7.43% in A.Y. 2013-14, 7.12% in A.Y. 201415 and 7.12% in A.Y. 2015-16 of which average comes to 7.918%. Hence, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s asked to show-cause as to why income should not be estimated @ 12% of the gross receipts. However, on the basis of cash found at ₹ 20,85,080 and jewellery found at ₹ 1,51,29,897 during search have generated assets with unaccounted income and no evidence of maintenance of books of accounts, the AO has observed that books of accounts are not reliable, hence, rejected under section 145 of the Act and accordingly, gross receipts were estimates at 12% of gross receipts shown as per 26AS of ₹ 3,78,19,794. Accordingly, business income was worked out at ₹ 45,38,375 resulting in addition of ₹ 27,21,336 was added to total income. 36. Being, aggrieved, the assessee filed an appeal before the Ld. CIT (A). However, Ld. CIT (A) found that percentage of turnover for the year under consideration comes to 7.12% as compared to previous year at 7.12% and in A.Y. 2013-14 at 7.43%. Since books of accounts were not produced, hence, rejection of the same was held to be justified. Accordingly, the gross profit disclosed during assessment years 2010-11, 2011-12, 2012-13 were of 9.07%, 8.94% and 8.98% which is more than presumptive rate of 8% as per provision of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by documentary evidence of cash withdrawals and bank passbook etc. The assessee family is joint family with three brothers, hence, 1 /3rd of seized cash of ₹ 14.80 Lakh of which ₹ 3.93 Lakh were added in the case of the assessee. 42. Being, aggrieved, the assessee filed an appeal before the Ld. CIT (A). Wherein it was contended that there was cash withdrawals of ₹ 7 Lakh on 01.10.2014 and same was available with him. However, CIT (A) viewed that the appellant would have incurred expenditure out of withdrawals and only for this purpose that out of cash found of ₹ 20.85 Lakh. Only a sum of ₹ 14.80 Lakh were seized in the hands of all three brothers. Further, the appellant did not maintain books of accounts; hence, addition made by the AO was confirmed. 43. Being, aggrieved the assessee filed this appeal before the Tribunal. The learned counsel for the assessee submitted that cash of ₹ 7 Lakh was withdrawn on 01.10.2014 i.e. before date of search on 09.10.2014 hence, this much cash was available with the assessee. Therefore, Ld. CIT (A) was not justified in sustaining the addition made on this account of 1/3rd cash seized. 44. Au cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in financial year 2010-11 and same was reflected in financial statement for the said assessment year. However, Ld. CIT (A) viewed that considering these facts, the Department did not seize entire jewellery and no evidence has been adduced for seized jewellery, hence, addition was confirmed. 49. Being, aggrieved the assessee filed this appeal before the Tribunal. The learned counsel referred inventory of jewellery placed at Paper Book Page No. 11 and 12 to the Panchnama prepared during search and submitted that list containing jewellery was claimed to be belonging to all family members and kept together and inventorised accordingly. The list of 19 person to whom jewellery belonged was submitted during the course of assessment proceedings, which is placed at Paper Book Page No. 262, according to which the assessee has owned jewellery of 261 grams, which reflected in balance sheet. Therefore, there was no justification in making addition in the case of the assessee. Further, the AO should have allowed telescoping with income assessed under the business head at ₹ 27,21,336 on estimate basis. The jewellery as per CBDT Circular is covered and to be treated as explained in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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