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TMI Blog2020 (11) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... or that there was a communication of extension of time period. A.O who is having sufficient powers under proviso to Section 142(2C) to suo-moto extend the period not exceeding 180 days from the date of issue of order u/s 142(2A) of the Act. Ld. A.O has acted well within his power and extended the time period and subsequently accepted the Special Audit Report dated 23.05.2014 and further completed the assessment u/s 143(3) of the Act within two months from the date of receipt of Special Audit Report. We therefore find no reason to interfere in the findings of Ld. CIT(A) and find no merit in Ground No.1 raised by the assessee. Accordingly Ground No.1 of assessee s appeal is dismissed. Estimation of net profit - Revenue has challenged the relief given by Ld. CIT(A) of having applied 1% of net profit rate as against 5% net profit rate applied by Ld. A.O on total turnover - HELD THAT:- Just because that the assessee is having 5 bank accounts and not shown in the regular books cannot be the sole basis to reject the regular books of accounts. On the undisclosed turnover the assessee has already opted and duly offered the net profit seperately but on the disclosed turnover unless the Ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition of unaccounted investment/ peak balance of undisclosed 5 bank accounts. We therefore set aside the finding of Ld. CIT(A) and delete the addition of 51,65,904/- sustained by Ld. CIT(A). Thus Ground No.3 raised by the assessee is allowed and Ground No.2 raised by the Revenue is dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dated 15.01.2018 has allowed the following reliefs:- S.No. Particulars Income as Returned (Rs.) Addition made by AO (Rs.) Relief allowed by the CIT(A) Addition as Maintained (Rs.) Income Finally assessed (Rs.). 1 Net Profit 33.08.911 1,94,67,934 1,84,21,477 10,46,457 43,55,368 2 On account of investment in undisclosed business 2,56,74,870 2,05,08,966 51,65,904 51,65,904 33,08,911 4,51,42,804 3,89,30,443 62,12,361 95,21,272 7. The appellant assessee and department both have preferred an appeal before the Hon'ble Bench. The grounds of appeal as taken by the appellant assessee and also by the department are as under:- [A] GROUNDS OF APPEAL AS TAKEN BY THE APPELLANT ASSESSEE 1.1] That on the facts and in the circumstances of the case the Ld CIT[A] erred in approving the reference to the special audit as correct without properly appreciating the facts of the case and submission made before him. 1.2] That on the facts and in the circumstances of the case the Ld Assessing officer failed to bring on records any complexity in the books of account of the appellant prior to reference to the special audit U / s 142 [2A] of the Act. 1.3] That on the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the special audit U/s 142[2A] of the Income Tax Act and also challenged that the assessment order as passed by the assessing officer was barred by limitation of time. 3.2]The date of events in the case of the above assessee is as under:- S.No Particulars Date/Events 1 Date of filing of the return of total income 20-09-2011 2 Notice U/s 143[2] of the Act was issued on 24-09-2012 3 Time till which the assessment order can be p[assed U/s 153 of the Act 31-03-2014 4.1 Letter dt 23-12-2013 being proposal for special audit U/s 142[2A] served on the counsel of the assessee 23-12-2013 4.2 Proposal sent to get approval for special audit from the Hon'ble Chief Commissioner of Income Tax , Indore 06-01-2014 4.3 The assessing officer has filed his objection for invoking the provision of section 142[2A] of the Income Tax Act taken on record on 16-01-2014 4.4 After verifying the books , final report was sent to the Hon'ble CCIT, Indore recommending the case of the assessee for Special Audit U/s 142[2A] of the Act 28-01-2014 4.5 Approval was received from the Hon'ble Commissioner of Income Tax -2, Indore VIDE Letter No CIT-2/Indore/ Tech/ Spl. Audit/ 13-14/ 6088 dt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The appellant during the course of assessment proceeding produced revised books of account after incorporating the bank accounts which remained to be included at the time of filing of the original return of total income. Considering the complexity in the accounts as prepared by the appellant and produced during the course of assessment proceeding, the assessing officer issued show cause notice for special audit and objection from the assessee was also obtained, and after considering the objection of the assessee proposal was send to the Pr ClT-2, lndore and approval was obtained on 21-02- 2014. On receipt of the approval from the Pr CIT-2, lndore M/s Mahesh C Solanki &Co, Chartered Accountants of Indore was appointed for conducting of the special audit and time to furnishing of audit report was allowed till 26-02-2014. However, on receipt of request for more time for conducting of special audit, the same was extended from time to time to till 15-05-2014 and assessment order was passed on 07- 07-2014 i.e. within sixty days from the date of receipt of the audit report from the special auditor. Thus, the order as passed by the assessing officer was within the time as allowed U Is 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made by the Special Auditor to Ld. A.O for extending time limit which was accepted and time was extended to 15.05.2014. Through a letter dated 15.05.2014 along with the Audit Report u/s 142(2A) of the Act dated 15.05.2014 was submitted with the Income Tax Department. The receipt by the Department is shown as 23.05.2014, copy of the receipt is placed at page 97 of the paper book. The assessment u/s 143(3) of the Act was completed on 07.07.2014. In the light of above facts Ld. Counsel for the assessee has contended that firstly the Special Auditor did not apply for extention of time for submitting the report before 15.4.2014. Secondly the time was extended to 15.05.2014 and report was submitted on 23.05.2014 which was delayed. Major emphasis of the Ld. Counsel for the assessee was that first due date allowed by Ld. A.O to the Special Auditor i.e. 15.04.2014 was important. Since till this date no extension was applied the assessment ought to have been completed latest by 14.06.2014 i.e. within two months from 15.04.2014. Since the limitation for passing the order was expired on 14.06.2014 the impugned assessment order dated 07.07.2014 is barred by limitation. 12. For examining thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the report. In our view the power is vested with the Ld. A.O which either on the application of the assessee or suo-moto (emphasis applied) can extend the time period up to 180 days. In the instant case the assessee has not approached for extension of time period. It was only between the Ld. A.O and the Special Auditor that there was a communication of extension of time period. In our considered view Ld. A.O who is having sufficient powers under proviso to Section 142(2C) of the Act to suo-moto extend the period not exceeding 180 days from the date of issue of order u/s 142(2A) of the Act. Ld. A.O has acted well within his power and extended the time period and subsequently accepted the Special Audit Report dated 23.05.2014 and further completed the assessment u/s 143(3) of the Act within two months from the date of receipt of Special Audit Report. We therefore find no reason to interfere in the findings of Ld. CIT(A) and find no merit in Ground No.1 raised by the assessee. Accordingly Ground No.1 of assessee's appeal is dismissed. 14. Now we take up Ground No.2 raised by the assessee and Ground No.1 raised by the Revenue. 15. The Assessee has challenged the finding of Ld. CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.6] The assessing officer applied the rate of net profit at 5% on the amount of total turnover which includes both disclosed and undisclosed turnover. However, the Ld CIT(A) while deciding the appeal restricted the rate of net profit rate at 1% as against 5% as applied by the assessing officer and 0.79% as disclosed on the amount of consolodiated total turnover by the appellant assessee. 1.7.1] The assessing officer on the basis of discrepancies as pointed out from the undisclosed bank account rejected the books of account as maintained by the appellant assessee. 1.7.2] The assessing officer has not described any genuine reason for rejection of the regular books of account as maintained by the appellant assessee. 16. Ld. A.O estimated net profit rate @5% placing reliance on the decidion of Hon'ble ITAT, Indore Bench in the case of ACIT V/s Amar Agrawal ITA No.611/Ind/2012. Ld. Counsel for the assessee submitted that the case of the assessee is clearly distinguishable from that in the case of Shri Amar Agrawal (supra) on account of following reasons:- (a) The case of Shri Amar Agrawal (supra) pertains to Assessment Year 2007-08 and Hon'ble Tribunal referred to the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of Man Mohan Sadani vs CIT ( 304 ITR 0052) (iv) Hon'ble ITAT, Indore Bench in the case of Shri Sitaram Agrawal [ Prop of M/s SMO Industries ] ( Appeal No ITA No 925/Ind/ 2018 dt 20-08-2020 ] 19. Per contra Ld. Departmental Representative vehemently argued supporting the order of Ld. A.O. 20. We have heard rival contentions and perused the records placed before us and carefully gone through the decisions referred and relied by the Ld. Counsel for the assessee. The issue raised in Ground No.2 by the assessee and Ground No.1 raised by the Revenue relates to estimation of Net profit rate. We observe that the assessee carried out various transactions of purchases and sale through 5 undisclosed bank accounts. The undisputed figure of undisclosed turnover in the case of M/s Monika Trading Co and M/s White Gold Enterprises is ₹ 5,44,64,764/- and ₹ 15,09,34,202/- respectively. The assessee has offered 1.33% of net profit on the undisclosed turnover in the Revised computation of total income filed during the course of assessment proceedings. Ld. A.O after relying on the decision of Amar Agrawal (Supra) applied the net porofit of 5% on the total turnover (disclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co White Gold Enterprises 1 Sales 1,12,73,581 9,50,94,395 2.1 Net profit 1,60,220 4,45,282 2.2 % of Net profit 1.42% 0.47% 3.1 Consolidated turnover 10,63,67,976 3.2 Consolidated Net profit 0.57% 4.4.5] On perusal of both the table Le. as provided in paras 4.4.3 & 4.4.4, it is evident that of consolidated profit as declared by the appellant on the amount of disclosed or undisclosed turnover in the year under appeal was at 0.79 and consolidated profit as declared in the Asst Year 2012-13 which was duly accepted by the assessing officer was 0.57 . The margin of the appellant in large volume is significantly lower than the rate as provided U / s 44AF /44AD of the Act. The assessing officer while passing the assessment order applied the rate of net profit at 5 based on the decision the case of Shri Amar agrawal [ Appeal No ITA No 611/ Ind/ 2012]. The appellant deals in Agro product and the price of the product varies due to the quality of rains and soil, availability and supply of the material. Hence, net profit rate of one assessee cannot be applied in the case of other assessee. The appellant during the course of hearing also provided rate of net profit of few m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed bank accounts which had undisclosed turnover. Assessee accepted the undisclosed turnover and offered net profit on such undisclosed turnover. Net profit rate adopted by the assessee namely Shri Sitaram Agrawal (supra) was the average net profit rate accepted by the department in the earlier years and the percentage of financial expenses (Bank interest, other finance charges) already incorporated in the regular books. In these given facts the Tribunal confirmed the finding of Ld. CIT(A) and accepted the net profit rate offered by the assessee observing as follows:- "26. From perusal of the detailed finding of fact by Ld. CIT(A) and the factual aspect we observe that the Ld. A.O has only taken the basis of undisclosed bank account for rejecting the books of accounts. Nowhere in the assessment order he has pointed out any other irregularity in the regular books of accounts maintained by the assessee which are duly audited. Ld. Departmental Representative has failed to bring on record any such observation of the Ld. A.O. It is well evident that the fact of undisclosed bank account has duly been admitted by the assessee in the revised return of income and has offered the net prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t because that the assessee is having 5 bank accounts and not shown in the regular books cannot be the sole basis to reject the regular books of accounts. On the undisclosed turnover the assessee has already opted and duly offered the net profit seperately but on the disclosed turnover unless the Ld. A.O points outs specific mistake or doubt about the genuineness of the purchase/sale and expenses transactions, the book results cannot be doubted. This is also a fact that the assessee has maintained quantitative details and books are duly audited. So far as the book results i.e. net profit shown in the regular books @0.29% on the disclosed turnover of ₹ 23,01,37,927/- is concerned, we are of the view that the same should be accepted and estimation of Ld. A.O applying @5% of net profit and Ld. CIT(A) @1% of net profit on the disclosed turnover is devoid of any merits. 24. Now as far as the undisclosed turnover is concerned the assessee has offered net profit of 1.33%. This net profit rate has been calculated by adding interest cost @1.03% which has been calculated by dividing the total finance charges of ₹ 23,75,168/- divided by the disclosed turnover of ₹ 23,01,37, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) and Revenue is aggrieved with the relief granted by Ld. CIT(A). 28. Ld. Counsel for the assessee referred to following written submissions:- 2.1] The assessing officer qwhile passing the assessment order estimated the net investment at 12.5% of the Unrecorded sales as executed by the appellant assessee. 2.2] The appellant assessee having total turnover of ₹ 23,01,37,927/- in his proprietorship concerns, the amount of total turnover , cash and stock in these units are as per audited final account are as under:- S.No Name of the Firm Total Turnover [Rs] Cash & Bank [ Rs] Stock [ Rs] 1 M/s Monika Trading Co 5,77,24,480 7,11,867 NIL 2 M/s White Gold Enterprises 17,24,13,447 9,61,814 2,80,89,197 23,01,37,927 16,73,681 2,80,89,197 2.3] The assessing officer while passing the assessment order estimated the amount of Investment in the unrecorded sales of ₹ 2,56,74,870/- i.e 12.5% of total unrecorded turnover of ₹ 20,53,98,966/-. 2.4.1] The assessing in the assessment order further observed that the appellant assessee had shown purhcases from M/s Ragho Cotton Corporation , Sutala in his Proprietorship Concern M/s Monika Trading Company to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash and Stock even after considering the closing bank balances of all the five bank accounts which remains to be incorporated in the regular books of account. 2.9.1] The appellant while calculating the peak has considered the following components: S.No Particulars 1 Cash as per regular books of account and as available with the assessee for his business 2 Stock of goods as per books of account and as available for sale out of book proceed of which was deposited in the bank accounts which was not incorporated in the regular books of account 2.9.2] The appellant assessee also declared additional income of ₹ 27,28,601/- on the amount of total unrecorded turnover. The said amount is also available with the appellant assessee against the peak credit if any calculated. However, in the present case, the cash balance and stock as per regular books of account was much higher than the bank balance as reflected in all five bank accounts. Hence, there was no reason for making any addition to the total income of the appellant assessee on account of unexplained investment in the unrecorded total turnover. 29. Ld. Counsel for the assessee submitted that the issue raised in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnover of ₹ 20.54 crores. Ld. CIT(A) while adjudicating this issue substained the addition to the extent of peak balance available in the 5 bank accounts on a particular date which in this case was 27.10.2010 and adopted the peak balance as ₹ 51,65,904/-. Ld. CIT(A) confirmed this addition of peak credit observing as follows:- "4.5.1] In Ground Nos 2 & 7 of the appeal, the appellant has challenged the addition of ₹ 2,56,74,870/- made on account of unexplained investment. The assessing officer while passing the assessment order added 1/8th of total unrecorded turnover of ₹ 20,53,98,966/- which calculated comes to ₹ 2,56,74,870/- was added to the total income of the appellant on account of unexplained investment in the business of the appellant. The appellant during the course of hearing with the table tried to explain that total unrecorded turnover in his both the proprietorship concern was of ₹ 23,01,37,927/- breakup of the same was as under:- SN Name of the Firm Total Turnover [Rs] Cash & Bank [Rs] Stock [Rs] 1 M/s Monika Trading Co 5,77,24,480 7,11,867 NIL 2 M/ s White Gold Enterprises 17,24,13,447 9,61,814 2,80,89,197 23,01, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as evidence in a civil court, but he cannot make the assessment on a pure guess without reference to any evidence or material. No evidence or material has been referred to any evidence or material. No evidence or material has been referred to any relied upon for ,treating the aforesaid sum of ₹ 50,000 as unexplained investment and the only circumstance which has been referred in this connection is the estimated sale of ₹ 4,24,396. From the estimated sale it cannot necessarily be inferred that the assessee has invested ₹ 50,000 in some unexplained business. It being not a necessary inference is a pure guess and the finding seem to be based on surmises and conjectures. Thus, there was no material for the Tribunal to hold that the assessee had made an unexplained investment of ₹ 50,000 outside the account books.-Dhakeswari Cotton Ltd. vs. CIT(1954) 26 ITR 775 (sq relied on." Hon'ble Gujarat High Court in the case of CIT vs Gurubachhan Singh J Juneja reported in 302 ITR 63 has held that [ refer from premable] :- "In absence of any material on record to show that there was any unexplained investment made by the assessee which was reflected by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions of sales and purchases with the regular parties of which some have been recorded in the regular books and some have not been recorded which are routed through the ICICI bank. This facts strongly supports the submission of the assessee that the physical stock and cash in hand in the regular books have been utilised for making unaccounted sales. It is noteworthy that the assessee is carrying out of books sales transactions in the past also and till the date of peak bank balance on 28.2.2014 the profits earned on unrecorded sales have been offered to tax and they form part of the peak bank balance. So in nutshell against peak balance found in the bank account not disclosed in the regular books in the instant case three things have to be considered, firstly stock in hand available with the assessee, secondly cash in hand available in regular books and thirdly the undisclosed profit earned on the unaccounted sales till the date of peak balance which have been offered to tax. Taking these factors together, in the instant case the peak balance in the undisclosed ICICI bank account is much less than the total of stock in hand, cash in hand and unaccounted profits offered to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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