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TMI Blog2021 (1) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... - SUPREME COURT] held that AO is not entitled to make a pure guess work or suspicion without any reference or without any material at all. Taking into consideration of all the above aspects, in the instant case, there is no basis for estimation of income, therefore, estimation of income without having any seized material or any material is bad in law, Hence, we uphold the order of the ld. CIT(A) and dismiss the appeal of the Revenue. - I.T.A. Nos. 183 & 184/VIZ/2020, C.O.Nos. 18 & 19/VIZ/2020 (Arising out of I.T.A. Nos. 183 & 184/VIZ/2020) - - - Dated:- 23-12-2020 - Shri V. Durga Rao, Hon ble Judicial Member And Shri D.S. Sunder Singh, Hon ble Accountant Member For the Assessee : Shri M.V. Prasad, CA. For the Department : Shri D.K. Sonawal, CIT-DR ORDER PER BENCH: These appeals by the Revenue and the cross objections by the assessee are directed against the separate orders of Commissioner of Income Tax (Appeals)-3, Visakhapatnam, both dated 30/06/2020 for the Assessment Years 2016-17 2017-18. Since facts and the issues are common in both the appeals, they are clubbed and heard together and disposed of by way of this consolidated order. 2. All th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers, assessee has closed down the branches at Bangalore and Visakhapatnam. The assessee further submitted that for the A.Y. 2015-16 turnover was ₹ 64.26 crores and it has been reduced to ₹ 60.21 crores and 56.33 crores for the A.Ys. 2016-17 and 2017-18 respectively. The assessee also stated that gross profit was also reduced sharply. Apart from the above, the assessee submitted that demonetization and agitation for separate state of Andhra Pradesh and continuous protests have attributed for incurring huge losses. Fluctuation of prices also stated to be one of the reasons for lower margins. The assessee further submitted that they have purchased gold during the period of inflation which was reduced subsequently which resulted in incurring losses. The assessee further submitted that assessee maintained regular books of account which are regularly audited and filed its returns of income with the Registrar of Companies and Income Tax well within the time. The loss declared in the return of income was real loss thus, argued that there is no understatement of income in the assessee s case, however, the assessee in the same letter stated to have agreed for estimation of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion was given by the assessee on pressure and misapprehension the same is invalid and cannot be taken as the basis for estimation of income without having the material on record. The assessee further stated that the assessee s case was covered u/sec. 132 and no evidences were found with regard to suppression of income or any material to show that the assessee had understated the income for the impugned assessment years, therefore, argued that the addition made by the AO is bad in law, hence, requested the ld. CIT(A) to delete the addition. 6. With regard to admission given, ld.AR argued that under misapprehension of levy of penalty and on pressure the same is invalid. The ld.AR further argued that there is no provision in the Act to complete the assessment on agreed basis to make or delete the addition. If a particular item or receipt or a transaction is taxable as per the provisions of the Act the same has to be taxed, otherwise not. The agreement or disagreement of the assessee does not come on the way of the revenue to tax the particular item which is taxable, Since, the AO has to collect legitimate taxes, hence, argued that legal position is clear that even though the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that AO found that profit of the assessee was sharply declined for the A.Ys. 2016-17 2017-18 and against the net profit 11.67% in the A.Y. 2011-12, net profit was decreased to (-)7.09% in the A.Y. 2016-17 and for the A.Y. 2017-18 it was (-)1.19%. Thus, the assessee declared huge losses for both the assessment years, therefore, the AO has sufficient reason to believe that the assessee has declared the losses to set off the additional income admitted by the assessee during the search to pre-empt the declarations made during the search operations. The ld.DR further argued that assessee himself has agreed for the addition to estimate the income @ 5.52% and accordingly admitted the income of ₹ 3,32,36,244/- and ₹ 3,14,09,432/- for the A.Ys. 2016-17 2017-18 respectively. The AO has considered the submissions of the assessee and found that there were no details of opening stock and closing stock and in absence of such details it is very difficult to ascertain whether the assessee has sold old items or new items, therefore viewed that gross profit and net profit ratio cannot be relied on. Thus, accepted the estimation of income as agreed by the assessee and completed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22.14 3,74,27,834 10.14 12,41,36,154 33.63 2013-14 39,04,02,446 8,89,57,438 22.78 4,06,08,055 10.40 17,63,06,785 45.16 2014-15 53,52,23,151 8,25,72,504 15.43 2,58,21,843 4.82 19,59,38,106 36.61 2015-16 64,26,65,699 9,68,56,172 15.07 3,54,72,394 5.52 22,57,59,248 35.13 2016-17 60,21,05,879 7,62,18,755 12.66 -4,26,59,687 -7.09 16,78,32,753 27.87 2017-18 56,33,77,667 5,33,92,062 93.47 -67,47,869 -1.19 11,17,08,308 19.83 13. The AO did not find any defect in the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t taxable. The department has to collect legitimate taxes and bring the material to support their case. In the instant case, the AO neither brought the material nor rejected the books of account and brought any material to resort for estimation of income. The profit of earlier years cannot be only indicator for estimation of income, since, there may be lot of changes financially in the business environment. The contention of the assessee is that the admission was given on pressure and under misapprehension. If the admission is given on misapprehension or pressure, the assessee is permitted to retract from the admission and the AO is bound to make the assessment on the material gathered. In the instant case, no defect was detected and purchases and sales were accounted and the expenditure was accounted and the AO did not find any inflation of expenditure, suppression of sales, inflation of purchases. Thus, there is no case for estimation of income and the AO simply computed the average net profit of the earlier years and issued show cause notice for estimation of income, the assessee explained the reasons for declining profit. Without rejecting explanation offered by the assessee wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erification of the assessment order, it is also seen that the last date of hearing was 15.12.2018 which shows that the assessment proceedings were completed by 15.12.2018. The assessee also placed copy of letter dated 15.12.2018 objecting for the proposed addition for estimation of income @8.51%. There was no indication of agreement for estimation of income in it s letter dated 15.12.2018. It is also seen that the assessee has furnished the affidavit on 26.12.2018 before the AO, though there was no hearing. The above material placed in the paper book shows that there was undue pressure on the assessee as stated by him in the affidavit filed before the Ld.CIT(A) for agreeing the addition. Thus, we are of the considered opinion that the admission was given on undue pressure and the same cannot be basis for addition. In this connection we, extract the order of ld.CIT(A) in page No.22 from Para No.18.4 to 18.7 which reads as under:- 18.4) On careful consideration of the material facts, it is clear that the appellant vide the affidavit has agreed to disclose the regular income towards net profits based on immediate previous year's net profit ratio. This affidavit was filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects in the Books of accounts mere admission will not, have the evidentiary value. 18.6) During the course of assessment proceedings, books of account were examined in depth. The stock records were seized /impounded .and are very much with the Department. The Assessing Officer allegation that the appellant company could not specifically identify the closing and opening stock details is without jurisdiction because the details are available in Form 3CD annexed to the audit report and also in the seized record. The reason quoted by the Assessing Officer does not in any way come to his rescue to estimate the profit and also to take the admission in the form of letter and affidavit. 8.7) The Assessing Officer has not drawn any conclusion in the assessment order whether any material has been seized which shows that the appellant company has siphoned the profit out of the company books. The appellant contended that on the date of search itself i.e. 20.09.2016, which as per the Books of account there is a loss which was also taken note of by the Investigation Department was examined. In such a case, there is no scope to allege that the appellant company has shown toss to mitigat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, profit, is to reject the books of account, point out the defects in the books of account u/s. 145(3), irrespective of the fact that whether the appellant made case, the Assessing Officer's action in making the addition of ₹ 3,32,36,244/- by estimating the net profit @ 5.52% on the gross of ₹ 60,21,05,879/- could have gained some strength. Further, it is an undisputed fact that the appellant furnished Audit Report as required u/s. 44AB enclosing thereto the details of sales and purchases, closing stock etc. Except estimating the net profit @ 5.52% on the gross turnover of ₹ 60,21,05,879/- as per the consent given by the Authorised Representative of the appellant by way of an affidavit filed during the course of assessment proceedings, the Assessing Officer has not made any worth-mentioning effort/independent verification and pointed out any defects in the appellant's books of account. The Assessing Officer simply gathered the particulars of turnover, gross profit and net profit from the records for the preceding five years i.e. AYs 2011-12 to 2015-16 (11.64 + 10.14 + 10.40 + 4.82+ 5.52 = 42.55/5 = 8.51), declared by the appellant in the return of in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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