9911796707
TMI Blog2021 (2) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... ordinate bench has held that without rejection of books of account question of application of net profit does not arise. In the case of Pr.CIT Vs. Marg Ltd.[ 2017 (7) TMI 823 - MADRAS HIGH COURT] also held that profits of the assessee cannot be estimated without rejection of books of account. In the case of Dhakeswari Cotton Mills Ltd. Vs. CIT [ 1954 (10) TMI 12 - 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 made without having any material is bad in law, thus, we uphold the order of the ld. CIT(A) and dismiss the appeal of the Revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... n a position to compete and sustain in the market hence, he has no option except to reduce the margins in the business and incurred huge losses. The assessee also submitted that due to severe competition from big players, assessee has closed down the branches at Bangalore and Visakhapatnam. The assessee further submitted that for the A.Y. 2015-16 turnover was ₹ 121.96 crores and it has been reduced to ₹ 100.35 crores and 85.19 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 reduction of turnover and 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 and resulted in incurring losses. The assessee further submitted that assessee maintained regular books of account which are audited and filed the returns of income with the Registrar of Companies and Income Tax well within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se was covered search u/sec. 132 and no evidences were found with regard to suppression of income or any material to show that the assessee has 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. 5.1. With regard to admission given, ld.AR argued that there is no provision in the Act to complete the assessment on agreed basis. If a particular item or receipt or a transaction is taxable as per the provisions of the Act the same required to be taxed, whether the assessee agrees or 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. The AO has to collect legitimate taxes, and hence, argued that legal position is clear that even though the assessee has agreed, the AO is not permitted to tax the item which is not taxable and even if the assessee does not agree, the AO cannot be refrained from taxing the income which is taxable. The assessee has taken number of case laws to support his contention which is discussed in para 16 of the ld.CIT(A)'s order. List of case laws reads as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 net profit @ 2.15% and admitted net profit of ₹ 2,15,27,737/- and additional income of ₹ 1,82,75,649/-for the A.Ys. 2016-17. 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 the assessment. Ld.DR further submitted that addition was agreed by the assessee himself, therefore there is no grievance to the assessee and to go back from the admission given hence argued that the addition made by the AO has to be sustained and requested to set aside the order of the ld.CIT(A) and allow the appeals of the Revenue. 9. On the other hand, ld.AR vehemently relied on the order of the ld. CIT(A) and argued that the admission given by the assessee was under pressure and lack of understa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11-12 to 2015-16 ignoring the losses incurred by the assessee for the impugned assessment years and issued show cause notice to estimate the profit at 6.26%. In response to the notice the assessee explained the reasons for shortfall in the profit in detail which was discussed earlier in this order. The AO found that the assessee did not furnish the details of closing and opening stocks and in the absence of such details the AO viewed that it is not possible to ascertain whether the stock which was put to sale consists of old items or items purchased during the year. Thus, viewed that gross profit or net profit declared by the assessee cannot be relied upon for the current year, therefore accepted the estimation of income at 2.15% as agreed by the assessee. Accordingly, completed the assessment estimating the income at 2.15% of the gross turnover and separately made the additions agreed during the course of search. 13. From plain reading of the assessment order we find that the AO has not applied his mind and did not give logical reasoning for resorting to estimation of income. In the instant case, a search u/sec. 132 was conducted in the business premises of the assessee as well a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee further stated that to attract the customers they are forced to reduce the margins and from the F.Y. 2012-13 the turnover was drastically reduced. The assessee further stated that due to introduction of Central Excise Act from the A.Y. 2015-16 shops were closed for 45 days and the assessee has paid excise duty on the stocks which was not collected from the customers and business was interrupted frequently due to separate state agitation during the F.Y. 2014-15. Demonetization was one of the reasons stated to be for reduction of turnover and the profit. The assessee has stated that slow and obsolete items were sold reducing the prices from 1% to 4%per gram. The assessee further stated that gold prices fluctuated considerably and many a times gold was purchased at higher rates. The assessee has maintained regular books of account and all the above contentions are verifiable facts. Since the books of account, stock registers were seized by the Investigation Wing, the AO ought to have verified the above facts instead of resorting for estimation of income. All the reasons for shortfall in profit appears to be reasonable. From the tabulation of turnover given in the Assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer should bring the defects in the books for which he could not be able to deduce the profit from the Books of accounts produced. In normal situations, the assessees usually give affidavit to confirm the admission specifically when there are defaults on the part of the assessees. In the present situation, the AO has not brought any default of the appellant company in showing the Loss. According to the human probability theory when the assessing officer has not shown the default, why the appellant company will come forward to admit the income which is prejudice to his own. In my opinion, on examination of the Assessment order and the notices issued in the course of Assessment proceedings, the Assessing Officer has not found fault in the Books of account. Hence without defects in the Books of accounts mere admission will not have the evidentiary value. 17.9) During the course of Assessment proceedings, books of accounts were examined in depth. The Stock records were seized/ impounded are with the department. The Assessing Officer's allegation that, the appellant company could not specifically identify the closing and opening stock details is without jurisdiction because t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. Smt.Sudarshan Gupta [IT Appeal No. 487 of 2007, dated 20-5-20087. Hence, we are of the view that the surrender letter will have to be ignored. Thus, we find no reason to interfere with the impugned order passed by the Tribunal. The same is hereby sustained along with reasons mentioned therein. On consideration, I find that the ratio laid down in the above case, is applicable to the present case of the appellant company. In the case of appellant company, all the transactions were disclosed in the return of income and also in the Books of accounts. AO has not pointed out any concealment of transactions or concealment of income. As per the Books of accounts the appellant company has incurred the toss which is being accepted by the AO because AO has not pointed out any defects. In the absence of such facts the surrender letter or the affidavit will have to be ignored as the letter and affidavit were given with misapprehension of law and facts." 14. The ld. CIT(A) deleted the addition observing that the AO is not permitted to make the addition without rejecting the books of account. For the sake of clarity and convenience we extract the relevant part of the order of the ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit 6.26% which was proposed to apply to the appellant's case, was also not adopted but a profit ratio of 2.15% was taken into consideration with the consent of the Authorised Representative of the appellant by way of an affidavit, but has not made any other worth mentioning exercise. The above exercise does not itself lead to estimation of income, as it is inevitable for the A.O. to reject the books of account u/s.145(3), if the profit is to be estimated, in other words, estimate of profit by comparing the profit admitted in the year under consideration with that of the earlier years, is not permissible as per law, as before resorting to such estimate of profit the A.O. should reject the books of account u/s 145(3) of the Income-tax Act, 1961 pointing out certain defects. As regards the A.O's observation that rejection of books of account of the appellant is not necessary as the profit was estimated as per the appellant's own admission, I am in disagreement with the A.O's observation as the provisions of sec.145 have not provided any such clause thereby making the intention of Legislature is crystal clear that rejection of books of account is mandatory in all the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
