9911796707
TMI Blog2022 (10) TMI 1251X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered on the turnover disclosed in the audited financial statements. Therefore, considering the profitability for the previous and subsequent assessment years, we accept the plea of the assessee for applying 5% net profit on the turnover of Rs. 4,64,79,756/- which comes to Rs. 23,23,988/-. The assessee has himself disclosed the net profit of Rs. 18,49,242/-, therefore, we confirm the addition of Rs. 4,74,746/-and the assessee gets relief of Rs. 34,36012/-. We make it clear that from the estimated profit adopted @5% on the turnover, no further deduction shall be allowed under the head income from business and profession. Once the books of accounts have been rejected and profit has been estimated by applying sec.145(3) no further disallowance can be made under the head income from business and profession for tax computation of taxable income of the assessee - HELD THAT:- The pattern of assessment under the Act is given by section 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in sections 30 to 43D. Section 40 provides for certain disallowances in certain cases notwithstanding that those amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery was prepared and found a lot of discrepancies, huge difference was also found in the cash balances to which the assessee failed to explain even during the post survey also. A lot of documents like purchases and sales vouchers and loose papers, stock register and other documents were impounded during the course of survey which indicates lot of incriminating details against the assessee. The case was selected for compulsory scrutiny and notice u/s 143(2) was issued and other statutory notices were issued to the assessee. The assessee was asked to file details for justifying the discrepancies found during the course of survey and other questions were also raised by a notice u/s 142(1) of the Act dated 26.05.2006. It was also asked to the assessee that the loose sheets found were also recorded in the books of accounts or not and further asked to the asseseee as to why books of accounts may not be rejected u/s 145(3) of the I.T. Act. and then profit may not be estimated by applying on certain percentage of the turnover. Against these questionnaire the assessee fled reply dated 12.06.2006 and 18.07.2006 and finally on 19.06.2006 which was considered by the AO. In regard to discrepanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... net profit rate. The AO after analyzing all the loose documents, estimated the turnover of the assessee at Rs. 6.00/- crore which results in increase of Rs. 1.36 crore in the turnover then disclosed by the assesese and observed that it appears to be reasonable under the given circumstances. He further observed that the assesee has himself shown the net profit @9.6% in the return filed for the assessment year 2006-07, therefore, he also applied 9.6% net profit on the turnover on estimated turnover of Rs.6.00/- crore which came out to Rs. 57,60,000/- and accordingly the difference was added into the total income of the assessee for Rs. 39,10,758/-. 5. The AO further observed that the assessee has debited interest and financial charges of Rs. 39,54,938/- and has raised unsecured loan amount of Rs. 4,37,94,766/-. It was also observed that the assessee has given interest free loan to close relatives and sister concern to which no interest has been charged as per the balance sheet schedule Q. It was noticed that Rs. 1,74,64,404/- were given as interest free loan, this fact is confronted to the assessee and her explanation was sought and assessee was unable to give satisfactory explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was reminded that no details of deposits have been furnished and she was asked to do on the next date of hearing. In response, the assessee filed reply vide letter dated 18/07/2006, which is as under:- "1.1) Out of the total unsecured loans of Ps. 43795 lacs, Rs. 396.59 lacs are fixed deposits from over 700 individual depositors. Since it is difficult to obtain confirmations from all such parties and hence you may let us know the names of a few large parties from whom we can obtain confirmations." 9. Accordingly the AO completed the assessment as under:- 10. Aggrieved from the above order, the assessee filed appeal before the CIT(A). The details were filed and remand report was also called from the Assessing Officer(AO) by the CIT(A). After considering the details, the CIT(A) upheld/dismissed which is as under:- Disallowance of business framed - confirmed Bad debts written off - confirmed Staff welfare expenses - confirmed Disallowance of interest paid - confirmed Addition on account of NP rate - confirmed 11. On account of addition on cash credit, he partly allowed the appeal of the assessee by holding as under:- "48 . The nest ground of appeal pertains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this extent is deleted. Hence, the disallowance is limited to Rs. 2,03,26,280/-. Hence, this ground is partly allowed." 12. Accordingly he partly allowed the appeal of the assessee. 13. Aggrieved from the order of the CIT(A), the assessee filed appeal before the ITAT. 14. The ld.AR reiterated the submission made before the lower authorities and relied on the entire submissions before the lower authorities. He also filed written synopsis dated 07/09/2022 and 26/09/2022 which are as under:- "The appellant has raised grounds on the legal issues and on the merits of the matter in the appeal before your Honours in ITA No. 398/Bang/2020. The Authorized representative upon instructions from the appellant, during the course of submissions has submitted before your honours, that the estimate if on an average was restricted to 5% of gross turnover reported, the remaining grounds on the merits of the matter would be rendered academic considering the grounds raised without prejudice to the grounds on merit, which are reproduced below. 4 (iv): Without further prejudice, no additions under section 68 could have been made, when the income of the appellant was estimated, on the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso for arriving at the closing stock. This is an established principle as has been held in the decisions relied upon by the respondent namely Indwell Constructions case ('supra), Banwari Lal Banshidhars case (supra), Aggarwal Engg. Co.'s case (supra) and Amman Steel & Allied Industries case (supra). It is prayed that your honours hold that no additions of the creditors or disallowance was warranted by relying upon the books of account, which was rejected. It is prayed accordingly. The Honorable bench during the course of hearing queried the applicability of the decision in the case of Basir Ahmed Sisodia v. Income Tax Officer [2020] 424 ITR 1(SC)[24-04-2020]. A copy of the order is attached for your honours perusal. The appellant has made submissions that the said case was rendered in the context of deletion of additions made under section 68, by placing reliance upon the findings of the CIT(A), who had deleted penalty on the merits of the matter and when the penalty was deleted on appreciation of evidence on merits, the same treatment was required to be adopted to the additions made under section 68 of the act and the additions were deleted. The honorable Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted by the Officer would have the effect of taxing the same transaction twice. S. To buttress the aforesaid contentions, reliance is placed on Maddi Sudarsanani Oil Mills v. CIT [1959] 371TR 369 (AP); CIT v. Aggarwal Engg. Co. (Jal.) [2006]156 Taxman 40/[2008] 302 ITR 246 (Punj. & Har.)and CIT v. G.K. Contractors [ITAppeal No. 13 of 2009, dated 28-1-20097. The revenue in reply has made the following arguments; 9. Per contra, the respondent urged that the assumption of the appellant/assessee that the assessment order had rejected the books of accounts under Section 145(3) of the 1961 Act is preposterous. In that, the assessment in question came to be made under Section 143(3) of the 1961 Act. Thus, the Officer was justified in relying upon the said books for making addition's). The respondent would also urge that while imposing the first addition, the assessment order does not reject the books of accounts, but only that part which pertained to assessing the gross profit, as the assessee had not maintained day to day stock registers, nor had produced or maintained other necessary vouchers while determining the gross profits. Additionally, the respondent would also urge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed accordingly." Written Synopsis 2 "The appellant in continuation to synopsis - 1, dt: 07/09/2022, is herewith supplementing the above with a short synopsis for the sake of convenience of your honours. A. Estimation of business income: a. The appellant has placed reliance upon the computation of rates of profit available for four years at pages 17 to 20 and the average of the three years (excluding the loss percentage of AY 2004-05) is arrived at 4.66% of gross turnover. b. The appellant has during the course of arguments on the issue of estimation of income, submitted that the average profit percentage was 4.66% and has also submitted that the appellant would not contest it further, if the estimation of the rate of profit was estimated at % of turnover of Rs. 4,64,79,756/-, i.e. as per the audited financials (page 5). B. Disallowance of Interest of Rs. 1,7!,18/- a. In so far as the ground on disallowance of interest expenditure of Rs. 15,75,158/-, the appellant has placed reliance upon the decision in the appellant's own case by this honorable Tribunal, for the AY 2006-07 which is on the same set of facts and also on the same head of expenditure and prays that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r purchase of the data was between the parties and the assessing officer was not justified in sitting in judgment on whether the consideration paid was adequate or having any value to the appellant, which is the sole preserve of the appellant. iii. The learned CIT(A) was not justified in confirming the disallowance of bad debts of Rs. 29,437/- without appreciating that the bad debts were out of prior sales, and not recoverable, on the facts and circumstances of the case. Bad Debts: a. The appellant has sold jewellery over the years (page 21 to 25) and the claim of the appellant was not honoured by the credit card company and the appellant has written off the said trade receivables in the AY 2005-06, in the normal course of business. b. The write off is of a trade debt and the amounts were not recoverable in the perception of the appellant. The write off of the bad debt is sufficient to claim the same as an expenditure. iv. The learned CIT(A) was not justified in confirming the disallowance of Rs. 39,215/- paid to employees towards holiday and staff welfare expenses, incurred in the regular course of business, on the facts and circumstances of the case. a. The appellant ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he proposition that, the books of account could be relied upon to make addition, though the same books were rejected to estimate the income of the appellant. d. The appellant further submits that a latter decision of the Apex court in CIT v IeIliappan 66 ITR 722 (SC) has taken a different view on the same aspect and thus there are two diametrically opposite decisions by the apex Court. e. It is settled position that when there are two contrary views on a certain point, the in favour of the assessee shall be followed. CIT v Vegetable Products Ltd 88 ITR 192 (SC) f. Without prejudice to the above and not conceding that no additions shall be made out of the same business books, which were rejected for making estimation of the profits, the appellant submits the following for your honours consideration; g. The appellant has filed the details of every depositor with details of identity, complete dress, contact information, mode of receipt and repayment details through bank. The appellant has also filed the confirmation of a substantial portion of the depositors, the PAN etc, which the revenue has acknowledged and accepted to a large extent (pages 214 - 331, 353, 384, 386). h. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r side in the line jewellery business, the net profit rate offered for three financial year is as under:- Year page No. % of Profit 31/03/2003 17 2.91 31/03/2004 18 loss 31/03/2005 19 3.61 31/03/2006 20 7.45 16. The AO has wrongly applied the net profit rate ignoring the past performance as well as future performance as noted above. On 31/03/2006, the net profit rate is 7.45% after interest and depreciation, whereas the AO has considered it as 9.35%. At the last of argument on this issue, considering to the entire facts he was agreed after taking oral consent from the proprietor of the business that he was agreed for 5% on the turnover declared in the audit report for the impugned assessment year on 07/09/2022 and he further submitted that once addition is made no further addition can be called for under the head profit and gains of business & profession whereas the CIT(A) upheld the addition made by the AO under the different heads as disallowance of business expenditure which is also not correct. The ld.AR further submitted in respect of unexplained cash credit, he strongly supported that once the books of accounts is rejected by the AO, for further addition under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he confirmation from all the parties, whereas the ample opportunity was given during the course of assessment proceedings as well as the appellate proceedings. At the time of remand proceedings he could not file the confirmations or confirmations filed were not correct, the deficiencies in the Fixed Deposit documents the AO has pointed out in the remand report. On the legal issue, the ld.DR strongly submitted that the AO rejected the books of accounts only for the purpose of estimation of the net profit from the business. The section 145 of the I. T. Act. is very clear. The AO can further rely the same books for other additions. The assessee has herself relied on the same books for arriving the final figures drawn from the books for preparation of financial statements which has been carried forwarded for the next financial year also. He can rely on the same books for other additions if the other financial transactions are to in conformity as per the provisions of the Act, therefore, entire arguments made by the ld. AR should be rejected. 20. After hearing the rival contentions, we observe that the survey was conducted on the business premises of the assessee on 21/04/2005 and cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entry made in the loose sheets but the assessee has prepared list which was produced before the lower authorities marked as L1 to L5,. Further on observation of the assessment order, the analysis made by the AO of entry made in loose sheets marked L1 to L5 the AO observed that at page No.17, the purchase bills dated 1/3/2005 for 30.5.44 cents of diamond Rs. 39,500/- from J. Enterprises it was not recorded in the books of account and in loose paper at LP4 there is one invoice marked as Page No.89 dated 28/10/2004 for Rs. 74,553/- was not recorded by the assessee. The AO has analyzed the loose paper and he observed that the some of the sales have not been recorded in the books of accounts but he has not marked the date/year of sales. Therefore, as per our considered opinion it should be considered for the year in which the survey was taken place. On observation of the entire assessment order nowhere the AO has mentioned that there was any defect on the quantity of stock found during the course of survey for the impugned assessment year. We further observe from the order of the AO at para No.3 which is as under:- The assessee furnshied her reply vide letter dated 12.06.2006, 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her disallowance can be made under the head "income from business and profession" for tax computation of taxable income of the assessee The contention of the assessee has been carefully considered and we note that once the books of accounts have been rejected by the AO for determination of net profit from the business of the assessee u/s 145(3) no further disallowance can be made for the expenditure for computation of business income. The pattern of assessment under the Act is given by section 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in sections 30 to 43D. Section 40 provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under section 29 is to be made under section 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the Assessing Officer may reject those books and estimate the income to the best of his judgment. When such an estimate is made it is in substitution of the income that is to be computed under section 29. In other words, all the deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments of the ld. AR on the issue of no further addition can be made after rejecting the books of accounts u/s 68 towards unexplained cash credit. The ld.AR also relied on the judgment of hon'ble jurisdictional High Court and other High Courts also , on perusal of the same we did not find any reference of the judgement of the Hon'ble Supreme Cort cited by us supra, therefore, it appears that before the Hon'ble High Courts the judgement of Hon'ble Supreme Court on the very same issue was not cited by both the parties, therefore, judgement of the Hon'ble High Court will not be applicable in the case of the assesee, accordingly, considering the above judgments of Hon'ble Supreme Court, we hold that if the books of accounts are rejected and pplied sec.145(3) for determining net profit from the business carried on by the assessee, the AO is free to make additions u/s 68 towards unexplained cash credit. Accordingly, this legal ground raised by the assessee is rejected. 26. Now we come to the merit of the case in regard to the addition of unexplained cash credit. 27. On observation of the assessment order, the AO made addition that there was outstanding fixed deposits of Rs. 3,94,58,851/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken aganist a well defined scheme where a signed application form with all particulars are obtained from each depositor. Since it is difficult to obtain confirmations from all 755 depositors I request you to consider only those depositors with a balance of more than Rs. 1.00/- lakh as was done in the previous assessment year . I am enclosing herewith a statement of the list of such depositors ( Annexure III) and the confirmations received. In respect of a few depositors who are not available presently please allow us one month time to submit balance confirmation. I request your good self to invoke your power u/s 131 and verify the same from the list of address and names given". 27.2. From the above it is clear that the name and address were provided to the AO by the assessee and she had also requested to the AO for exercising his power u/s 131 of the I. T. Act. The specimen copy of application for Deposit has been placed by the assessee at P.B. No.63 to 65 and further at page No. 214 to 331 in the Fixed Deposit certificates with ID No. is enclosed, the name and address is also mentioned therein. But the AO did not issue any notice to the Fixed Depositors. A similar issue has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee through banking channels. Without resorting to such process, I am of the view that the CIT(A) has confirmed the addition made by AO ignoring the evidence available on record. In my view the evidence filed by the assessee satisfactorily explains the credits in question and the impugned addition has been made ignoring the material on record on the basis of surmises and conjectures. There is an allegation that it is Assessee's money which went to Sneha International and that was deposited by Snehal International in a bank account and from that bank account funds were transferred to M/S.Sherwali Corporation and M/S.Venkata Industries, but there is no evidence to substantiate such allegation. 10. As far as the decision cited by the learned DR is concerned in the decision rendered in the case of Mohana Kala (supra), the Hon'ble Supreme Court has emphasized that the assessee did not contend with the material and circumstances available on record not justifying credit being treated as income. In the present case, I am of the view that the assessee has produced material evidence to show that the sum in question was received on account of sale of shares and no evidence has been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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