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TMI Blog2025 (2) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... ries [2015 (11) TMI 395 - MADRAS HIGH COURT] has considered the same issue and ratio laid down that the addition made u/s 40A(3) of the act is faulted for the reason that the AO himself has estimated the income by estimating the gross profit. AO, while completing assessment has taken one of the view which is plausible one, as taken by various High Courts, as noted above, that once profit is estimated on purchases, no disallowance can be resorted to by invoking the provisions of Section 40A(3) of the Act. In our view, this is the only possible view. But, if we consider that there are two views possible, even then, the revision proceedings u/s 263 of the Act cannot be initiated. If two views were possible and when the AO has accepted one of the view which is a plausible one, it is not appropriate on the part of the PCIT to exercise his power u/s 263 of the Act solely on the ground that apart from estimating profit, the AO has to invoke provisions of Section 40A(3) of the Act. As held in the case of Malabar Industrial Co. Ltd.[2000 (2) TMI 10 - SUPREME COURT] and Vimgi Investment P. Ltd. [2007 (2) TMI 176 - DELHI HIGH COURT] once a plausible view is taken, it is not open to the PCI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to revision order passed by PCIT u/s 263 of the Act on the aspect of lack of enquiry and consequently non-disallowance of unaccounted purchases made in cash of Rs. 5,83,99,000/- by not invoking the provision of section 40A(3) of the Act. For this, assessee has raised the following ground No.1:- "1. That having regard to the facts and circumstances of the case and in law, the assessment order passed by ld.AO u/s 153C is neither erroneous nor prejudicial to the interest of revenue and Ld. Pr. CIT (central) erred in invoking the provisions of section 263 of the Income Tax act and also erred in setting aside the assessment order passed by ld.AO u/s 153C/143(3) for fresh enquiry without properly appreciating the facts. 1.1 The Ld. Pr. CIT (Central) has erred both on facts and in law in ignoring the fact that the issue raised by him in notice u/s 263 was before the Id. AO and as such the jurisdiction on this issue u/s 263 cannot be assumed by him. 1.2 The order passed Ld. by Pr. CIT(central) under section 263 of the Income Tax Act is unsustainable as power to revise can be invoked in the case of no/lack of enquiry and the proceeding under Section 263 cannot be used for substituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re are transaction related to 3rd parties which are mentioned and not related to assessee and gave instances for the same. The assessee contended that the assessee has filed complete details of its transactions in the ledger account seized during the search is not related to assessee and moreover the said ledger is not complete as there are missing transactions of various parties. It was also claimed before AO during the course of assessment proceedings by assessee that cash transactions mentioned in the ledger account named as MT and 01 Chintu Capital do not pertain to assessee. According to the assessee, the Assessing Officer finalized the assessment by estimating the profit @ 2% on account of unaccounted purchases mentioned in the ledger and digital data found from JBL. The assessee before PCIT filed complete details of transaction and also argued that complete verification and enquiry was conducted by the Assessing Officer and after that he applied profit rate of 2% on unaccounted purchases. Hence, it was requested by assessee that the revision proceedings u/s 263 of the Act initiated against the assessee be dropped. 5. The PCIT noted in his revision order that the AO added th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business premises of Sh. Kushagra Jindal promoter and Director of JBL. The AO noted in his assessment order in para 1 that the digital data found during search on JBL Group of gross purchases made by assessee Sh. Mahesh Verma for financial year 2014-15 and 2015-16 and on this premises only assessment was framed u/s 153C r.w.s 143(3) of the Act. The Ld. Counsel for the assessee argued and drew our attention to the submissions filed before the AO during assessment proceedings wherein complete detail of unaccounted purchases/cash purchases was explained as under:- "Without prejudice to above that ledger seized during search are not related to assessee and transactions in cash are not related to assessee it is hereby submitted that addition in respect of cash received and paid cannot be separately made in the hands of assessee in view of the following:- 1) Ledger named MT and Chintu capital found during search are with regard to sale and purchase of gold and silver and all the receipt and payment mentioned in the ledger are with regard to trading of gold and silver ii) It is the accepted fact that assessee is engaged in the business of trading of gold and bullion and cash paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the documents placed on record and document seized, undersigned is of the opinion that cash transactions mentioned in ledger seized are with regard to sale and purchase of gold carried out by the assessee with JBL. However as the assessee has not recorded sales of Rs. 20,00,000and not recorded purchase of Rs. 5,83,99,000 in its books of accounts, its gross profit is unaccounted and hence needs to be added back to the assessee's income. 11. The assessee in its submission has worked out the gross profit of Rs 52,559 for A.Y. 2015-16, which is calculated @ 0.09% on unaccounted purchase or sale whichever is higher. This percentage is not acceptable as it is very low keeping in view of the nature of business. As such gross profit @ 2% is being applied on total of unaccounted sale/purchase whichever is larger. Hence Rs. 11,67,980 which is 2% of unaccounted purchase (Rs. 5,83,99,000) is added to return income as unexplained money w/s 69A of the I.T. Act. Penalty proceedings u/s 271(1)(c) of the I.T. Act, 1961 is being initiated." In view of the above, the Ld. Counsel for the assessee stated that once profit rate is estimated no disallowance is possible invoking the provisions of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act. This view of ours is supported by the decision of Hon'ble Rajasthan High Court in the case of PCIT vs. Jadau Jewellers and Manufactures (P) Ltd. Wherein it is held as under: "The counsel for the appellant has framed the following substantial questions of law: "1. Whether on the facts and circumstances of the case and in law the decision of the Hon'ble Income-tax Appellate Tribunal was perverse in restricting trading addition to only Rs. 1,52,599 out of the total trading addition of Rs. 91,37,068 made by the Assessing Officer ignoring the facts brought out by a qualified chartered accountant in special audit report which is based on very reasonable analysis of the facts derived from the seized material and information provided by the assessee during special audit process ? 2. Whether on the facts and circumstances of the case and in law the Hon'ble Income-tax Appellate Tribunal was justified in confirming the order of the learned Commissioner of Income-tax (Appeals) deleting the disallowance of Rs. 2,71,50,538 made by the Assessing Officer under section 40A(3) of the Income-tax Act, 1961 ignoring the facts that addition under section 40A(3) is entirely d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2015] 229 Taxman 491 (P&H). 3.5 The third issue regarding perversity does not arise as there is no perversity in the judgment of the Tribunal." 9. Secondly, the Hon'ble Allahabad High Court in the case of CIT vs. Banwari Lal Banshidhar held as under: "(i) Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that there was no question of any disallowance in a case where the assessee's income is computed by application of gross profit rate on sales as shown? …………. All the three questions, referred to this court, revolve round the same controversy. The question for consideration is when no deduction w sought and allowed under section 40A(3), was there any need to go into section 40A(3) and rule 6DD(j). We see force in the view taken by the Appellate Tribunal that when the income of the assessee was compute applying the gross profit rate and when no deduction was allowed in regard to the purchases of the assessee, there was no need to look into the provisions of section 40A(3) and rule 6DD(j). No disallowance could have been made in view of the provisions of section 40A(3) read with rule 6DD(j) as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted since the basis of the additions had been faulted and are no more valid and since the income is estimated, no disallowance on this account can be made. Th15. This Court has already held in the former portion of the order, that the assessment order came to be passed only on the basis of the show cause notice issued by the Central Excise Department and no independent enquiry has been conducted by the Assessing Officer. Further, the ratio of the decision of the Supreme Court in K.T.M.S. Mohammed's case (supra), clearly applies to the facts of the present case. Such being the case, in the absence of any independent enquiry by the Assessing Officer, the disallowance sought to be made under the Income Tax Act, by the Assessing Officer, on the basis of the show cause notice, issued under the Central Excise Act cannot be sustained. When the assessable income was arrived at by applying a percentage rate, as held by this Court in S. Mohammad Dhurabudeen's case (supra), the said exercise would take care of everything and there is no need for the Assessing Officer to make scrutiny of the amount incurred on the purchases by the assessee for the purposes of disallowance. Therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (9). It was only a legal consideration as to whether the deduction under section 80HHC was to be computed after reducing the amount of deduction under section 80-IB from the profits and gains. There is no doubt that the Assessing Officer had allowed the deduction under section 80HHC without reducing the amount of deduction allowed under section 80-IB from the profits and gains. He did not say so in so many words, but that was the end result of his assessment order. Since he was holding in favour of the assessee, as has been observed in Hari Iron Trading Co. [2003] 263 ITR 437 (P&H) and Eicher Ltd. [2007] 294 ITR 310 (Delhi), generally, the issues which are accepted by the Assessing Officer, do not find mention in the assessment order, it cannot be said that the Assessing Officer had not applied his mind. It cannot also be said that the Assessing Officer had failed to make any enquiry because no further enquiry was necessary and all the facts were before the Assessing Officer. Consequently, we are of the view that the decisions cited by the learned counsel for the Revenue, wherein assessment orders were found to be erroneous for want of an enquiry or proper enquiry, would have no ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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