ASSISTANT COMMISSIONER OF INCOME TAX, PANAJI vs. GURUDATT SHRIKANT BHOBE, PANAJI

These appeals pertain to Husband and Wife and the issues raised are identical, we therefore proceed to adjudicate the appeals by this consolidated order for the sake of convenience.

Registry has pointed out that the cross objection No.05/PAN/2025 is belated by 325 days before this Tribunal. Assessee has filed an Affidavit stating the reason. On going through the said reason, we find that ‘reasonable cause’ prevented the assessee from filing the cross objection within the stipulated time. We therefore condone the delay in filing the cross objection placing reliance on the judgments of Hon’ble Apex Court in the case of Collector, Land Acquisition, Anantnag & Anr. Vs. Mst. Katiji & Ors.

CO Nos.5/PAN/2025 and 15/PAN/2026

We will first take up ITA No.259/PAN/2024 along with C.O.No.05/PAN/2025 :

Revenue has raised following grounds of appeal :

Assessee in its Cross objection has raised following grounds of appeal :

Assessee has also taken following additional ground of appeal challenging the validity of assessment u/s.143(3) r.w.s.153A of the Act on the ground that no valid approval u/s.153D of the Act.

Brief facts of the case are that the assessee is an individual and declared income of Rs.94,82,500/- in the return of income for A.Y. 2016-17 filed on 14.10.2016. A search and seizure action u/s.132 of the Act carried out on 28.12.2016 followed by issuance of notice u/s.153A of the Act on 22.03.2018. In response, the assessee furnished return on 18.04.2018 declaring income at Rs.1,58,79,610/- as against Rs.94,82,500/- declared in the original return of income. The assessee is engaged in the business of owning and managing salons and spas and has various branches across India. Assessee is governed by the sustem of community of property (known under the Portuguese Civil Code of 1860 as ‘COMMNIAO DOS BENS’) and the income earned other than salaries is apportioned equally between the husband and the wife as provided in section 5A of the Act. Therefore, the spouse of the assessee namely Archana Bhobe was also separately scrutinised. During the course of search, it was submitted that the assessee maintains a point of sales software called “Divine Beauty” in which the actual sales are recorded and as per the said software the sales for the year were Rs.13.58 crore as against the sales declared in the Income Tax Return at Rs.9,34,52,546/-. When confronted during the search, assessee accepted them to be suppressed gross receipts. During the course of post search proceedings, assessee accepted the actual turnover at Rs.15.52 crore and also claimed the expenses which are out of books of account at Rs.4.90 crore approx. but the assessee could not prove the genuineness of these expenses. Ld. Assessing Officer accordingly concluded the proceedings observing that the difference of suppressed sales is CO Nos.5/PAN/2025 and 15/PAN/2026 Rs.6,17,64,014/-. The assessee has offered additional income at Rs.1,27,94,233/-. Difference remains at Rs.4,89,69,781/-. Therefore, 50% is to be added in the hands of assessee at Rs.2,44,84,890/- and the remaining addition made in the hands of spouse. Thus, income assessed at Rs.4,03,64,500/-.

Aggrieved assessee preferred appeal before ld.CIT(A) and placed reliance on plethora of decisions consistently holding that in case of suppressed gross receipts only the profit element deserves to be taxed. Based on these decisions, ld.CIT(A) applied Net profit @25% as against 21.85% declared by the assessee and gave substantial relief to the assessee.

Aggrieved Revenue is now in appeal raising two grounds, firstly against the application of Net Profit @25% and secondly challenging the finding of ld.CIT(A) directing the Assessing Officer to provide Telescoping benefit to the unaccounted cash of Rs.1,74,40,297/- found at the residence of J.P. Agarwal. We note that Ground No.2 raised by the Revenue is not arising out of the impugned order and therefore seems to have been wrongly taken and therefore the same is dismissed as Infructuous.

On the other hand, assessee has raised cross objections claiming that Net Profit offered by the assessee at 21.85% ought to have been accepted as against 25% adopted by ld.CIT(A).

Ld. DR vehemently argued supporting the order of Assessing Officer.

Ld. Counsel for the assessee supported the finding of ld.CIT(A) estimating the Net Profit on the suppressed sales but also claiming that assessee has already disclosed higher Net Profit rate because the Net Profit to sales in the books is 19% but the CO Nos.5/PAN/2025 and 15/PAN/2026 assessee has offered additional income which has increased the Net Profit rate to 21.85% and the same should be accepted.

We have heard the rival submissions made by the parties and perused the record placed before us. The issue for our consideration is the estimation of Net Profit rate. Admittedly, the assessee has suppressed the gross receipts to the extent of Rs.6,17,64,014/-. Assessing Officer has made the addition for the total suppressed receipts after giving the benefit of additional income offered by the assessee at Rs.1,27,94,233/-. For the remaining suppressed sales, addition was made by the Assessing Officer. Assessee Challenged the same before ld.CIT(A). Ld.CIT(A) has considered plethora of judicial precedents including that of Hon’ble High Court of Gujarat in the case of CIT Vs. High Court), CIT Vs. S.M. Omer (1992) 62 Taxman 46 (Calcutta) and other judgments consistently holding that the total sales cannot be recorded as profit of the assessee and the Net Profit rate has to be adopted and adopting such Net Profit cannot be said that there is perversity of approach and whether the Net Profit is low or high would depend upon the facts of each case. We also take note of the decision of Coordinate Bench, Mumbai in the case of M/s. Sumer Builders VS. DCIT in ITA No.4915/Mum/2016 dated 09.01.2021 holding that on-money receipts are in the nature of undisclosed receipts and not income per se and therefore only the profit element embedded therein is liable to be taxed and not the entire receipts. Considering all these judicial precedents, ld.CIT(A) estimated the Net Profit @25% and the relevant observation of ld.CIT(A) reads as under :

On going through the above finding of ld.CIT(A), we fail to find any inconsistency so as the applicability of Net Profit rate is concerned because ld. Assessing Officer has only referred the suppressed gross receipts. Further, it is also noticed that during the course of assessment proceedings assessee has referred to out of books expenses at Rs.4,89,69,781/- incurred under various head which mainly included the amount of purchases at Rs.1,40,50,152/- salaries and wages at Rs.,3,00,44,144/- etc. Ld. Assessing Officer has not given the benefit of these out of books expenses for lack of supporting vouchers. However, for effecting the sales, expenses are to be incurred and therefore the application of Net Profit rate is justified.

Now remains the issue of Net Profit rate to be applied, which we find that assessee has declared 19% Net Profit rate and after offering additional income at Rs.56,03,591/- Net Profit rate increased to 21.85% and ld.CIT(A) has applied 25% Net Profit rate. We find during the course of appellate proceedings assessee has contended that as per section 44AD of the Act the Net Profit rate of 8% is applied on the turnover, if it does not exceeds the limit of gross receipts as prescribed u/s.44AD of the Act and that such 8% Net Profit rate is a benchmark normally applied by the Revenue authorities while making the Best Judgment assessment. It is also been stated that assessee has already offered 19% Net Profit rate which is much higher than the accepted standards and on adding the additional income the Net Profit worked out at 21.85%. Considering these observations, we deem it appropriate to apply Net Profit rate at 23% as against 25% applied by ld.CIT(A) on the unaccounted sales turnover as the unaccounted income earned by the assessee is from the business activity. Accordingly, the grounds of appeal raised by the Revenue are dismissed and the cross objections raised by the assessee are partly allowed.

The facts and the issues in the case of spouse of assessee namely Archana Bhobe are also identical and therefore our decision given in the case of husband Gurudatta Shrikant Bhone shall apply mutatis mutandis to this appeal as well. Grounds of appeal raised by the Revenue are accordingly dismissed whereas the Cross Objection filed by the assessee is partly allowed.

To sum up, both the appeals of the Revenue are dismissed and the cross objections filed by the assessee are partly allowed a per the terms indicated hereinabove.

The Pr. CIT concerned. विभ गीय प्रतितनधि, आयकर अपीलीय अधिकरण, Panaji 4. ‘DB’ Bench / DR, ITAT, Panaji ‘DB’ Bench ग र्ड फ़ इल / Guard File. 5. आिेश नुस र / BY ORDER,