ANEES BEGUM,HYDERABAD vs. ACIT., CENTRAL CIRCLE-2(3), HYDERABAD

Aggrieved by the assessment order passed by the Assessing Officer, the assessee filed an appeal before the learned CIT (A). The learned CIT (A) restricted the addition by estimating income @ 8% instead of 12% adopted by the Assessing Officer.

Before the Tribunal, the learned Counsel for the assessee submitted that the Assessing Officer has treated the total credits in the bank account as business turnover of the assessee and estimated the income @ 12% of the gross receipts. He has further submitted that the assessement proceedings were going on during the Covid 2019 pandemic and therefore, the assessee could not respond to the notice issued by the Assessing Officer u/s 142(1) of the I.T. Act, 1961. Thus, he has contended that the Assessing Officer has not given proper opportunity to the assessee before passing the assessment order. The learned Counsel for the assessee has further contended that the total bank credits cannot be considered as business turnover of the assessee for the purpose of estimation of profits. Further, it amounts to double taxation when the entire credits in the bank account is treated as turnover, as some of the credits were already taxed in the previous year. The Assessing Officer has also not taken into consideration the withdrawals from the bank account during the year. Thus, he has submitted that the addition made by the Assessing Officer is not justified and liable to be deleted.

We have considered the rival submissions as well as the relevant material available on record. So far as the entire credits in the bank account is taken as turnover of the assessee is concerned, we find that, though the assessee has disputed the decision of the Assessing Officer in this regard, however, no details or record has been filed by the assessee either before the authorities below or before us to show that, part of the credit in the bank account does not relate to the turnover of the year under consideration. The learned Counsel for the assessee has just submitted that some of the credits in the bank account during the year has already offered to tax in the earlier year as turnover, however, no details or record has been filed in support of this contention. Therefore, in the absence of any material to show that part of the credits in the bank account do not relate to the turnover of the assessee for the year under consideration, we do not find any reason to interfere with the orders of the authorities below to that extent.

As regards the estimation of income by taking net profit @ 12% of gross receipts, the Assessing Officer has not given any basis for adopting the net profit @ 12% of the gross receipts/total credits in the bank account. Though the learned CIT (A) has restricted the net profit @ 8%, however, again no basis has been given by the learned CIT (A) for adopting the net profit @ 8%. It is pertinent to note that the past history of the net profit declared by the assessee and attained finality is a proper and reasonable guidance for estimation of the profit, in case the books of account of the assessee are rejected or turnover is found out of Page 8 of 14 the books of account. In case of no past history of the assessee, the prevailing net profit in the business would be a guiding factor for estimation of income of the assessee from the said business. The assessee has relied upon the decision of this Tribunal in case of DNR Constructions vs. Income Tax Officer (Supra) wherein the Tribunal has considered an identical issue in Para 8 as under: “8. We have heard the submissions of the parties and perused the material facts on record. So far as the first issue with regard to the rate of profit in estimating the income of the assessee is concerned, the CIT (A) is of the view that income in the case of the assessee had to be estimated due to unverifiable nature of expenditure claimed which does not give the correct book results. The assessee more or less had also accepted the estimation of profit. However, the dispute is with regard to the rate at which the profit is to be estimated. We find that, in a recent decision, the Income-tax Appellate Tribunal, Hyderabad Bench in case of ACIT V/s. M/s Teja Constructions (ITA No.1191/Hyd/2011 dated 17-2-2012 directed to estimate profit in the case of different categories of contracts by observing in the following manner:- "However, the issue is covered by the order of the Income- tax Appellate Tribunal in the assessee's own case for the earlier year. For that year the Income-tax Appellate Tribunal has estimated the profits of the assessee @9% on own contract works, 8% on contracts taken by the assessee on subcontracts and @ 5% on contracts given by the assessee to 3rd party on sub-contracts." Following the aforesaid decision of the co-ordinate bench, we direct the Assessing Officer to estimate the profit from main contract work at 8% and on sub-contract work at 5% of the receipts. In view of the above, ground no. 2 is partly allowed.”

Having regard to the facts and circumstances of the case and following earlier decision of this Tribunal cited (Supra), we estimate the income of the assessee by taking net profit @ 5%

Ground Nos. 10 & 11 are regarding the addition made by the Assessing Officer towards unexplained investment of Rs.1.5 crores. During the course of search & seizure operation in the case of Shri Mohd. Abdul Sattar & Others, an agreement of sale was found and seized entered into between the assessee and Shri Mohd. Abdul Sattar & Shri Mohd. Basheer Khan for purchase and sale of agricultural land measuring 5 acres and 12½ guntas for a total consideration of Rs.10 crores, out of which an amount of Rs.3 crores was said to be received in cash, as advance from the assessee and her family. On the basis of the said agreement, the Assessing Officer has made an addition of unexplained investment of Rs.1.50 crores being 1½ share of the assessee in payment of Rs.3 crores in cash for purchase of land.

The assessee challenged the action of the Assessing Officer before the learned CIT (A), but could not succeed.

Before the Tribunal, the learned Counsel for the assessee submitted that the contents of the agreement to sell and the sale deed, vide which the land was purchased by the assessee are not same. When the sale deed executed between the parties is not in pursuant to the alleged agreement found during the search and seizure action, then the addition made by the Assessing Officer on the basis of the said agreement is invalid and not sustainable. He has further contended that the parties in this Page 10 of 14 agreement to sell are different than the parties in the sale deed vide which the assessee and her husband purchased the land for a consideration of Rs.1 crore. The learned Counsel for the assessee has contended that the registered document has a legal authority and would prevail over the unregistered agreement. The Assessing Officer ought to have considered the contents of the sale deed before making the addition. Unless and until it is proved that the agreement was acted upon and the amounts stated in the agreement was paid for sale, it cannot be held that the price mentioned in the sale deed is not correct. In support of his contention, he has relied upon the judgment of the Hon'ble Kerala High Court in the case of CIT vs. Smt. K.C Agnes (2003) 262 ITR 354 (Ker.). Hence the learned AR has pleaded that the addition made by the Assessing Officer and confirmed by the learned CIT (A) is not sustainable and liable to be deleted.

On the other hand, the learned DR has submitted that the agreement to sell found during the course of search & seizure action, clearly mentioned the total sale consideration of Rs.10 crores out of which Rs.3crore was paid in cash by the buyer who are the assessee and family members. However, in the sale deed, the sale consideration is shown only Rs.1 crore. The Assessing Officer has issued notice u/s 142(1) of the I.T. Act, 1961, but there was no response from the side of the assessee, therefore, the addition was made by the Assessing Officer on the basis of the incriminating material found during the course of search & seizure action in respect of Shri Mohd. Abdul Sattar and others. He has referred to the impugned order of the learned CIT (A) and Page 11 of 14 submitted that the contents of the agreement were also corroborated by Shri Mohd. Abdul Sattar in his statement recorded u/s 131 of the I.T. Act, 1961 on 15/03/2019. The relevant part of the statement is reproduced by the learned CIT (A) at pages 33 and 34 of the impugned order. The learned CIT (A) has given all the relevant facts in the impugned order explaining that when the payment of Rs.3 crores in cash on 28/08/2018 as admitted by the seller of the land, then the addition made by the Assessing Officer is just and proper. He has relied upon the orders of the authorities below.

In the rejoinder, the learned Counsel for the assessee has submitted that the agreement was signed only by Shri Mohd. Abdul Sattar and not by Shri Gulam Rehman. Further, the assessee is also not a signatory to the agreement. Shri Mohd. Abdul Sattar was having only 1/6th share in the land sold as per the sale deed; therefore, the addition cannot be made on the basis of the agreement, without considering the subsequent sale deed. The learned Counsel for the assessee has pointed out that during the appellate proceedings, the learned CIT (A) called for a remand report, however, the Assessing Officer has not issued notice in the remand proceedings or confronted the alleged incriminating material to the assessee. He has also submitted that the assessee was not given an opportunity to cross examine the person whose statement is relied upon by the learned CIT (A).

We have considered the rival submissions as well as the relevant material on record. The Assessing Officer has made addition on the basis of the agreement to sell found during the search & seizure operation in the case of Shri Mohd. Abdul Sattar and others. Since the assessee did not participate in the assessement proceedings due to covid pandemic period, the Assessing Officer has framed the assessment u/s 144 of the I.T. Act, 1961. Thus, it is clear that the assessee was not confronted with the alleged agreement or the statement, as relied upon by the Assessing Officer. During the appellate proceedings, the learned CIT (A) called for a remand report wherein the Assessing Officer has also referred the statement of Shri Mohd. Abdul Sattar recorded u/s 131 of the I.T. Act, 1961 which was also not confronted to the assessee as no notice was given by the Assessing Officer. We further note that in the assessement proceedings, the Assessing Officer has given only one notice u/s 142(1) of the I.T. Act, 1961 and that too during the covid 2019 pandemic period. Therefore, in the facts and circumstances of the case, we are of the considered view that, this issue requires a re- examination at the level of the Assessing Officer after giving an opportunity of hearing to the assessee, to respond to the alleged agreement to sell as well as statement of Shri Mohd. Abdul Sattar made the basis of the addition as well as confirmed by the learned CIT (A). Accordingly, this issue is remanded to the record of the Assessing Officer for re-adjudication of the same in the above terms.

In the result, appeal filed by the assessee is partly allowed.