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Facts
The assessee, engaged in slimming, skin, and hair care services, was subjected to a search and seizure operation. Based on this, the Assessing Officer (AO) added an amount of Rs. 14,41,96,147/- as suppressed sales. The CIT(A) confirmed the quantum but restricted the addition to 15% of the suppressed sales.
Held
The Tribunal found that the AO had already verified and provided relief for certain inaccuracies in the data used to calculate suppressed sales. For the first issue, the Tribunal granted marginal relief of 5% on the suppressed sales, acknowledging the revenue's mistakes. For the second issue regarding net profit estimation, the Tribunal rejected the assessee's claim based on comparable companies and the alternate claim of 5% net profit.
Key Issues
Whether the quantum of suppressed sales has been correctly determined, and if the estimation of profit on suppressed sales is justifiable based on comparable companies or other methods.
Sections Cited
132, 153A, 143(3), 44AA
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Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: SHRI LALIET KUMAR & SHRI MADHUSUDAN SAWDIA
3. The brief facts of the case are that, the assessee is a company engaged in the business of providing solutions for slimming, skin and hair care and other related services having different branches located at Andhra Pradesh, Tamil Nadu, Karnataka and Telangana. The assessee filed their Return of to 941/Hyd/2024 & 4 C.O. Nos.15 to 26/Hyd/2024 Income (“ROI”) for A.Y. 2013-14 on 25.09.2013 admitting total income of Rs.1,31,81,020/-. Search and seizure operation u/s.132 of the Income Tax Act, 1961 (“the Act”) was conducted in the case of the assessee and M/s. Kolors Healthcare LLP on 30.10.2019. Notice u/s.153A of the Act dated 20.09.2020 was issued to the assessee and in response the assessee filed the ROI on 20.02.2021 by admitting the total income as mentioned in the original ROI i.e. Rs.1,31,81,020/-. Subsequently, the assessment u/s.143(3) r.w.s. 153A of the Act was completed by the Learned Assessing Officer (“Ld. AO”) on 30.09.2021 determining the total income at Rs.15,73,77,167/-. The addition of Rs.14,41,96,147/- was made by the Ld. AO on account of solitary issue of suppressed sales.
4. Aggrieved with the order of Ld. AO, the assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) confirmed the amount of the quantum of suppressed sales at Rs.14,41,96,147/-. However, the Ld. CIT(A) restricted the addition to 15% of the amount of suppressed sales, contending that some expenses are also incurred in cash in relation to suppressed sales. to 941/Hyd/2024 & 5 C.O. Nos.15 to 26/Hyd/2024
Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before us. The revenue had also filed C.O. in support of the order of Ld. CIT(A) raising the following grounds : “
(1) The assessee contested that Ld.CIT(A) erred in confirming the AO's treatment of Rs. 14,41,96,147/- as suppressed sales. In the facts and circumstances of the case and in law, whether the assessee's contention is correct when the 'suppressed sales' are quantified based on the evidences found during search and seizure operation conducted u/s 132 of the Act. (2) In the facts and circumstances of the case and in law, whether the assessee is correct in contesting that estimation of profit on suppressed sales ought have worked out @5% based on the profit percentage in the previous and subsequent years, when the assessee could not furnish any supporting evidence in respect of expenses stated to have incurred out of the suppressed sales, either during the course of assessment proceedings or during the course of appellate proceeding before Ld.CIT(A). (3) Any other ground that may be urged at the time of hearing.”
6. The Learned Authorised Representative (“Ld. AO”) submitted that only two issues arises from the present appeal of the assessee. First issue is regarding the confirmation of quantum of suppressed sales of Rs.14,41,96,147/- by Ld. CIT(A) and second issue is regarding considering the 15% of suppressed sales as income by the Ld. CIT(A) on the suppressed sales. 6.1 With regard to the first issue, the Ld. AR submitted that, at all the branches of the assessee, the payment for sales were accepted in cash and other banking modes like cheque payment, to 941/Hyd/2024 & 6 C.O. Nos.15 to 26/Hyd/2024 debit / credit card, RTGS, etc. All these payments were recorded in PRO books / sheets maintained at branch level. From these PRO books, the details of daily sales were entered into a Google sheet, which was shared with the corporate office of the assessee. During the search and seizure operation, Excel sheet containing the details of sales were seized from the assessee and the difference between the amounts as per “sales as per modes of payment” column of the Excel sheet and the amount recorded in the books of the assessee i.e. (Rs.24,42,43,397/- less Rs.10,00,47,250/- = Rs.14,41,96,147/) was added to the total income of the assessee. The Ld. AR further submitted that, the amount recorded in the seized Excel sheet include both the cash and bank payments and there was duplication in the data for credit card and RTGS receipts form the clients. Hence, the amount of suppressed sales calculated by the revenue authority at Rs.14,41,96,147/- is not correct and is at higher side. Therefore, he requested the bench to consider the amount of suppressed sale at 50% of Rs.14,41,96,147/-.
7. With regard to second issue, the Ld. AR brought our attention to the page no.135 of the order of Ld. CIT(A), wherein the details of year-wise percentage of net profit offered by the to 941/Hyd/2024 & 7 C.O. Nos.15 to 26/Hyd/2024 comparable companies in the same business are available. The Ld. AR submitted that the percentage of net profit in case of those comparable companies varies from (-) 9.2% to (+) 9.25% and accordingly, he prayed before the bench to take the average of percentage of net profit of comparable companies in the case of assessee. 7.1 In their alternate submission, the Ld. AR submitted that the net profit percentage of 15% taken by the Ld. CIT(A) is on higher side. The Ld. AR also brought our attention to page no.136 of the order of Ld. CIT(A) where, in the remand report, the Ld. AO has calculated the average percentage of net profit of the assessee at 7.22%. The Ld. AR submitted that huge amount of cash expenditure has been incurred by the assessee out of the amount of suppressed sales which has not been recorded in the books of account. Therefore he prayed before the bench to take 5% as net profit on the suppressed sales.
Per contra, as far as the first issue in assessee's appeal and supporting C.O. is concerned, the Learned Department Reprsentative (“Ld. DR”) submitted that, the inaccuracy / mistakes / duplication in data in the seized Excel sheet has already been considered by the Ld. AO in his order. In support to 941/Hyd/2024 & 8 C.O. Nos.15 to 26/Hyd/2024 of her contention, the Ld. DR brought our attention to page no.57 of the order of Ld. AO and show that, there was another column in seized Excel sheet i.e. “total paid” and as per total paid column, the sales was Rs.30,29,74,644/-. However, the Ld. AO calculated the amount of suppressed sale on the basis of sales as per “mode of payments” column of seized Excel sheet i.e. Rs.24,42,43,397/-. The assessee claimed before ethe Ld. AO that the amount as per “total paid” column have been overstated due to duplication of data for credit card and RTGS receipts. Therefore, after verifying the seized Excel sheet, the Ld. AO found that the sales as per “total paid” column is not correct and total sales as per “mode of payment” is correct. Accordingly, the Ld. AO considered the total sales as per “mode of payments” column at Rs.24,42,43,397/- instead of “total paid” column at Rs.30,29,74,644/- for the purpose of calculation of suppressed sales. In the result, the Ld. AO had already verified and given relief of Rs.5,87,31,247/- (i.e. Rs.30,29,74,644/- less Rs.24,42,43,397/-) on account of mistake / inaccuracy/ duplication in the seized Excel Sheets. Hence, the suppressed sales of Rs.14,41,96,147/- has been calculated by the Ld. AO after cross verification of the seized Excel sheets with the PRO to 941/Hyd/2024 & 9 C.O. Nos.15 to 26/Hyd/2024 book / sheet maintained at branch level and there is no mistake in the quantum of suppressed sales taken by the Ld. AO.
As far as the second issue is concerned, the Ld. DR submitted that the assessee has not furnished the various details with regard to the comparable companies i.e. the services provided by them, age of the company, their clients data base, their number of branches, their pricing methodology, whether any goods also are sold along with services offered, the turnover achieved by them for each year, etc. In absence of such data, it is not rational to simply follow the net profit percentage declared by the comparable companies. Further the Ld. DR submitted that there is huge fluctuation in the percentage of net profit of the comparable companies. Therefore, the Ld. DR submitted that the net profit percentage of the comparable companies cannot be taken in the case of the assessee. 9.1 With regard to the alternate claim of the assessee regarding considering the net profit percentage of 5%, the Ld. DR submitted that, most of the administrative and other expenses must have already been recorded in the books of account of the assessee and have already been claimed by the assessee. Therefore, the to 941/Hyd/2024 & 10 C.O. Nos.15 to 26/Hyd/2024 Ld. DR prayed before the bench to uphold the net profit of 15% taken by the Ld. CIT(A).
We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. As far as the claim of the Ld. AR with regard to duplication in the seized Excel sheet for credit cards and RTGS receipts from clients is concerned, no such specific instances has been brought to our notice by the Ld. AR. To the contrary, the Ld. DR submitted that the inaccuracy / mistakes / duplication in data in the seized Excel sheet has already been considered by the Ld. AO in his order. In support of her contention, the Ld. DR brought our attention to page no.57 of the order of Ld. AO and show that, there was another column in seized Excel sheet i.e. “total paid” and as per total paid column, the sales was Rs.30,29,74,644/-. However, the Ld. AO calculated the amount of suppressed sale on the basis of sales as per “mode of payments” column of seized Excel sheet i.e. Rs.24,42,43,397/-. The assessee claimed before the Ld. AO that the amount as per “total paid” column have been overstated due to duplication of data for credit card and RTGS receipts. Therefore, after verifying the seized Excel sheet, the Ld. AO found that the sales as per “total paid” column is not correct to 941/Hyd/2024 & 11 C.O. Nos.15 to 26/Hyd/2024 and total sales as per “mode of payment” is correct. Accordingly, the Ld. AO considered the total sales as per “mode of payments” column at Rs.24,42,43,397/- instead of “total paid” column at Rs.30,29,74,644/- for the purpose of calculation of suppressed sales. In the result, the Ld. AO had already verified and given relief of Rs.5,87,31,247/- (i.e. Rs.30,29,74,644/- less Rs.24,42,43,397/-) on account of mistake / inaccuracy/ duplication in the seized Excel Sheets. Hence, the suppressed sales of Rs.14,41,96,147/- has been calculated by the Ld. AO after cross verification of the seized Excel sheets with the PRO book / sheet maintained at branch level and there is no mistake in the quantum of suppressed sales taken by the Ld. AO. 10.1 However, we found that the assessee had filed the summary of repeated invoices in S&S to the following effect : to 941/Hyd/2024 & 12 C.O. Nos.15 to 26/Hyd/2024
10.2 We also found that, the Ld. AO at page nos.56 to 58, para nos.10.4.3 to 10.4.3.4 of his order merely relied upon the observation made by the investigation wing to the following effect : “ 10.4.3 The third contention of Sri Vijaya Krishna is that the amounts in 'total paid' columns in collection reports were 'cumulative' figures and the total arrived during the search is much higher than the original values. In support, he has also furnished some of the entries which are getting cummulated in the total paid' column of the sales reports. 10.4.3.1 During the course of search operation, after retrieving the collection reports from the Google Drive maintained in 'kolorsdump@gmail.com, Sri D. Venkata Ramana, Accounts Manager was requested to identify which column of the collection report is usually considered for the sales turnover. In reply, Sri D. Venkata Ramana has submitted that the "total paid column" in sales report reflects the sales turnover. Accordingly, to 941/Hyd/2024 & 13 C.O. Nos.15 to 26/Hyd/2024 the 'total paid' column of collection report was considered for arriving the sales turnovers and the same was confirmed by Sri Vijaya Krishna in his statement. Accordingly, the search team considered the 'total paid' column of collection reports for arriving the sales turnovers. 10.4.3.2 The Investigation Wing observed that there was merit in his submission. It was observed that the figures/amounts in 'total paid' columnwere accumulating automatically in respect of some of the customers. It was agreed to sum-up the modes of payments columns of the collection reports to arrive correct sales turnovers. Accordingly, cash, card, cheque, gift card, and other banking channels columns were considered to calculate the sales turnover and the sales differences were arrived as under: to 941/Hyd/2024 & 14 C.O. Nos.15 to 26/Hyd/2024 10.2 However, the similar contentions were raised by the assessee before the Ld. CIT(A) placed at para nos.12.2.1 to 12.2.2 of the order of Ld. CIT(A), which are to the following effect : to 941/Hyd/2024 & 15 C.O. Nos.15 to 26/Hyd/2024 to 941/Hyd/2024 & 16 C.O. Nos.15 to 26/Hyd/2024 to 941/Hyd/2024 & 17 C.O. Nos.15 to 26/Hyd/2024 to 941/Hyd/2024 & 18 C.O. Nos.15 to 26/Hyd/2024 10.3 From the reading of the findings of Ld. AO / Ld. CIT(A), it is clear that, both the revenue authorities have not examined the claim of assessee independently and have merely relied upon the findings of investigation wing. In our view, when the assessee raised the specific grievance then it was incumbent upon the authority to give independent finding having regard to evidence and objection of the assessee. Invariably, this type of case should be sent back to Ld. AO / Ld. CIT(A) for verification, however, considering the character of evidence and estimation made by lower authorities, we deem it appropriate to give marginal relief of gross sales suppressed by the assessee. Thus the gross sales suppressed of Rs.14,41,96,147/- for the impugned A.Y. 2013-14 be reduced by 5%, considering the overall mistake committed by revenue in verifying total suppressed sales. Accordingly, this ground is partly allowed.
In second issue, as far as the calculation of percentage of net profit of suppressed sales on the basis of comparable companies is concerned, we are in total agreement with the submission of Ld. DR that, the assessee has not produced any details of the comparable companies and there is huge fluctuation in percentage of net profit of the comparable companies. Therefore, we are of the considered opinion that percentage of net profit of the comparable companies cannot be to 941/Hyd/2024 & 19 C.O. Nos.15 to 26/Hyd/2024 taken as a basis for estimating the percentage of net profit on suppressed sales in the case of the assessee. Therefore, we reject this claim of the assessee. 11.1 Now coming to the alternate claim of the assessee for considering percentage of net profit at 5%. The Ld. AR submitted that the assessee has incurred huge cash expenditure out of the amount of suppressed sales which had not been recorded in their books of account. The assessee had raised the same arguments before the Ld. CIT(A) also, relevant portion of which are placed at page no. 53 and 54 of the order of the Ld. CIT(A), which are to the following effects :
: to 941/Hyd/2024 & 20 C.O. Nos.15 to 26/Hyd/2024 to 941/Hyd/2024 & 21 C.O. Nos.15 to 26/Hyd/2024 On the basis of his verification, the Ld. CIT(A) has given his findings with regards to the incurring of unrecorded cash expenditure at para no. 9.4.1 and 9.4.2 of his order, which are to the following effects :
“9.4.1. During the course of search and seizure operation loose sheets and documents were found and seized and marked as A/KHPL/OFF/03 and these were related to month-wise sale receipts, expenditure related to building construction, renovation of branches, interest paid and purchase of immovable properties. A SanDisk pen drive from Sri D. Venkata Ramana, Accountant was seized and marked as A/KHPLIOFF/08. The data from this pen drive was retrieved and it consisted of Excel sheets like (1) Sales details (2) Office Expenses (3) Vrjay Sir (a) Salaries (5) Incentives (6) SD. From Excel sheets it was noticed that cash sales of each branch was going to Sri Vijay Krishna, MD and from such receipts he was spending cash for office expenses, guest house expenses, construction expenses, expenses on shooting for advertisement, expenses on dubbing, personal expenditure, etc.
9.4.2. It was also found that the expansion work of branches was carried out and the relevant payments for such expansion were made in cash. Further, it was also found that the management of Kolors group was fixing targets to the branch managers and the sales counsellors for every month and huge cash incentives were paid to the branch managers and sales counsellors who had achieved the targets. It was observed that the cash incentives were borne by the Kolors group from its cash sales. Incentives and Bonus were paid to employees involved in sales booking. These payments were met out of the sale receipts in cash. Further, it was also to 941/Hyd/2024 & 22 C.O. Nos.15 to 26/Hyd/2024 observed that advertisement I shooting expenses and Brand Ambassadors were paid in cash out of unaccounted cash sales of the branches.”
Hence, there is no dispute about the fact that cash expenditure out of books have been incurred by the assessee. But no evidence of the actual amount of expenditure incurred have been brought to our notice. Therefore, considering all the facts and circumstances in this case, in our considered opinion the ends of justice will be met by taking the average percentage of net profit earned by the assessee himself. Therefore, we direct the Ld. AO to estimate the income @ 7.5% of the suppressed sales. Accordingly, this ground of the assessee is partly allowed.
In the result, the appeal of the assessee in is partly allowed. to 941/Hyd/2024 for A.Ys.2014-15 to 2019-20.
The issue involved in all these appeals are identical except the quantum, to the issue decided in for A.Y. 2013-14. Therefore, following the same view as decided in for A.Y. 2013-14, we hold that all these appeals of the assessee are partly allowed.
C.O. Nos. 15 to 26/Hyd/2024 for A.Ys.2013-14 to 2019-20. to 941/Hyd/2024 & 23 C.O. Nos.15 to 26/Hyd/2024
We have partly allowed all the appeals of the assessee and M/s. Kolors Healthcare LLP corresponding to all these C.O. of Revenue. Accordingly, on the basis of our discussion and findings in all the appeals corresponding to all these C.O. of Revenus, we hold that, the Cross Objections raised by the Revenue in the cases of the assessee and M/s. Kolors Healthcare LLP are partly allowed .
To sum up, all the appeals of the assessee and M/s. Kolors Healthcare LLP and cross objections of Revenue are partly allowed.
Order pronounced in the open Court on 23rd Jan., 2025.