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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI DUVVURU RL REDDY & SHRI S. JAYARAMAN
आदेश/ O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The assessee filed this appeal against the order of the Principal Commissioner of Income Tax, Puducherry passed U/s.263 in C. No.9127A/A/01/PCIT/PDY/2017-18 dated 21.02.2019 for the assessment year 2013-14.
Shri L. Paramasivam, the assessee is engaged in the business of retail sale of arrack shop and liquor. While making the assessment for the assessment year 2013-14, the AO noticed that the total purchase made by the assessee during the assessment year as per 26AS was Rs.2,93,04,130/- but the sales during the year is less as per assessee’s records and the assessee has offered an income of Rs.4,52,000/-. Since, it was too low, the AO required the assessee to produce various details of previous three financial years. Since, the assessee submitted that it is not maintaining proper books, the AO estimated the income @ 8% of gross turnover and for this purpose adopted 52.48% of the gross purchases, Rs.2,93,04,180/- as reflected in the 26AS at Rs.1,53,78,125/- and determined the estimated total income at Rs.12,30,250/- and concluded the assessment U/s.143(3) dated 07.03.2016. On examining the records, the PCIT considered that the assessment order is both erroneous and prejudicial to the interest of Revenue and hence issued a show cause notice to the assessee and after due consideration of the assessee’s reply, etc., set aside the assessment order U/s.263 and remitted back to the AO for considering it afresh after giving due opportunity of being heard to the assessee. Aggrieved against that order, the assessee filed this appeal.
The ld. AR submitted that the AO examined the IMFL purchase records and accepted the profit margin of 12% as reasonable, the source of cash deposits in the bank account were accepted to be from out of the IMFL and arrack shops and the agricultural income returned was commensurate with the extent of land and hence, the direction issued by the PCIT is not in accordance with law. There was neither merit nor substance in his conclusion regarding the enquiry on the issues warranting action U/s.263. The ld.AR relied on various case laws viz., CIT v. Max India Ltd., 295 ITR 282 SC, CIT vs. Savera Industries Ltd., Tax case Appeal No.839 of 2016 dt. 11.01.2017 and CIT vs. Gabriel India Ltd., 203 ITR 108 (Bom. HC).
Per contra, the ld.DR submitted that the PCIT on examination of the impugned assessment records seen that no turnover was reflected by the assessee either in the return of income or the statement accompanying it.
No evidence is available from the assessment records for the basis of adopting 52.48% of total purchase by the AO to arrive at the sales receipts in the absence of books of accounts or any details in this regard having been provided by the assessee. In his return and during assessment proceedings the assessee had admitted to non maintenance of books of account. From the Bank statement of the assessee available in the assessment record, it was noticed that there was a cash deposit of Rs 1.44,84,000/- during the assessment order for its source. It was stated by the assessee that he was carrying on the business of Arrack shop and IMFL. But, the AO had discussed only the income from IMFL without bringing on records any query, information or discussion about the arrack shop income or conducting any enquiry in this regard. The AO has estimated the turnover at Rs. 1,53,78,125/- by adopting 52.48% on gross purchase. It is stated in his assessment order, as well as recorded in the order sheet noting dt. 29.02.2016, that the assessee's Authorized Representative (AR) has agreed to the addition made towards receipts. The basis for this calculation has not been provided by the Authorized Representative. Even going by the agreed estimate, it crosses the turnover limit mandated u/s 44AB. But, no such tax audit was done in this case. The assessee had admitted agricultural income of Rs. 2,00,000/-. But, the A.O had not verified the same as evident from the lack of queries in his notices/order sheet and absence of details in the assessment record.
Therefore, the PCIT considered that the assessment order is both erroneous and prejudicial to the interest of Revenue and hence issued a show cause notice to the assessee and after due consideration of the assessee’s reply, etc., and held as under The assessee admitted that the net profit margin for both IMFL and Arrack sale in his business was 12%. The purchase of arrack was done from Government outlets with payments made in both cash and non cash modes. Regarding the source of cash deposits into his savings bank account, he explained that the sale proceeds from both IMFL and Arrack shop were deposited into this account. He also claims to have availed a loan from City Union Bank for Rs. 50 Lakhs. With regard to agricultural income, he submitted that his father owned 20 acres of land of which 5 acres was dry land. Paddy and Casuarina were grown or this land and the income therefrom was shared by the assessee's father, the assessee and his two brothers. The assessee also candidly admitted that the income of Rs. 4,52,000/- disclosed in his return for AY 2013-14 had been decided by his auditor Sri Rajaram, CA and that he himself did not know how it was arrived at.
After considering the material on record, the PCIT held that “the assessee's admitted details of profit margin in his business and extent of agricultural income, when considered with the fact of the assessee's Chartered Accountant being the architect of the estimated income without reference to the assessee and his business earning stream, clearly indicates the fallacy facts on which the returned income and the assessed income is based. The turnover estimated by the A.O. therefore, can hold no ground since it· is both unsubstantiated as well as far removed from realities of actual business of the assessee.”
Therefore, the ld.DR submitted that the PCIT correctly invoked the jurisdiction U/s.263 and set aside the assessment order U/s.263 and remitted back to the AO for considering it afresh after giving due opportunity of being heard to the assessee and thus supported the order of the PCIT.
We heard the rival submissions and gone through relevant material. It is clear from the above, that the assessee was carrying on the business of arrack shop & IMFL. The AO had dealt in the assessment order only with the income from IMFL and completed omitted to deal the income from arrack shop. Further, while estimating the income from the IMFL, out of the current year purchases at Rs.2,93,04,180/-, the AO adopted 52.48% of such purchases as current year sale or turnover without specifying as to on what basis he adopted such percentage as turnover. It is settled law that an estimate made should be based on relevant material and on rational basis. If the basis adopted in estimating the turnover lacks reasonable nexus with the estimate made, the courts would not approve of such an estimate. In this case, as pointed out above, the AO has not indicated the reasonable nexus with the percentage of turnover estimate made by him. Thus, on the above facts and circumstances, as extracted supra, it is clear that the PCIT has made out a clear case within the scope of Section 263 of the Act and hence, we do not find merit in the grounds of appeal of the assessee. Therefore, the assessee’s appeal is dismissed.
In the result, the assessee’s appeal is dismissed.
Order pronounced in the court on 1st October, 2019 at Chennai.