KRISHNAKUMAR & CO.,MUMBAI vs. ITO,WD 15(3)(1), MUMBAI

The only common issue in dispute in both the appeals relate to the addition made on account of estimation of net profit @ 1% of the turnover of sales.

Brief facts more or less common in both the appeals are, the assessee is a partnership firm. It is engaged in the business as a wholesale distributor of chewing tobacco. A survey under section 133A of the Income–tax Act, 1961 (for short "the Act") was conducted in the business premises of the assessee on 23rd October 2009. In the course of the said survey operation, certain diaries/documents were impounded. In the course of assessment proceedings, the Assessing Officer on verifying the books of account and other documents of the assessee found that the sales effected by the assessee are mainly in cash and the debtors shown in the books of account appeared to be doubtful, hence, require cross verification with relevant bills and confirmations. Therefore, he called upon the assessee to furnish names and addresses of the debtors along with the relevant bills and confirmations. As observed by the Assessing Officer, assessee was unable to furnish the names and address of the debtors along with relevant bills and confirmations. Alleging that the assessee failed to prove the genuineness of the debtors with supporting evidence, the Assessing Officer held that the debtors cannot be considered to be genuine. Further, he observed, various cash expenses incurred by the assessee were not supported by proper documentary evidences which cast doubt over the authenticity of the expenses claimed. Having held so, the Assessing Officer observed that net profit shown by the assessee in the impugned assessment years @ 0.28% and 0.11% on 3 Krishna Kumar & Co. sales is comparatively lower considering the nature of business and the increase in the sales turnover. Therefore, he estimated the net profit @ 1.2% of the sales turnover. As a result, additions of ` 14,11,818 in A.Y. 2010–11 and ` 13,83,138 in A.Y. 2011–12, were made.

Though, the assessee challenged the aforesaid additions before learned Commissioner (Appeals), however, learned Commissioner (Appeals) granted partial relief to the assessee by directing the Assessing Officer to compute net profit @ 1% of the sales turnover in both the assessment years.

The learned Authorised Representative submitted, in the course of assessment proceedings for assessment year 2007–08, a survey operation under section 133A of the Act was conducted in the business premises of the assessee and on the basis of such survey operation, the Assessing Officer had estimated profit in similar manner while completing assessment for the assessment years 2007–08, 2008–09 and 2009–10. However, he submitted, the additions made by the Assessing Officer were deleted by the first appellate authority. He submitted, the gross profit and net profit shown in the impugned assessment years are higher than the preceding assessment years. Thus, he submitted, the additions made by the Assessing Officer

The learned Departmental Representative relied upon the observations of the learned Commissioner (Appeals).

I have considered rival submissions and perused material on record. As could be seen from the facts on record, in course of assessment proceedings for the assessment year 2007–08, a survey operation under section 133A of the Act was conducted in the business premises of the assessee. On the basis of documents impounded during the survey operation, the Assessing Officer while completing the assessment for A.Y. 2007–08 estimated the gross profit @ 8% as against the gross profit shown by the assessee @ 1.99%. Similarly, for the assessment years 2008–09 and 2009–10, the Assessing Officer estimated the net profit @ 1% of the sales turnover. However, while deciding assessee’s appeals against the aforesaid additions made by the Assessing Officer, learned Commissioner (Appeals) having found that the Assessing Officer has proceeded to estimate the profit without pointing out specific defect and discrepancy in the books of account deleted the additions made by the Assessing Officer. It is observed, in the impugned assessment years the Assessing Officer has proceeded to estimate the profit @ 1.2% of the sales turnover purely relying upon the fact that in the preceding assessment year, the net profit was 5 Krishna Kumar & Co. estimated @ 1% on sales. Further, the Assessing Officer has not pointed out any specific defect or discrepancy in the books of account. Merely on assumptions and presumptions the Assessing Officer has proceeded to estimate the profit. Further, it is observed, though before learned Commissioner (Appeals) the assessee had submitted that similar additions made in assessment years 2007–08, 2008–09 and 2009–10 were deleted by learned Commissioner (Appeals), however, learned Commissioner (Appeals) without properly considering and appreciating the submissions made by the assessee has reduced the estimation of net profit to 1% in a non–speaking order. It is seen from the facts on record, the gross profit and net profit shown by the assessee in the impugned assessment years are either comparable or more than the gross profit and net profit shown in the preceding assessment years. That being eth case, in my considered opinion, the estimation of net profit @ 1% on sales turnover without any reasonable basis is unsustainable. Accordingly, I direct the Assessing Officer to delete the additions made in both the assessment years under appeal. Grounds are allowed.