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Facts
A survey under Section 133A revealed unrecorded cash purchases by the assessee. The Assessing Officer (AO) made additions for undisclosed sales and disallowed expenses. The Commissioner (Appeals) deleted the addition for undisclosed sales but directed an estimation of profit at a 1.6% GP rate on total turnover, and also deleted the disallowance of expenses.
Held
The Tribunal upheld the CIT(A)'s decision to delete the addition for undisclosed sales, agreeing that profit should be estimated on unaccounted purchases using the GP rate. The Tribunal also upheld the deletion of the expense disallowance, as estimation of income already accounted for this.
Key Issues
Whether the CIT(A) was justified in deleting the addition made under Section 40A(3) and instead estimating profit using a GP rate, and whether further disallowance of expenses was warranted after estimating income.
Sections Cited
40A(3), 133A, 145
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Income Tax Appellate Tribunal, “PATNA” BENCH, PATNA
Before: SHRI DUVVURU RL REDDY, VP & SHRI RAJESH KUMAR, AM
The appeal by the Revenue and the CO by the assessee are arising against the order of the Commissioner of Income-tax (Appeals)-Patna-3, (hereinafter referred to as the “Ld. CIT(A)”] dated 20.03.2024 for the AY 2017-18.
At the outset, we note that the Cross Objection of the assessee is barred by limitation by 248 days. At the time of hearing the counsel of the assessee explained the reasons for delay in filing the cross objection. The Ld. D.R did not raise any objection in condoning the delay. After hearing the rival contentions and perusing the materials available on record, we find that the delay is for bonafide and genuine reasons and hence, we condone the delay and admit the cross objection for adjudication.
The only issue raised by the Revenue in the various grounds of appeal is against the order of learned CIT (A) deleting the addition made by the learned Assessing Officer of ₹8,02,45,293/-, which was in violation to the Provisions of Section 40A(3) of the Income-tax Act, 1961 (the Act) and not allowable as deduction. The Revenue has raised one more issue that the learned CIT (A) has erred in adopting the GP rate of 1.6% of the total turnover by ignoring the fact that the assessee has not taking into account the amount of ₹5,63,71,552/-, which represented cash purchases made outside the books of account of the assessee from various parties.
6. In the appellate proceedings, the learned CIT (A) partly allowed the appeal of the assessee by deleting the first addition of ₹8,02,45,293/- made by the learned Assessing Officer under Section 40A(3) of the Act in respect of cash purchases, however, directed the learned Assessing Officer to apply GP rate at the rate of 1.6% by observing and holding as under: - “ In this case, as survey action uls 133A was conducted on 04.01.2017. The appellant is engaged in the business of wholesale trading in food grains. During the course of survey proceedings, it was noticed that the appellant has made certain cash purchases of Masoor dal. Matar and Matar dal in cash, in the statement recorded during survey, the appellant admitted to have made unaccounted trading and agreed to disclose an amount of Rs. 5,63,71,552/- in the return of income on account of violation of section 40A(3). However, the appellant has not disclosed this sum in the return of income. On the basis of impounded material SSY-1, the AO worked out unaccounted purchase payments for masoor and masoor dal beyond Rs. 20000/- in cash at Rs. 5.45.53,743/- and on the basis of impounded document SSY-4 such disallowance in respect of Matar/Matar Dal was worked out at Rs. 2,91,58,150/-, In aggregate the total disallowance u/s 40A(3) was worked out at Rs. 8.02.45.293/-, During assessment proceedings the appellant sought to take shelter of Rule 6DD claiming payment to agriculturist and business expenditure of incurring expenditure in "Section 145, read with section 143, of the Income-tax Act, 1961 Method of accounting Rejection of accounts (Others) Assessing Officer rejected account, books of assessee after verification Thereafter he made a certain addition to income of assessee relying upon same account books Whether when Assessing Officer rejected account books of assessee, then he ought not to have made addition by relying upon same account books Held, yes-Whether he ought to have made best judgment assessment on basis of history and nature of business and net profit rate as shown by assessee in previous year - Held, yes [Para 6) [In favour of assessee/Matter remanded]" In ITO vs. Sadananda Singha 49 taxmann 323, ITAT Kolkata, Hon'ble Tribunal has held that profit is estimated on disputed turnover/purchases, no further disallowance can be made by invoking provisions of section 40A(3). The facts of the instant case are similar. In this case the AO rejected books but failed to estimate profit/taxable income. In fact, the AO has not compared with the GP rate shown by the appellant. The position of GP in previous, current and subsequent year is as under: Comparative chart of sale and GP for five years.
Previous Year GTO Gross Profit % of GP 31.03.2015 280921501 3411633.83 1.21% 31.03.2016 329717919 3743260.26 1.14% 31.03.2017 In appeal 480941287.42 4979069.42 1.04% 31.03.2018 449584703.34 5448130.38 1.21% 31.03.2019 464680300.24 5893230.75 1.27% The appellant has engaged in transactions beyond books as well. These transactions save taxes, bank charges etc. and same GP rate cannot be applied considering totality of facts GP rate of 1.60% is applied on the total turnover of Rs. 480941287.42 which comes to Rs. 76,95,061/-. The appellant has already shown GP of Rs. 49,79,069/- in his books. Thus, GP addition of Rs. 27,15,992/- made to the total income of the appellant. In view of above facts and legal position, the disallowance u/s 40A(3) of Rs. 8,02,45,293/- is set aside and GP addition of Rs. 27,15,992/- as discussed above is made to the total income of the appellant. Hence, ground no. 1 is partly allowed.” 6.1. Similarly, the learned CIT (A) in respect of the second addition of Rs. 16,88,598.67 allowed the appeal of the assessee by holding that the learned Assessing Officer has rejected the books of account and also made addition on estimated basis by making 10% disallowance of the total expenses as stated above. The ld. CIT(A) held that, since,
After hearing the rival contentions and perusing the materials available on record, we find that in this case the survey was conducted under Section 133A of the Act on the assessee on 04.01.2017. During the course of survey certain unrecorded cash purchases were found aggregating to ₹5,63,71,552/-, which were out of books of accounts. The learned AO during the course of assessment proceedings, prepared details of unaccounted purchases of Matar/Matar Dal (pulses) which aggregated to ₹5,45,53,743/-. The learned AO also computed the details of Matar/Matar Dal purchases as per SSY-4 during the course of survey which was worked out at Rs. 2,91,58,150/-. Finally, the learned AO compiled party wise details of purchases of Matar/Matar Dal, etc. and computed the total unaccounted purchases of ₹8,06,35,323/- and consequently, added the same to the income of the assessee. The learned CIT (A) deleted the same by directing the learned AO to apply GP at 1.6% on the total purchases for estimation of income of the assessee and assess accordingly. In our opinion, the learned CIT (A) has passed a reasoned order as in the case of unaccounted purchases the presumption is that these purchases were sold and assessee earned a legitimate profit on the same which can only be assessed by applying GP rate on the said purchases. The ld. CIT(A) directed to compute the income on the total turnover @ 1.60% which comes to Rs. 75,95,061/- and after allowing the amount of gross profit shown by the assessee of Rs. 49,798,069/-, the remaining amount of Rs. 27,15,992/- was directed to be added to the income. Thus, we do not
So far as the second issue is concerned qua making disallowance of Rs. 16,88,598.67 on estimated basis @ 10% of various expenses claimed by the assessee, we note that the learned CIT (A) has observed that in case of estimation of income no further disallowance can be made. Therefore, on this count also we do not find any merit in the issue raised by the Revenue. Accordingly, this issue is also dismissed by upholding the order of learned CIT (A).
The Cross Objection of assessee is in support of the order of learned CIT (A), since, we have dismissed the appeal of the Revenue on both the issues by upholding the order of the learned CIT (A), the assessee’s Cross Objection becomes infructuous and is hereby dismissed.
In the result, the appeal of the Revenue and CO of the Assessee are dismissed.
Order pronounced in the open court on 26.02.2026.