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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Prakash P. Mali Asst. Commissioner of Income Tax, Prop of M.S, Junction, 33 OSD_I CR 7 Room No. 409 Ashish INDL estate Gokhale Vs. Aayakar Bhavan, M.K. Road RD(S) Dadar (W) Mumbai Mumbai-400025 Appellant .. Respondent PAN No. ADSPM1174C Assessee by .. S/Shri Girish Dave & Shri Vinayak Pandya, AR Revenue by .. Shri B. Satyanarayana Raju, DR Date of hearing .. 12-04-2017 Date of pronouncement .. 12-04-2017 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT(A)-40, Mumbai, in appeal No. CIT(A)-40/ACIT (OSD-I) C.R.7/241/08-09dated 31-10- 2013. The Assessment was framed by ACIT (OSD-I) Circle-7, Mumbai for the A.Y. 2007-08 vide order dated 29-12-2008 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT(A) restricting the unaccounted turnover at Rs. 50,74,427/- and applying the gross profit rate on such unaccounted turnover at 14.67 % and restricting the addition at Rs. 7,44,418 as against the addition made by AO at Rs. 31,76,544/-.
Briefly stated facts are that the AO estimated the unaccounted sales / turnover at Rs. 2,16,43,398/-and applied gross profit rate for making addition at 14.67% on the undisclosed turnover. The AO computed the turnover in view of the unaccounted sales and purchase found during the course of search and seizure operation and also survey operation under section 133A of the Act on the group cases of the assessee on 28-06-2006. Admittedly, no search was conducted
Prakash P. Mali AY:07-08 in the case of assessee and only survey under section 133A of the Act was conducted on the date of survey i.e. 28-06-2006. During the course of survey, allegedly there was discrepancy in cash to the extent of Rs. 7,04,088/- i.e. shortage of cash as per cash book and physical verification. According to AO this shortage of cash was in circulation of market and hence, he computed unaccounted sales and purchases at Rs. 2,16,53,398/-. The details of sales and purchase in other group cases including assessee are as under: - A. Details of unaccounted sales found during the course of search and seizures operation Documents received at Ashish 21 Tee Ashish 17 Bharat Mali Station Junction Rushabh Asst. Bhagaram Chunilal Prakash Shankarlal Total Years 2001-02 0 0 0 1800 1800 2002-03 0 0 0 6000 6000 2003-04 0 0 0 3040 3040 2004-05 0 0 0 147,849 147,849 2005-06 93,885 0 189,515 722,894 1,006,294 2006-07 2,304,730 7,388,668 17,223,006 13,253,537 40,169,941 2007-08 3,967,793 4,264,419 0 5,713,421 13,945633 Total 6,366,408 11,653,087 17,412,521 19,848,541 55,280,557 B. Details of unaccounted purchases and expenses found during the course of seizure operation: - Documents received at Ashish 21 Tee Ashish 17 Bharatmali Station Junction Rushabh Asst. Bhagaram Chunilal Prakash Shankarlal Total Years 2001-02 0 0 0 0 0 2002-03 0 0 0 4,785 4,785 2003-04 0 0 0 1,416 1,416 2004-05 0 0 0 113,699 113,699 2005-06 0 0 121,355 1,807,277 1,928,632 2006-07 1,326,766 6,602,849 7,606 6,532,086 14,469,307 2007-08 834,593 1,973,920 0 2,058,967 4,867,480 Total 2,161,359 8,576,769 128,961 10,518,230 21,385,329 Page 2 of 6
Prakash P. Mali AY:07-08 4. In view of the above it is noted by the AO that in the case of the assessee for the relevant AY 2007-08 there is neither sales nor purchase found during the course of search action under section 132 in the group cases or on the assessee’s premises during the course of survey under section 133A of the Act. But the AO estimated unaccounted sales/ turnover by observing in Para 7.2 as under and applied GP at the rate 14.6%: -: -
“7.2 Keeping in view above facts, it has become the clear that the assessee had conducted 0.51% business out of books [1,89,515 X 100/ 3,66,18,090] for the A.Y.2005- 06 and in A.Y. 2006-07 at 23.23% [1,72,23,006 X 100 / 741152,206] (5369129,200 + 1172,235006). It means that the sales disclosed in the books 'of accounts for the A.Y. 2005-06 are only 99.49% [100-0.51] and in A.Y. 2006-07 at 76.77% [1DO - 23.23]. In view of the above facts and circumstances, I am fully convinced that the assessee had indulged in carrying out business out of books. In these circumstances and after fo1lowigthe case law's mentioned supra, it is held that the assessee is indulged in 23% business out of books in all the years falling under search period. It means that sales of Rs.7,24,91,813/- declared in the books for the A.Y. 2007- 08 are only 77% and 23% sales of Rs.2,16,53,398/- [9,41545,211 X 23 / 100] (7,24,915813 + 2,16,53,398) are out of books. During the year under consideration the assessee has declared gross profit rate of 14.67%. After applying the G.P. rate of 14.67% on unaccounted sales of Rs.2,16,53,398/-, the undisclosed profit comes to Rs.31,76,553/- as the assessee has already incurred the expenses out of books to earn the above profit from his undisclosed sources. Therefore, the income of Rs.31,76,553/- is treated as the net income of the assessee from undisclosed sources and the same is added to the income of the assessee.”
Prakash P. Mali AY:07-08 5. Aggrieved assessee preferred the appeal before CIT(A), who restricted the estimations of unaccounted turnover as on the date of survey under section 133A of the act conducted by the Department on 28-06-2006 by observing as under: -
“However, in the year under consideration, survey/search action has been carried out on 28/6/2006 and it may be assumed that immediately after such action, there may be dip in such unaccounted activity and it may be assumed that the appellant, by and large, might have done unaccounted turnover up to 28-6-2006 Accordingly, if may be fair and reasonable to estimate unaccounted turnover at 7% of the accounted turnover. The assessee has disclosed turnover of Rs.7,24,91,813/- during the year. Thus, the unaccounted turnover works out to Rs.50,74,427/-. The gross profit on such unaccounted turnover may be computed at 14.67%, as disclosed by the assessee. Therefore, addition to the extent of Rs. 7,44,418/- is confirmed and balance amount of Rs. 24,32,135/- is directed to be deleted. Therefore, this ground of appeal is partly allowed.”
The CIT(A) therefore restricted the addition on unaccounted turnover of Rs. 50,74,427/- and by applying profit rate of 14.67 % estimated the profit at Rs. 7,44,418/-. Aggrieved assessee came in appeal before us.
We have heard the rival contentions and gone through the facts and circumstances of the case. We find form the facts of the case that AO has determined unaccounted sales of Rs. 2, 16,53,398/-. At the time of survey action sales bills were not found which concludes the evidence of unaccounted sales during this period i.e. the AY 2007-08 relevant to FY 2006-07. All transaction reflected in sized documents were identified in books of accounts. The AO has taken unaccounted sales of earlier years as base and presumed unaccounted sales for Asst. year 2007-08. The AO has ignored the fact that survey actions in the group concerns in earlier years, nothing was found which leads to conclusion that assessee is involved in conducing the sales or purchases out of books of Prakash P. Mali AY:07-08 accounts. Assessee has accepted whatever unaccounted sales papers were found in his premises or his brother’s premises. In fact assessee has given correct amount of unaccounted sales than what was calculated by the department's investigation wing and followed by AO. The AO is unable to substantiate his claim of additional sales than what has been declared by assessee. In view of these facts, we are of the view that income is to be determined on the basis of actual papers and records available and not purely on guess work or presumption. Assessee group was also registered under central excise, under Sales Tax / VAT. Nothing has been found out by other government departments.
In the given facts and circumstances, we are of the view that the lower authorities i.e. the AO and the CIT(A) was totally unjustified in estimating the undisclosed income/ turnover and applying profit rate for estimating the profit without any seized documents during the course of survey or search for the relevant financial year 2006-07 relevant to AY 2007-08. The AO cannot take the benefit of the documents of unaccounted turnover found for the previous assessment years. Therefore, we delete the addition in entirety as the same is based on conjunctures and surmises. Accordingly, this issue of assessee is allowed.
In the result, the appeal of assessee is allowed. Order pronounced in the open court on 12-04-2017.