SREEDHARS CCE,VIJAYAWADA vs. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, VIJAYAWADA
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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
PER S. BALAKRISHNAN, Accountant Member :
This appeal is filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-3, Visakhapatnam [Ld. CIT(A)] in DIN & Order No. ITBA/APL/S/250/2022- 23/1043695051(1), dated 30/06/2022 arising out of the order
2 passed U/s. 147 r.w.s 144 of the Act, dated 16/12/2019 for the
AY 2015-16.
Brief facts of the case are that the assessee is a coaching
institute and gives coaching for all competition exams in the
name style of ‘Sreedhar’s CCE’, filed its return of income for the
AY 2015-16 on 30/09/2015 admitting a total income of Rs.
9,19,460/-. A survey operation U/s. 133A of the Act was
conducted on 26/02/2019. During the course of survey the
survey team noticed fee collection sheets for the period from the
Financial Year 2011-12 to 2018-19 in the premises of the
assessee firm and they were impounded. The partners of the firm
vide their statement recorded on 27/02/2018 and 01/03/2019
confirmed the suppression of receipts. The Assessing Officer
having reasons to believe that the assessee has not disclosed
fully and truly all material facts commenced proceedings U/s.
147 of the Act and issued notice u/s. 148 of the Act. The
assessee re-filed the return of income for the AY 2017-18
electronically on 15/4/2019 admitting a total income of Rs.
1,09,19,460/-. Later, the Assessing Officer issued notices U/s.
143(2) and 142(1) of the Act through ITBA module and called for
information from the assessee. The AO also issued a show cause
3 notice on 11/11/2019 calling for objections of the assessee on
the same. The assessee has not responded either to the notice or
to the show cause notice of the AO. Therefore, the AO completed
the assessment U/s. 144 of the Act after determining the gross
receipts, including the receipts found during survey, for the AY
2015-16 at Rs. 2,86,25,360/-. The AO deducted the income
already offered by the assessee while filing the original return
and income accepted by the assessee during the survey
proceedings based on the return filed in response to Notice u/s
148, and considered the remaining amount of Rs.78,35,360/- as
the income of the assessee for the AY 2015-16 and added the
same to the total income of the assessee determining the
assessed income at Rs. 7,19,64,960/-. Aggrieved by the order of
the AO, the assessee filed an appeal before the Ld. CIT(A). Before
the Ld. CIT(A), the assessee’s representative made required
submissions with respect to the incomes accepted during the
course of survey for the AY 2016-17 and pleaded that the entire
gross receipts cannot be taxed. The Ld. CIT(A) considering the
submissions and in the absence of any proof provided by the
assessee’s representative confirmed the addition made by the AO
and dismissed the appeal. Aggrieved by the order of the Ld.
CIT(A), the assessee is in appeal before us.
4 3. The assessee has raised the following grounds of appeal:
“1. The order passed U/s. 250 of the Act is contrary to the provisions of the law and facts of the case.
The Ld. CIT(A) erred in confirming the additions made by the Assessing Officer in respect of entire unaccounted gross receipts without allowing deduction towards expenses in this regard.
The Ld. CIT(A) failed to appreciate that unrecorded receipts and unrecorded expenses are synonymous to each other and go together, considering these, the Ld. CIT(A) could not have ignored the expenditure part while confirming the gross receipts liable for tax.
The case laws relied upon by the Ld. CIT(A) are distinguishable wherein the facts of those case are different from the case of the assessee firm. While on this the Ld. CIT(A) simply brushed aside the case laws relied upon by the assessee’s firm in a summary manner.
For these and other reasons that are to be urged at the time of hearing of the case the appellant prays that the impugned disputed addition is to be deleted in the interest of justice.”
At the outset, the Ld. AR relying on the order of this
Tribunal in the assessee’s own case for the AY 2016-17 in ITA No.
127/Viz/2022 and others, dated 21/07/2022, submitted that
under identical circumstances, the Tribunal held that the profit
ratio of unaccounted income of the assessee shall be computed @
18% , which is as accepted by the assessee during the survey
proceedings. The Ld. AR therefore prayed that since there is no
change in the facts and circumstances of the case, the same
decision of the Tribunal may also be applied to the instant case
also. On the other hand Ld. DR relied on the orders of the Ld.
Revenue Authorities.
We have heard both the sides and perused the material
available on record and the orders of the Ld. Revenue
Authorities. We have also gone through the order of the Tribunal
in the assessee’s own case for the AY 2016-17 in ITA No.
127/Viz/2022 (supra), wherein under identical circumstances,
the Tribunal held that the profit ratio of unaccounted income of
the assessee shall be computed @ 18% , which is as accepted by
the assessee during the survey proceedings. For the sake of
ready reference, the relevant paragraphs of the Tribunal’s order
dated 21/07/2022 (supra) are reproduced herein below:
“6. We have heard the rival parties and perused the material available on record and gone through the orders of the Authorities below. Admitted facts are that the survey operation conducted on the assessee’s premises on 26/02/2019 wherein certain incriminating materials was found with respect to unaccounted receipts of the firm for the FYs 2011-12 to 2018-19. The amount arrived at by the survey team for the AYs 2012-13 to 2019-20 amounts to Rs. 29,49,39,973/-. However, it is noticed that the assessee admitted unrecorded gross receipts of Rs. 32,54,20,132/-. It is also admitted that no material was found by the survey team with regard to expenses incurred by the assessee for earning the undisclosed income. We also find from the sworn statement of the assessee U/s. 133A of the Act recorded on 01/03/2019 in respect of Q.No.30, the assessee has
denied that the entire expenditure relating to receipt is not accounted for in the books of accounts. The Q.No.30 and the reply given by the assessee are extracted herein below:
“Q.30.Do you agree that the entire expenditure related to the receipts of Rs.29,49,39,973/- has already been accounted for in your books of accounts? If not, please provide the details for the same. Ans. No, the entire expenditure related to these receipts is not accounted for in the books of accounts.”
We find merit in the argument of the Ld. AR that by no stretch of imagination the profit percentage as assessed by the AO while passing the order us/ 143(3) r.w.s 147, cannot be 82.49%. As admitted by the assessee in the sworn statement u/s 133A of the Act, we are of the considered view that certain expenditure must have been incurred by the assessee in earning such undisclosed income which was not accounted by the assessee. We also find from page 126 of the paper book that the assessee has on an average disclosed 8% to 10% on the reported turnover. Further, we also find from the assessment order passed for the AY 2019-20 U/s. 143(3) of the act, the net profit ratio including the reported and unreported incomes worked out to 16% as detailed in page 128 of the paper book. In the absence of evidences for unaccounted expenditure, it cannot be concluded that the entire gross receipts should be assessed as total income. Further, it is noticed from the sworn in statement U/s. 133A of the Act that the assessee has offered Rs 95 lakhs for the current assessment year as income of the assessee with regard to the unreported income detected during the survey. The survey team has not disputed the income offered by the assessee and has also not treated the gross undisclosed receipts as total income of the assessee. The Ld. AO in his order has quantified the total turnover at Rs. 6,65,99,600/- against which the assessee has offered an amount of Rs. 1,15,71,250/- as taxable income. The net profit ratio accordingly works out to 17.37% with respect to accounted and unaccounted income of the assessee for the AY 2016-17. It is imperative that certain expenses would have been incurred in respect unrecorded sales though not recorded in the books of accounts. During the survey proceedings, while answering to Q.No.30, the assessee stated that “No, the entire expenditure related to these receipts is not accounted for in the books of accounts.” Therefore it is ascertained by the assessee that there exists unexplained expenditure relatable to the unaccounted receipts. The computation of profit after inclusion of unaccounted sales in the turnover would necessarily require deduction of unrecorded expenses. The Courts in such cases have taken the view that there is a presumption of expenditure having been incurred in respect of unrecorded sales. The Hon’ble
7 Supreme Court in the case of CIT vs. Williamson Financial Services [2007] 165 taxmann 638 (SC) has observed as follows: “It is pertinent to bear in mind that U/s. 4 the levy is on total income of the assessee computed in accordance with an subject to the provisions of the Income Tax Act. What is chargeable to tax under the Income Tax Act is not the gross receipt but the income under the Income Tax Act. The tax is on income but on gross receipts.” Respectfully following the judicial precedents and in view of the above discussions, we find that taxing the entire gross receipts, where the Net Profit ratio is at 82.49%, by AO for the relevant assessment year is not justifiable by any stretch of imagination. Similarly the plea of the Ld.AR to adopt the Net Profit ratio of 16% based on the assessment order passed for the AY 2019-20 also could not be accepted because of the fact that the assessee himself has admitted a net profit ratio of 17.37% with respect to accounted and unaccounted income of the assessee for the AY 2016-17. Therefore, we are of the considered view that the net profit ratio shall be computed at the rate of 18%, which is as accepted by the assessee during the survey proceedings. The Assessing Officer is directed accordingly.” 6. Respectfully following the decision of this Tribunal in the
asessee’s own case (supra), we hereby direct the Ld. AO to
compute the net profit ratio of unaccounted income of the
assessee at the rate of 18% . It is ordered accordingly.
In the result, appeal of the assessee is allowed.
Pronounced in the open Court on the 29th March, 2023.
Sd/- Sd/- (दु�वू� आर.एल रे�डी) (एस बालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER
Dated :29.03.2023
OKK - SPS
आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee – M/s. Sreedhar CCE, D.No. 29-6-6/1, Vani 1. Nikethan Building, Kaleswara Rao Road, Suryaraopet, Vijayawada, Andhra Pradesh – 520002. राज�व/The Revenue – Asst. Commissioner of Income Tax, Central 2. Circle, Vijayawada Revenue Colony, Siddhartha Public School Road, Mogalrajapuram, Vijayawada, Andhra Pradesh-533401. 3. The Principal Commissioner of Income Tax (Central), Visakhapatnam. आयकर आयु�त (अपील)/ The Commissioner of Income Tax (Appeals)-3, 4. Visakhapatnam. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, �वशाखापटणम/ DR, ITAT, 5. Visakhapatnam गाड� फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER
Sr. Private Secretary ITAT, Visakhapatnam
