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of <h1>Tribunal sets 6% net profit estimate for most years, overturns CIT(A) decision.</h1> <h3>DCIT Central Circle, Vijayawada Versus M/s. Prakash Arts Moving Media</h3> DCIT Central Circle, Vijayawada Versus M/s. Prakash Arts Moving Media - TMI Issues Involved:1. Computation of total income.2. Suppression of sales.3. Inflation of expenditures.4. Allowability of commission payments.5. Estimation of income based on seized materials versus books of accounts.Detailed Analysis:1. Computation of Total Income:The primary issue in these cross appeals is the computation of the total income of the assessee for the assessment years 1999-2000 to 2002-03. The controversy revolves around the correct method to determine the total income, given discrepancies between the books of accounts and seized materials.2. Suppression of Sales:During a search and seizure operation, incriminating materials were found indicating that the assessee, a partnership firm engaged in the advertisement business, suppressed sales. The assessing officer noted suppressed sales from computer-generated statements found during the search, which the managing partner initially denied but later admitted. The assessing officer added the suppressed sales to the total income for all assessment years.3. Inflation of Expenditures:The assessing officer also found that the assessee inflated expenditures. This was based on discrepancies between the seized documents and the books of accounts. The assessee argued that the expenditures were legitimate and that the assessing officer should consider all expenditures mentioned in the seized documents, whether recorded in the books or not. However, the assessing officer added the inflated expenditures to the total income.4. Allowability of Commission Payments:A significant portion of the expenditures was commission payments. The CIT(A) allowed 15% of the commission payments as legitimate business expenditures, noting that some commission payments, though allowable, were not recorded in the books of accounts. The CIT(A) reasoned that the seized document should be read as a whole and that some commission payments were likely legitimate business expenses kept outside the regular books of accounts.5. Estimation of Income Based on Seized Materials versus Books of Accounts:The CIT(A) and the assessing officer had different approaches to estimating the income. The CIT(A) allowed a portion of the commission payments, while the assessing officer added the suppressed sales and inflated expenditures without considering the seized documents as a whole. The Tribunal noted that the seized documents should not be dissected and that the correct approach would be to either rely on the books of accounts or the seized materials in their entirety. The Tribunal concluded that in the absence of complete and supported entries, the right course was to reject the books of accounts and estimate the income based on the disclosed or found sales during the search.Conclusion:The Tribunal directed that the net profit should be estimated at 6% of the total sales for the impugned assessment years, except for one year where the assessee had shown a profit of 9.56%. The Tribunal set aside the CIT(A)'s order and directed the assessing officer to adopt this method for computing the net profit. The appeals of both the assessee and the revenue were partly allowed for statistical purposes.
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