2012 (8) TMI 125 - AT - Income Tax

Tribunal upholds CIT(A) order, rejects Revenue's appeals

The tribunal upheld the CIT(A)'s order, which deleted the additions made by the AO based on impounded documents from the survey. The tribunal found that ... Addition made on account of liquor trade with reference to the incriminating documents found during survey - CIT(A) deleted the addition - Held that:- Even if books of account are found to be not reliable, the maximum profit which can be determined should be based as per the verdict of Hon'ble Jurisdictional High Court in the case of Badriprasad Bhagwandas and Co.(1994 (10) TMI 268 - MADRAS HIGH COURT) according to which sales is arrived at 2.5 % of the license fee and net profit is to be worked out at 5 % of the sales. After considering the detailed submissions of the assessee, the CIT(A) keeping in view the liquor trade of assessee’s business. As the books of account so found were not proper books and the same was written by the 5th Class passed accountant of the assessee - while taking the figures shown in alleged documents, the AO did not bother to test check as to whether the total income extrapolated from such capital was at all corroborated by any evidence or even by kachcha accounts. It was also observed that the Assessing Officer adopted such extrapolation even did not maintain a consistent stand of the assessment years involved - the affidavit filed before the lower authorities by assessee depicts wherein various expenditure in the nature of bardana expenses, packing expenses, shop rent, salary of salesmen, Manager, helper and chowkidar, office expenses, transportation and travelling expenses, transportation and travelling expenses, brokerage, telephone and mobile expenses etc. were not taken care of while arriving at the net profit of the assessee as shown in the impounded rough ledger - it was only on the basis of noting in a rough ledger that the Assessing Officer has jumped to the conclusion that the assessee has earned this much of profit - no infirmity in the order of CIT(A) for upholding profit in case of liquor business as per verdict of Badriprasad Bhagwandas and Co - against revenue. Issues Involved:1. Deletion of addition made on account of liquor trade based on incriminating documents found during survey.2. Validity and reliability of statements and documents obtained during the survey.3. Application of the MP High Court's decision in the case of Badriprasad Bhagwandas & Co. for estimating sales and net profit.4. Consequences of retraction of statements made during the survey.5. Charging of interest under sections 234A, 234B, and 234C.6. Initiation of penalty proceedings under sections 271(1)(c) and 271B.Detailed Analysis:1. Deletion of Addition Based on Incriminating Documents:The Revenue's grievance was related to the deletion of additions made on account of liquor trade based on documents found during the survey. The assessee, a liquor contractor, had some loose papers and rough books impounded during a survey conducted under section 133A. The AO made an assessment based on these documents, leading to a higher total income than declared by the assessee. However, the CIT(A) deleted the addition, noting that the documents were not regular books of accounts and could not be used to prepare final accounts. The CIT(A) emphasized that the figures in the impounded documents were not corroborated by regular and proper books of account and relevant vouchers.2. Validity and Reliability of Statements and Documents Obtained During the Survey:The CIT(A) observed that the statements recorded during the survey were not conclusive evidence of income. The appellant argued that the survey proceedings were conducted under duress, leading to statements and admissions that were not accurate. The CIT(A) referenced the CBDT Circular No. 286/2/2003, which advises against obtaining confessions of undisclosed income during surveys unless supported by credible evidence. The tribunal upheld the CIT(A)'s view that the statements and rough documents found during the survey could not be solely relied upon for making additions.3. Application of MP High Court's Decision in Badriprasad Bhagwandas & Co.:The assessee filed returns based on the MP High Court's decision in Badriprasad Bhagwandas & Co., which allows for estimating sales at 2.5 times the license fee and net profit at 5% of sales. The CIT(A) accepted this method, noting that the AO had not provided any legal basis for rejecting this approach. The tribunal agreed with the CIT(A) that the method prescribed by the jurisdictional High Court should be followed, especially in the absence of regular books of accounts.4. Consequences of Retraction of Statements:The assessee retracted the statements made during the survey by filing returns based on the High Court's formula within a reasonable time. The CIT(A) found this retraction valid, especially considering the circumstances, such as the death of the assessee's senior counsel. The tribunal upheld the CIT(A)'s view that the retraction was timely and justified, and the initial statements could not be the sole basis for additions.5. Charging of Interest under Sections 234A, 234B, and 234C:The CIT(A) noted that the charging of interest under sections 234A, 234B, and 234C is consequential to the determination of total income. Therefore, any relief in the quantum of total income would result in a corresponding reduction in interest charges. The tribunal upheld this view.6. Initiation of Penalty Proceedings under Sections 271(1)(c) and 271B:The CIT(A) dismissed the ground related to the initiation of penalty proceedings, noting that such proceedings are not appealable. The tribunal agreed with this dismissal.Conclusion:The tribunal upheld the CIT(A)'s order, which deleted the additions made by the AO based on the impounded documents from the survey. The tribunal found that the CIT(A) had correctly applied the MP High Court's decision for estimating sales and net profit and had rightly accepted the retraction of statements made during the survey. Consequently, the appeals of the Revenue were dismissed.