2015 (6) TMI 274 - AT - Income Tax

Revenue's Appeal Partly Allowed on Net Profit Rate & FDRs, CIT(A)'s Decisions Upheld, Interest Levied

The Revenue's appeal was partly allowed, directing the application of a 4% Net Profit rate and a reconsideration of the addition of Fixed Deposit Receipts ... N.P. estimation - Held that:- As in earlier years, the final assessed income of the assessee was in the range of 0.98% to 2.5%. In the subsequent year i.e. assessment year 2011-12, the income of the assessee was assessed at 2.09% on contract receipt of ₹ 1636.39 lac. In the present year, the contract receipt is ₹ 794.07 lac. The decision of the CIT(A) to assess the income of the assessee at ₹ 27 lac results into net profit rate of 3.40% as against 8% estimated by the Assessing Officer. Since in the present year, the assessee has not produced books of account and vouchers related to the expenses, we feel that applying net profit rate of 4% will meet the ends of justice. We direct the Assessing Officer accordingly that the Assessing Officer should assess the income of the assessee by applying 4% rate as the net profit of the gross receipts - Decided partly in favour of assesse. Undisclosed investment in FDRs - Held that:- merit in this stand taken by CIT(A) because it is admitted position of fact that the assessee has FDR investment in this year and the same was undisclosed in the balance sheet. If these FDRs were purchased in earlier year then it was the burden on the assessee to establish that by bringing necessary evidence on record. As per the chart reproduced by CIT(A) on pages 8 to 10 of his order, apart from Sl.No. 15 & 16 also, there are other FDRs which were purchased in the present year i.e. Sl.No. 3 ₹ 3,66,262/-, Sl. No. 6 ₹ 6,66,407/-. Moreover, even if balance FDRs were purchased during the financial year 2008-09 and the same were out of undisclosed sources then also interest on such investment for the present year should be added in assessment year 2009-10 and CIT(A) should have given such direction to the Assessing Officer for making such addition in assessment year 2009-10. The interest accruing in present year on those investments in FDR made in financial year 2008-09 should have been added in present year. Considering these facts, we feel that the order of CIT(A) is not sustainable and the same required a fresh decision in the light of above discussion. Hence, we set aside the order of CIT(A) and restore the matter back to him for fresh decision after providing adequate opportunity of being heard to both the sides - Decided in favour of revenue for statistical purposes. Investment in purchase of FDRs does not relate to the year under appeal - Held that:- this ground of the assessee is also de void of any merit because these two FDR of ₹ 2,73,239/- were made on 29/05/2009 and 21/08/2009 which falls during the present year and since these investments were not reflecting in the balance sheet of the assessee, the addition was rightly upheld by CIT(A). - Decided against assesse. Issues Involved:1. Rejection of books of accounts and estimation of net profit (N.P.) rate.2. Addition on account of undisclosed investment in Fixed Deposit Receipts (FDRs).3. Confirmation of unexplained investment in FDRs.4. Estimation of appellant's income.5. Levy of interest under section 234B of the I.T. Act.Detailed Analysis:1. Rejection of Books of Accounts and Estimation of Net Profit (N.P.) Rate:The Revenue challenged the CIT(A)'s decision to estimate the N.P. at Rs. 27,00,000/- (3.4% of turnover) as opposed to the 8% applied by the Assessing Officer (A.O.). The CIT(A) noted that the A.O. did not consider the appellant's past history, where the N.P. rate ranged from 0.98% to 2.5%. The CIT(A) found the A.O.'s application of an 8% N.P. rate arbitrary and reduced it to 3.4%. The Tribunal, however, directed the A.O. to apply a 4% N.P. rate, considering the non-production of books and vouchers by the assessee. This ground was partly allowed.2. Addition on Account of Undisclosed Investment in FDRs:The A.O. added Rs. 90,23,850/- as undisclosed investment in FDRs, which the CIT(A) reduced to Rs. 2,73,239/- for FDRs purchased during the assessment year. The CIT(A) found that the rest of the FDRs were purchased in earlier years and thus should not be added in the current year. The Tribunal disagreed with the CIT(A), stating that the assessee failed to provide evidence for FDRs purchased in earlier years and directed a fresh decision by the CIT(A.) This ground was allowed for statistical purposes.3. Confirmation of Unexplained Investment in FDRs:The CIT(A) confirmed an addition of Rs. 1,00,000/- for an FDR, whereas the actual amount was Rs. 1,23,286/-. The Tribunal reversed the CIT(A)'s order and restored the A.O.'s addition of Rs. 1,23,286/-. This ground was allowed.4. Estimation of Appellant's Income:The assessee contested the CIT(A)'s estimation of income at Rs. 27,00,000/- as excessive. The Tribunal, having already directed a 4% N.P. rate in the Revenue's appeal, rejected this ground of the assessee's Cross Objection.5. Levy of Interest Under Section 234B of the I.T. Act:The assessee argued against the levy of interest under section 234B, citing that tax was deductible at source on the entire receipt. The Tribunal found this issue to be consequential and dismissed the ground.Conclusion:- The appeal of the Revenue was allowed in parts, with directions to apply a 4% N.P. rate and reconsider the addition of FDRs.- The Cross Objection of the assessee was dismissed, upholding the CIT(A)'s decisions on income estimation and FDR investments, and confirming the levy of interest under section 234B.