2016 (5) TMI 350 - AT - Income Tax

Revenue appeal partly allowed, CIT(A)'s estimations upheld on sales, courier charges, investments.

The ITO 22 (3) (4), Mumbai Versus Smt. Sonia K Daswani Prop. M/s. Saira Impex

The ITO 22 (3) (4), Mumbai Versus Smt. Sonia K Daswani Prop. M/s. Saira Impex - TMI Issues Involved:1. Deletion of addition of Rs. 10,45,385 as profit on undeclared sales.2. Deletion of addition of Rs. 9,51,665 being courier charges reimbursement.3. Deletion of addition of Rs. 5 lakhs cash deposited in undisclosed bank account.4. Deletion of addition of Rs. 19,55,282 on account of unexplained investment.5. Change from single stage to double stage estimation of income.Detailed Analysis:Issue 1: Deletion of Addition of Rs. 10,45,385 as Profit on Undeclared SalesThe Revenue challenged the deletion of Rs. 10,45,385 added by the AO as profit at 5% on undeclared sales of Rs. 2,09,07,668. The AO observed a discrepancy between the sales shown by the assessee and the sales reported by Casio India Company Private Limited. The AO added 5% of the undeclared sales to the assessee's income due to lack of explanation from the assessee. The CIT(A) estimated the commission income at 11% on the undeclared sales based on the parity with the disclosed sales and applied a net profit rate of 15%. The Tribunal upheld the CIT(A)'s estimation, noting that it was reasonable and based on the available records.Issue 2: Deletion of Addition of Rs. 9,51,665 Being Courier Charges ReimbursementThe AO disallowed the courier charges of Rs. 9,51,665 claimed by the assessee as these were to be reimbursed by Casio India Company Private Limited. The CIT(A) included the courier charges in the gross income and applied a profit ratio of 15% on the aggregate commission and courier charges. The Tribunal directed the AO to verify if the courier charges were reimbursed separately by Casio India Company Private Limited. If reimbursed, the entire amount should be disallowed; otherwise, the CIT(A)'s computation was confirmed.Issue 3: Deletion of Addition of Rs. 5 Lakhs Cash Deposited in Undisclosed Bank AccountThe AO added Rs. 27,50,000 (including Rs. 5 lakhs cash) deposited in Kotak Mahindra Bank as unexplained cash credit under Section 68. The assessee explained that Rs. 5 lakhs represented cash sales of electronic items purchased from Thakkral Computers Private Limited, which were not recorded in the books. The CIT(A) accepted this explanation and allowed the benefit of Rs. 5 lakhs, treating it as part of the unaccounted sales proceeds. The Tribunal upheld the CIT(A)'s decision, finding the explanation plausible and the Revenue failing to disprove it.Issue 4: Deletion of Addition of Rs. 19,55,282 on Account of Unexplained InvestmentThe AO added Rs. 24,55,282 as unexplained investment under Section 69, representing payments made to Thakkral Computers Private Limited from the disclosed IndusInd Bank account. The CIT(A) observed that the payments were made from a regular bank account declared to the Revenue and could not be treated as investments from undisclosed sources. The CIT(A) sustained the addition to the extent of Rs. 5 lakhs as profits from undisclosed sales and granted relief of Rs. 19,55,282. The Tribunal confirmed the CIT(A)'s order, noting that the sources of the payments were explained and the profits from unrecorded transactions were reasonably estimated.Issue 5: Change from Single Stage to Double Stage Estimation of IncomeThe Revenue objected to the CIT(A)'s double stage estimation—first estimating commission income at 11% on sales and then applying a net profit rate of 15%. The Tribunal found no fault with the CIT(A)'s method, noting that it was based on a reasonable and fair estimation in line with the disclosed sales. The CIT(A)'s approach was upheld as it involved necessary guesswork and was reasonably justified.Conclusion:The Tribunal partly allowed the Revenue's appeal, confirming the CIT(A)'s estimations and directions for verification regarding courier charges. The Tribunal upheld the CIT(A)'s decisions on the issues of undeclared sales, courier charges, unexplained investments, and the method of income estimation.