2020 (11) TMI 561 - AT - Income Tax

Tribunal Upholds Special Audit Validity, Accepts 1% Profit Rate, Deletes Unexplained Investment Addition in Tax Case.

The Tribunal partially allowed the assessee's appeal and dismissed the Revenue's appeal. It upheld the validity of the special audit under Section 142(2A) ... Special audit u/s 142[2A] - assessment order passed during the extended time period as allowed as per proviso to Section 142(2C) - HELD THAT:- On going through the proviso of Section 142(2C) of the Act we observe that the time for furnishing the report could be extended not exceeding 180 days from the date on which the directions u/s 142(2A) of the Act is received by the assessee. Extension can be either suo-moto by the Ld. A.O or on an application made in this behalf by the assessee quoting good and sufficient reasons. In the proviso there is no mention that whether the Special Auditor can approach for extension of time limit to submit the report. Power is vested with the Ld. A.O which either on the application of the assessee or suo-moto (emphasis applied) can extend the time period up to 180 days. In the instant case the assessee has not approached for extension of time period. It was only between the Ld. A.O and the Special Auditor that there was a communication of extension of time period. A.O who is having sufficient powers under proviso to Section 142(2C) to suo-moto extend the period not exceeding 180 days from the date of issue of order u/s 142(2A) of the Act. Ld. A.O has acted well within his power and extended the time period and subsequently accepted the Special Audit Report dated 23.05.2014 and further completed the assessment u/s 143(3) of the Act within two months from the date of receipt of Special Audit Report. We therefore find no reason to interfere in the findings of Ld. CIT(A) and find no merit in Ground No.1 raised by the assessee. Accordingly Ground No.1 of assessee’s appeal is dismissed. Estimation of net profit - Revenue has challenged the relief given by Ld. CIT(A) of having applied 1% of net profit rate as against 5% net profit rate applied by Ld. A.O on total turnover - HELD THAT:- Just because that the assessee is having 5 bank accounts and not shown in the regular books cannot be the sole basis to reject the regular books of accounts. On the undisclosed turnover the assessee has already opted and duly offered the net profit seperately but on the disclosed turnover unless the Ld. A.O points outs specific mistake or doubt about the genuineness of the purchase/sale and expenses transactions, the book results cannot be doubted. This is also a fact that the assessee has maintained quantitative details and books are duly audited. So far as the book results i.e. net profit shown in the regular books @0.29% on the disclosed turnover of ₹ 23,01,37,927/- is concerned, we are of the view that the same should be accepted and estimation of Ld. A.O applying @5% of net profit and Ld. CIT(A) @1% of net profit on the disclosed turnover is devoid of any merits. Undisclosed turnover - The assessee suo-moto accepted that the bank charges have already been charged in the regular books and therefore net profit rate before claiming of finance charges should be adopted as net profit on the undisclosed turnover. Assessee has accordingly added 1.04% of finance cost to 0.29% of the net profit offered in the regular books and the total i.e. 1.33% is adopted as Net Profit rate and accordingly offered net profit of ₹ 27,28,606/- on the undisclosed turnover of ₹ 20,53,98,966/-. We are thus satisfied with the net profit offered by the assessee in the Income Tax Return on the disclosed turnover and Net profit of 1.33% offered on undisclosed turnover during assessment proceedings and thus applying the ratio of the decision in the case of Shri Sitaram Agrawal [2020 (8) TMI 807 - ITAT INDORE] which is squarely applicable in the instant case, we allow Ground No.2 of the assessee’s appeal and dismiss Ground No.1 of the Revenue’s appeal. Addition made on account of peak balance in undisclosed bank accounts - HELD THAT:- Apart from cash the assessee also has stock in hand and the same in the case of M/s. Monika Trading Company and M/s. White Gold Enterprises is ₹ 56,25,609/- and ₹ 25,59,663/- respectively totaling to ₹ 81,85,272/-. So as on 27.10.2010 total of cash and stock in hand available in the regular books of the two proprietorship concerns run by the assessee totals to ₹ 1,22,62,009/- and this figure is much more than than the peak balance of unaccounted bank accounts at ₹ 75,80,285/-. So there is no negative balance of cash and stock after considering the total closing balance of all the 5 bank accounts. We thus applying our own finding in the case of Sitaram Agrawal (supra) are of the considered view that in the instant case Ld. A.O as well as Ld. CIT(A) erred in making the addition of unaccounted investment/ peak balance of undisclosed 5 bank accounts. We therefore set aside the finding of Ld. CIT(A) and delete the addition of ₹ 51,65,904/- sustained by Ld. CIT(A). Thus Ground No.3 raised by the assessee is allowed and Ground No.2 raised by the Revenue is dismissed. Issues Involved:1. Validity of the reference to special audit under Section 142(2A) of the Income Tax Act.2. Estimation of net profit rate.3. Addition on account of investment in unrecorded business.Detailed Analysis:1. Validity of the Reference to Special Audit under Section 142(2A):Grounds of Appeal by the Assessee:- The assessee challenged the reference to the special audit under Section 142(2A) and claimed that the assessment order was barred by limitation of time.- Key dates included the filing of the return on 20-09-2011, notice under Section 143(2) on 24-09-2012, and the proposal for special audit on 23-12-2013.- The special auditor requested an extension on 23-04-2014, which was granted until 15-05-2014. The audit report was submitted on 23-05-2014, and the assessment order was passed on 07-07-2014.Tribunal’s Findings:- The Tribunal observed that the Assessing Officer (A.O.) acted within his powers under the proviso to Section 142(2C) to extend the period for the special audit up to 180 days.- The extension granted by the A.O. was valid, and the assessment order was passed within the permissible time.- The Tribunal found no merit in the assessee's claim that the assessment order was barred by limitation and dismissed this ground of appeal.2. Estimation of Net Profit Rate:Grounds of Appeal by the Assessee and Revenue:- The assessee contested the estimation of net profit at Rs. 43,55,368/- against the declared Rs. 34,08,911/-.- The Revenue challenged the relief granted by the CIT(A), who applied a 1% net profit rate instead of the 5% applied by the A.O.Tribunal’s Findings:- The Tribunal noted that the A.O. had applied a 5% net profit rate based on a previous decision (Amar Agrawal case), which was not directly applicable to the assessee's case.- The CIT(A) considered the net profit rates of comparable cases and reduced the rate to 1%, which was more in line with the industry standards and the assessee's own historical data.- The Tribunal found that the CIT(A) had reasonably estimated the net profit rate at 1% and upheld this decision, dismissing the Revenue's appeal and allowing the assessee's appeal to the extent of accepting the net profit rate offered by the assessee.3. Addition on Account of Investment in Unrecorded Business:Grounds of Appeal by the Assessee and Revenue:- The A.O. added Rs. 2,56,74,870/- as unexplained investment in unrecorded turnover, which the CIT(A) reduced to Rs. 51,65,904/- based on the peak balance in undisclosed bank accounts.- The assessee argued that the cash and stock in regular books were sufficient to cover the unrecorded transactions, thus no additional investment was required.Tribunal’s Findings:- The Tribunal examined the peak bank balance and the availability of cash and stock in the regular books.- It was found that the total cash and stock in hand exceeded the peak balance in the undisclosed bank accounts.- The Tribunal, applying its own precedent (Sitaram Agrawal case), concluded that no addition for unexplained investment was warranted as the assessee had sufficient funds in the regular books to cover the unrecorded transactions.- The Tribunal set aside the CIT(A)'s finding and deleted the addition of Rs. 51,65,904/-, allowing the assessee's appeal and dismissing the Revenue's appeal.Conclusion:- The appeal of the assessee was partly allowed, and that of the Revenue was dismissed.- The Tribunal upheld the validity of the special audit reference, accepted the net profit rate offered by the assessee, and deleted the addition for unexplained investment in unrecorded business.