2023 (12) TMI 30 - AT - Income Tax

AO cannot apply section 69A after accepting business income calculated on total turnover from same books

The Deputy Commissioner of Income Tax, Central Circle, Ballari. Versus Shri Sripal Devichand Jain, Prop. M/s. Padmavathi Gold, Kalaburagi And (Vice-Versa)

The Deputy Commissioner of Income Tax, Central Circle, Ballari. Versus Shri Sripal Devichand Jain, Prop. M/s. Padmavathi Gold, Kalaburagi And (Vice-Versa) ... Issues Involved:1. Estimation of Sales: Whether the CIT(A) was correct in estimating the sales for the part period based on additional evidence without following Rule 46A.2. Gross Profit Estimation: Whether the CIT(A) was correct in re-estimating the sales and reducing the GP without confronting the AO.3. Relief on GP and Sales Estimation: Whether the CIT(A) was correct in giving relief to the assessee on the issues of GP and sales estimation.4. Condonation of Delay: Whether the delay in filing the Cross Objection (CO) by the assessee should be condoned.Summary:Estimation of Sales:- Revenue's Argument: The CIT(A) accepted additional evidence and re-estimated sales without following Rule 46A, which requires confronting the AO. The AO had estimated the sales for Jan/Feb 2021 based on average sales from previous years and found the sales bills produced by the assessee to be not genuine.- Assessee's Argument: The assessee contended that the estimation by the AO was without considering factors like gold price increase, impact of COVID-19, and personal injury affecting business in FY 2019-20. The CIT(A) re-estimated sales based on quantity and average rate per gram, considering the prevailing gold rates and other relevant factors.- Tribunal's Decision: The Tribunal noted that the AO did not reject the books of accounts and accepted the business income reported by the assessee. The entire sales reported by the assessee were considered business sales, and section 69A was not applicable. The Tribunal upheld the CIT(A)'s re-estimation of sales as more realistic.Gross Profit Estimation:- Revenue's Argument: The AO estimated the GP based on the average sales for the period, rejecting the assessee's claim that the entire cash seized was from business sales.- Assessee's Argument: The assessee argued that the GP should be excluded from business income to avoid double taxation, as the AO considered part of the sales as unexplained money under section 69A.- Tribunal's Decision: The Tribunal agreed with the CIT(A)'s recomputation of business income after excluding the GP on the re-estimated bogus sales. The AO's estimation without rejecting the books of accounts was not permissible.Relief on GP and Sales Estimation:- Revenue's Argument: The CIT(A) granted relief without credible reasons and without giving the AO an opportunity to comment.- Assessee's Argument: The details submitted to the CIT(A) were already available with the AO, and the estimation by the CIT(A) was based on a more realistic approach considering various business factors.- Tribunal's Decision: The Tribunal upheld the CIT(A)'s estimation as it considered relevant business factors and was more realistic compared to the AO's mechanical estimation.Condonation of Delay:- Assessee's Argument: The delay in filing the CO was due to initial advice not to prefer an appeal. Later, professional consultation advised challenging the balance amount of addition.- Tribunal's Decision: The Tribunal found reasonable cause for the delay and condoned it, relying on the decision in Collector, Land Acquisition v. Mst. Katiji & Ors.Conclusion:The appeal by the revenue was dismissed, and the CO by the assessee was partly allowed. The Tribunal emphasized that the entire sales reported by the assessee should be considered business sales, and section 69A was not applicable. The CIT(A)'s estimation of sales and GP was upheld as more realistic and based on relevant business factors.