TaxTMI 
TaxTMI 
2011 (8) TMI 513
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....tive. 3. Facts, in brief, as per relevant orders are that in consequence of investigation of transactions by the Enforcement Directorate in the case of Shri Dhiren A Modi, Prop.M/s Tirupati Enterprises, it was revealed that the assessee was also engaged with Shri Dhiren A Modi, in bogus purchases and sale bills. For the AY 1996-97, the assessee filed return declaring an income of Rs.57,550/- on 31-03-1997,reflecting income from the business of trading in cut and polished diamonds. Subsequently, the assessment was reopened u/s 147 of the Income-tax Act, 1961 [hereinafter referred to as the "Act"]. During the course of reassessment proceedings, the Assessing Officer ['AO' in short] noticed that the assessee reflected gross profit[GP] @ 0.156% on turnover of Rs.21,40,78,679/-. The AO was of the opinion that the GP reflected was low and in the light of investigation of transactions by the Enforcement Directorate, rejected the book results and estimated the GP@1% of the turnover, resulting in an addition of Rs.18,06,405/-[2140786-334381]. Besides, an amount of Rs.3,38,708/- in the name of M/s Asha Enterprises, Rs.6,14,739/- in the name of Lunar Diamond and Rs.9,50,000/- in the n....
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....garding loans accepted from various parties, only verbal explanation was given by the assessee's accountant. In the assessment year 1995-96 this is specifically mentioned in relation to loan from M/s. Gem. Exports. (v) In the assessment year 1997-98, the accounts of M/s. Meena International and M/s. V.K. International were converted from debit balance of Rs.5,57,77,525/- and Rs.2,03,949/- as on 31.3.1996 into credit balance of Rs.96,01,569/- and Rs.2,96,051/- respectively as on 313.1997 on account of excess amount received. But for want of conclusive evidence/satisfactory explanation in respect of nature of such excess amount received - whether towards advance against goods or borrowings - these credit balances were classified under current liabilities. Hence, it was not possible to furnish particulars referred to in clause 10 of the tax audit report (meant for loans or deposits above Rs.20,000/-)(note no.8) All this goes to show that accounts were not maintained as per norms of tax audit. Particularly, the purchases made in cash from the so-called unregistered dealers were debited as and when it suited the requirement of the appellant and represent just book entrie....
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....Having regard to these facts and circumstances of the case, it would be fair and reasonable to determine the profits in all the years under appeal by applying the g.p. rate of O.79%." 5. On further appeal by the assessee and the Revenue, the Tribunal vide their order dated 31-08-2007 in ITA nos.1829 to 1832/Ahd/2004 and 1933 to 1936/Ahd/2004 for the AYs 1995-96 to 1997-98 and 1999-2000 concluded in respect of trading addition as under: "3.3 We, therefore, on a consideration of the totality of the facts and circumstances of the case, including the assessee's conduct before the authorities below, which has been not cooperative, and the fact that the onus to establish its case, in law, by leading evidence, direct or indirect, i.e., as permitted by the circumstances of its case, or the peculiarities of its trade, is on the assessee, and which it has completely failed to, consider a G.P. rate of 0.65% would be reasonable estimate of its gross profit for the first three years, that is the assessment years 1995-96 to 1997-98, and which would, we also observe, be at par with that assessed in its case for A.Y. 1998-99. The said rate stands arrived at by adopting the base (no....
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....SC), CIT vs. K R Sadyappan [1990] 185 ITR 49 (SC), CIT (Addl.) vs. Jeevan Lal Shah [1994] 205 ITR 244 (SC) and K. C. Builders v. CIT [2004] 135 Taxman 461 (SC), levied a penalty of Rs.11,77,759/- u/s 271(1)(c) of the Act @ 100% of the tax sought to be evaded. 8. On appeal, the learned CIT(A) cancelled the penalty in relation to trading addition, following the decision of the Tribunal in the case of Ashok K Shah, in the following terms:- "3.3 I have considered the submissions of the ld. A.R. and the facts of the case. I find that additions have been made for the three years in the case of the appellant, which are as under:- A.Y. Additions Amount [Rs.] 1995-96 (i)On account of low GP rate (ii) U/s 68 8,55,638 NIL Total 8,55,638 1996-97 (i)On account of low GP rate (ii) U/s 68 (iii) U/s 69 13,56,840 9,53,447; 9,50,000 Total 32,60,287 1997-98 (i)On account of low GP rate (ii) U/s 68 1,59,101 9,00,000 Total 10,59,101 In identical circumstances, the Hon. ITAT has cancelled the penalty levied in respect of Ashok K Shah on the ground that the addition "on account of low GP rate was solely an estimate without there being any material or a finding a....
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....the ITAT in their common order dated 31.8.2007. In these circumstances, the learned CIT(A) cancelled the levy of penalty in relation to GP addition, following the decision of the Tribunal in the case of Ashok K Shah. A copy of the said decision of the ITAT has not been placed before us while the learned DR appearing before us did not controvert the findings of the learned CIT(A) recorded by him in the light of the decision of the Tribunal in the case of Ashok K Shah. 10.1 In connection with levy of penalty on estimated profits after rejection of book results, we may refer to the following observations of the Hon'ble jurisdictional High Court in the case of CIT vs. Subhash Trading Co., 221 ITR 110 (Gujrat), wherein it was held "The facts of the present case, as noticed by us, amply demonstrate that this was a case in which a best judgment assessment has been made by rejecting the results disclosed by books of account maintained by the assessee and the figure of assessable income has been arrived at by applying an estimated gross profit rate on estimated sales, viz., both the figures are adopted by the Revenue authorities on certain assumptions but are not the actual ....