TaxTMI 
TaxTMI 
2015 (2) TMI 630
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....rthy Commissioner of Income-tax-III has erred in not considering the facts that the assessee maintained proper books of account which were thoroughly checked by the Assessing Officer during the course of hearing and assessment was framed after thorough and detailed investigation and with due application of mind. 4. That the Commissioner of Income-tax-III has erred in rejecting the books of account as no specific defects were found in the books of account by him and also by the Assessing Officer during the course of hearing which were properly maintained. 5. Notwithstanding the above facts, the Commissioner of Income- tax-III has erred in making addition of Rs. 1,83,80,208 in the income already assessed by the Assessing Officer under section 143(3) of the Income-tax Act, 1961 by applying the gross profit rate of 17.23 per cent on the basis of gross profit rate shown in the assessment year 2007-08 on guess work and assumption by rejecting the books of account without finding any specific defects. 3. The brief facts of the case are that a survey was conducted in the premises of the assessee on Feb....
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....r : Assessment year Gross profit rate Net profit rate 2008-09 11.49 % 4.23 % 2007-08 17.23 % 9.32 % 2006-07 11.76 % 5.88 % It was pointed out that if gross profit for the present year is compared over a period of time, then there is no difference. In 2007-08, when the gross profit rate was higher the same was because prices of yarn had increased suddenly whereas in the current year the selling prices of yarn again fell to the normal rate. All these issues were explained to the Assessing Officer in detail. 6. The learned Commissioner examined these submissions and did not agree with the same. He observed that the assessee was specifically asked that why books of account should not be rejected because the same were not reliable in view of the surrender made by the assessee, however, no specific reply was given by the assessee. He further observed that the assessee has adopted certain methods to reduce income after making surrender of Rs. 2.15 crores and the assessee has not given any evidence regarding volatility in the market. He then referred to the statement of Shri Sanjay Gupta which was recorded during the survey, thr....
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....ered amount cannot be treated as business income in the absence of any evidence. The books of account of the assessee are rejected. Keeping in view the ratio of the decision of the hon'ble jurisdictional High Court as well as the hon'ble jurisdictional Tribunal, the gross profit rate of the assessment year 2007-08 is applied and the income is enhanced to that extent which is computed as under : (i) Total turnover of the current year Rs. 32,01,01,795 (ii) Gross profit shown Rs. 3,67,73,331 (iii) Rate of gross profit shown 11.48 % (iv) Rate of gross profit in the assessment year 2007-08 17.23 % (v) Gross profit worked out adopting gross profit rate at 17.23 per cent. Rs. 5,51,53,539 (vi) Difference in gross profit Rs. 1,83,80,208 Income to be enhanced by Rs. 1,83,80,208 Based on the above discussion, I am also satisfied that the assessee has concealed income or furnished inaccurate particulars of income." 8. In the light of the above discussion, the learned Commissioner held that assessment order was erroneous and prejudicial to the interests of the Revenue and the income was enhanced vid....
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....not point out any defect in the replies. The Assessing Officer has passed the assessment order after considering the replies and, therefore, it cannot be said that Assessing Officer has not applied her mind. 11. Even before the Commissioner, details of the replies filed before the Assessing Officer were furnished and it was specifically pointed out to him that even at the time of survey, i.e., on February 28, 2008, there was a loss in the business of the assessee as per the trading account prepared on the date of survey. The loss on that date was Rs. 71,25,651 and the copy of such trading account is available at pages 187 and 188 of the paper book. This would itself explain why the return was less than the surrendered amount because at the completion of the 11 months of the financial year, there was a huge loss of Rs. 71,25,651. In the detailed reply dated March 15, 2013, a copy of which is available at pages 184 to 186, the reason for fall it the gross profit and comparative gross profit chart, etc., were also filed. Despite of this information the Commissioner observed that "the assessee adopted some methods to offset the income surrendered. Otherwise income should not have co....
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....7 ITR 84 (SC) ; and (3) Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi). 13. She further submitted that in the absence of any discussion in the assessment order the same is to be treated as erroneous and prejudicial to the interests of the Revenue and in this regard he relied on the decision of the hon'ble Karnataka High Court in the cases of CIT v. Infosys Technologies Ltd. (No. 2) [2012] 341 ITR 293 (Karn) and CIT v. Namdhari Seeds P. Ltd. [2012] 341 ITR 342 (Karn) (copies of these decisions were furnished). She submitted that even if it is assumed that various details were filed on behalf of the assessee but then assessment order does not show whether the same were examined by the Assessing Officer which shows lack of application of mind and, therefore, assessment order becomes erroneous and prejudicial to the interests of the Revenue. 14. The learned Departmental representative further submitted that where a survey has been conducted and particularly when the return filed is less than the returned income then the Assessing Officer should have rejected the books of account beca....
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....73,331 Int. recd. Rs. 2,25,597 Rent Rs. 2,40,000 Net profit Rs. 1,35,36,301 Customs drawback Rs. 10,27,058 Surrendered Rs. 2,15,00,000 Total Rs. 5,97,65,986 Total Rs. 5,97,65,986 Therefore, the net profit declared by you is Rs. 1,35,36,301 only which is after taking into consideration an income of Rs. 2,15,00,000 disclosed by you during the course of survey. In other words if the income of Rs. 2.15 crores disclosed during the survey is taken out, the loss declared by you comes to Rs. 79,63,699 against the profit of about Rs. 27 lakhs shown by you in the preceding financial year. It is further seen that the gross profit rate for the assessment year under consideration comes to 11.48 per cent. against that of 17.23 per cent. shown in the immediately proceeding year. Also in the assessment year 2007-08 the net profit shown was 9.23 per cent. whereas in this year you have rather shown net loss of Rs. 79,63,699. Your trading results therefore were required to be verified and cross checked. 3. The Assessing Officer however has failed to make proper veri fication with respect to the above aspects and the asses....
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....de by the Calcutta Bench of the Tribunal in I. T. A. No. 353/Kol/2012 in the cases of GPSK Capital P. Ltd. v. CIT and Colorcraft v. ITO 105 ITD 599 (Mumbai ). In the case of last mentioned case, the headnote reads as under : "Revision-Validity-Revisional order based on reasons not spec ified in show-cause notice-Is invalid-Section 263 provides an opportunity to the assessee to show cause against reasons mentioned in notice on which assessment is sought to be revised, hence, if the CIT intends to deviate from the reasons mentioned in show-cause notice, he must confront the assessee with fresh reasons and allow the assessee a fresh opportunity-Reason given by the CIT in show- cause notice being that duty-drawback could not be considered as profit derived from exports for purposes of deduction under section 80HHC, revisional order passed by CIT on the basis of alleged wrong treatment of export incentives, Central excise refund and sales-tax set off could not be sustained." 17. Thus, from the above it becomes clear that an order which is found to be erroneous and prejudicial to the interests of the Rev....
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....6, 8, 12, 13 and 14, which are as under : "5. I have carefully considered the submissions of the assessee. The assessee was specifically asked as why the books of account be not rejected as the books of account are not reliable in view of the surrendered made by the assessee on various heads. The assessee did not give any specific reply and simply stated that the Assessing Officer did not point out any specific defects in the books of account. What greater proof is required then the own admission of the asses see that there are discrepancies in the books of account and offer a huge sum of Rs. 2.15 crores. No accountancy principle justifies that such books of account are reliable. The Assessing Officer failed to reject the books of account, rather without making any proper inquiry accepted the books of account as true. 6. It is also seen that the assessee adopted certain methods to reduce the income after making surrender of Rs. 2.15 crores. The assessee has taken a plea that there was volatility in the market. The assessee fai....
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.... 14. The Assessing Officer failed to take into account the decision of the hon'ble jurisdictional High Court as well as jurisdictional Tribunal that in these circumstances no cognizance can be taken of the books of account produced by the assessee and also surrendered amount cannot be treated as business income in the absence of any evidence. The books of account of the assessee are rejected. Keeping in view the ratio of the decision of the hon'ble jurisdictional High Court as well as hon'ble jurisdictional Tribunal, the gross profit rate of the assessment year 2007-08 is applied and the income is enhanced to that extent which is computed as under : (i) Total turnover of the current year Rs. 32,01,01,795 (ii) Gross profit shown Rs. 3,67,73,331 (iii) Rate of gross profit shown 11.48 % (iv) Rate of gross profit in the assessment year 2007-08 17.23 % (v) Gross profit worked out adopting gross profit rate at 17.23 per cent. Rs. 5,51,53,539 (vi) Difference in gross profit Rs. 1,83,80,208 Income to be enhanced by Rs. 1,83,80,208 Based on the abov....
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....ampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). No doubt in all these cases it has been clearly held that if the Assessing Officer fails to make enquiries then the assessment order can be held to be erroneous and prejudicial to the interests of the Revenue. But in the case before us it cannot be said without pinpointing which enquiry has not been made and that such order is erroneous. In this regard we find force in the submissions of learned counsel of the assessee on the observations made in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom). In that case following observation was made : "The power of suo motu revision under sub-section (1) of section 263 of the Income-tax Act, 1961, is in the nature of supervisory juris diction and can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commis sioner to exercise the power of revision under this sub-section, viz., (i) the order should be erroneous ; and (ii) by virtue of the order being erroneous prejudice must have been ca....
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....on the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for an examined by such authority." 21. Further, it was held as under : "Held, that the Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given a detailed explanation in that regard by a let ter in writing. All these were part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. This decision of the Income-tax Officer could not be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard. More over, in the instant case, the Commissioner himself, even after initi ating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the....
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....ed in the stock found at the time of survey conducted in the business premises of the assessee. Further, the assessee has shown gross profit rate of 27.48 per cent. as against 30.43 per cent. and therefore, he estimated the gross profit rate at 28 per cent. On these facts, the hon'ble High Court extracted the observations of the Tribunal at paragraph 4, which are as under (page 579 of 292 ITR) : "4. We have also considered the alternative plea of the assessee that the surrender of Rs. 2 lakhs should cover against the addition of gross profit. On the facts and circumstances of the case, we are of the considered view that since the assessee has himself shown a higher gross profit rate in the preceding years, the estimate of gross profit at the rate of 28 per cent. adopted by the Assessing Officer by invoking the provisions of section 145(2) was justified. We are also of the opinion that the surrender of Rs. 2 lakhs during survey would not cover against the addition on account of gross profit as the same was made against specific items detected at the time of survey under section 133A. Therefore, we do not find any fo....
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....jected the books of account and estimated the sales at Rs. 40 lakhs against the sales declared by the assessee at Rs. 38,76,081 and applied the gross profit rate 13.36 per cent. declared by the assessee. The Tribunal confirmed the major addition made by the Assessing Officer. It was contended before the hon'ble High Court that the Tribunal has failed to appreciate that except for the surrender made by the assessee at the time of search there was no other material before the Assessing Officer to come to the conclusion that books of account maintained by the assessee were not correct. On these facts and contentions the hon'ble High Court adjudicated the issue as under (page 191) : "We are unable to persuade ourselves to agree with learned counsel for the assessee. Section 145(2) of the Act empowers the Assessing Officer to make a best judgment assessment when he is not satisfied about the correctness or completeness of the accounts of the assessee. It is not possible to categorise various types of defects which may render rejection of books of account of an assessee on the ground that the accounts are not complet....
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.... years have been filed at pages 152 to180 of the paper book. In fact summary of variation of rates have been filed at page 152 which reads as under : M/s. Venus Woollen Mills Comparison of purchases Asst. year 2006-07 Asst. year 2007-08 Sl. No. Item Bill No./Date Rate (in Rs.) Bill No./Date Rate 1 Acrylic tow 3193/09-02-07 Pasupati Acrylon Ltd. 99 2884/15-12-07 Pasupati Acrylon Ltd. 108 2 Acrylic tow 3525/05-03-07 Pasupati Acrylon Ltd. 99 and 101 1900/18-12-07 Indian Acrylics Ltd. 110 1 Acrylic Fibre 923/28-12-06 Arfat Petrochemicals Pvt. Ltd. 103.57 2520/17-11-07 Pasupati Acrylon Ltd. 108 2898/15-12-07 Pasupati Acrylon Ltd. 108 1 Polyster yarn 38/06-12-06 Gagan and Co. 86.83 379/21-11-07 Juneja Woollen Mills 125 478/20-12-07 Juneja Woollen Mills 122 &n....