AI Drafter 
TaxTMI 
TaxTMI 
2015 (9) TMI 72
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....has dismissed the said appeals preferred by the revenue for A.Y. 2002-2003 to 2007-2008 and has partly allowed the appeal preferred by the revenue for the A.Y. 2001-2002 and allowing the Cross Objections filed by the assessee for the A.Y. 2001-2002 to 2003-2004, the revenue has preferred present Tax Appeals. 3.00. For the sake of convenience, facts for A.Y. 2001- 2002 are narrated and considered :- 3.01. In Tax Appeal No.235 of 2015, which is arising out of the judgement and order passed by the learned tribunal in IT(SS) No.594/Ahd/2010 for A.Y. 2001-2002, the revenue has proposed the following substantial questions of law :- "(A) Whether the Appellate Tribunal has substantially erred in applying net profit ratio of 5.2% for A.Y. 2001-2002, 2002-2003 & 2003-2004 since no estimation of profit is required when the profit can be worked out from the figures of unrecorded sales and unrecorded purchases of seized Note Books marked as Annexure-A/2, A/3, A/5, & A/8.? (B) Whether the Appellate Tribunal has substantially erred in holding that the provisions of section 40(A)(3) of the Act are not applicable on the unaccounted purchased / expenses incurred by the assessee for A.Y. ....
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.... followed by the A.O., however, in the A.Y. 2002-2003 & A.Y. 2007-2008, as loss was computed. 4.05. That in an appeal the learned CIT(A), who was deciding appeals of all the years prepared consolidated chart of the profit ratio as calculated by the A.O. vis-a-vis 5% profit shown by the assessee, was compared in the following manner:- A.Ys. Income offered by assessee i.e. @ 5% of the total of receipt in seized diaries (Rs.) Income determined by A.O. as per seized records diaries (Rs.) Profit rate as per A.O.'s calculation 2001-02 14,85,000 16,15,803 5.44% 2002-03 17,86,000 -10,25,449 -2.87% 2003-04 14,58,000 21,67,076 7.43% 2004-05 16,63,554 26,54,974 10.51% 2005-06 16,63,554 5,19.318 7.90% 2006-07 15,53,775 25,01,070 10.25% 2007-08 Nil -21,12,276 -2.41% 96,09,883 63,20,466 Average Profit Ratio 5.17% 4.06. That in addition of the above chart, the learned CIT(A) also compared income disclosed by the assessee with the income declared as per the original return which reads as under :- A.Ys. Original Returned Income 5% Income on credit entries i....
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....has been rendered infructuous and therefore, deleted. Therefore, the additions made by the A.O. came to be modified by the learned CIT(A) as under :- A.Y. Addition made by A.O. Modified Addition upheld 2001-02 Rs.16,15,803 Rs.16,04,036 2002-03 Rs.(-)10,25,499 Rs.31,87,728 2003-04 Rs.21,67,076 Rs.25,04,023 2004-05 Rs.26,54,974 Rs.16,63,554 2005-06 Rs.05,19,318 Rs.16,63,553 2006-07 Rs.25,01,070 Rs.15,53,775 2007-08 Rs.(-)21,12,276 Rs.00,36,083 4.10. In respect of the A.Y. 2007-2008, the learned CIT(A) deleted additions made by the A.O. by observing that quantity of 1425 MT was not found and in fact as on 4/8/2006, 632 MT goods was found. 4.11. Feeling aggrieved and dissatisfied with the order passed by the learned CIT(A) in modifying the additions made by the A.O. in the respective years as above, the revenue preferred appeals before the learned tribunal, being IT(SS) No.594 to 599 of 2010 as well as 2312 of 2010 for A.Y. 2001- 2002 TO 2007-2008 and also preferred Cross Objections Nos.245 to 248 of 2010 for A.Y. 2001-2002 to 2002003-2004 and also A.Y. 200702008, in so far as confirming the estimated total u....
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....es 88 and 89 of the written submission is reproduced below to understand the modus operandi of the assessee. "4. However, the Appellant is maintaining kachcha books for another kind of activity which in the nature of commission agent. In such kind of kachcha books the Appellant maintains the details on behalf of the said parties, for whom, the coal are sold, on which the Appellant is getting only certain percentage of commission on sales. 5. The Appellant is neither required to make collection from the parties to whom coal are sold on behalf of other parties nor is required to make payment to the said other parties, transactions are directly settled in between both the parties. The Appellant only receives commission on such sales. Your Honours would appreciate that during the course of search carried out the authorized persons have not found any creditors or debtors for the said transaction in kachcha books of the Appellant, which is also evident that the Appellant is only concerned with its commission on sales and not with collection and payment of such transactions. The only purpose of maintaining such kachcha books was to ensure that the Appellant claims its commission on ....
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....under Rule 6DD(j) of IT Act. Naturally, the answer should go in favour of the Revenue, however, the question as to whether a disallowance can be made u/s.40A(3), when the income is based on estimation, was not before the Hon'ble Court. So the question itself was distinguishable; hence, this issue of the applicability of the provisions of Section 40A(3) is to be decided on the merits and facts of this case only. Facts of this case have revealed that even after the search was carried out there were no evidence of expenditure and the AO was not able to lay hands on unaccounted purchases. Because the evidence of total expenditure or purchases was not available to the Revenue Department, therefore, the assessee as well as the AO, both have decided to determine the income by applying a reasonable estimate of profit. That estimation was very close to the income offered by the assessee. Resultantly, the grounds raised for all the years by the Revenue are hereby dismissed." 5.04. We are in complete agreement with the view taken by the learned tribunal as well as learned CIT(A). When the evidences of total expenditure or purchase were not available with the revenue and consequently th....
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....02/-and taxed in the hands of the assessee. 15. When the matter was carried before the First Appellate Authority, learned CIT(A) has deleted the addition as per the following observation: "In respect to A.Y.2007-08 the AO had noted that the entries in the seized diaries were for the period of 01.04.2006 to 04.08.2006. Also that purchases were made in the month of June and July and the goods purchased must be lying in godowns, since no sales were recorded. Such stated goods were computed by the AO to be of the value of Rs. 20.02 lacs and treated as unaccounted closing stock. In terms of prevailing price, the quantum of such goods would be approx. 793 MT (i.e. @ 2554/-per MT). At the time of search 04/08/2006, the stock of goods (coal) was found to be 625 MT approx. which was reconciled by the appellant as opening stock of 440 MT on 04/08/2006 and inwards of 207 MT from 01/08/2006 to 04/08/2006 less outward of 14.9 MT i.e. stock of 632 MT as on 04/08/2006. If the assumption of the AO was valid in respect of A.Y. 2007-08, the stock available with the appellant should have been another 793 MT. However, such a quantity (632 MT + 793 MT) of stock was not found. Hence, the addition ....