TaxTMI 
TaxTMI 
TaxTMI 
2010 (7) TMI 1101
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....3A was carried out at the business premises of the assessee on 10th Sept., 2008. During the survey, it was found that regular books of account were not maintained either for earlier year or for the year under consideration. Incomplete accounts maintained in Tally form in computer were found. Vouchers of expenses claimed in the return of income were not made available On the contrary some expenses were found entered in the Tally, which were not claimed in the return of income. Statement of one of the partners was recorded during survey by which it was admitted to declare the correct income. As the expenses shown in Tally account were not supported by vouchers and as admitted by partner, the accounts were maintained on the basis of memory, the AO based on the admission during survey, estimated the net profit rate of 8 per cent on the receipt of ₹ 22,77,28,588. The total income of the assessee was estimated at ₹ 1,82,18,287 against the returned income of ₹ 49,46,020. The AO on perusal of P&L a/c further found that assessee has earned interest income of ₹ 15,80,884 from bank which was considered as part of contract receipt. The AO did not consider interest inco....
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....en reply and the main objection of the learned Departmental Representative is that since assessee has admitted application of net profit rate of 8 per cent subject to non-claiming of any further deduction on account of any expenditure and therefore, the learned CIT(A) was not justified in directing the AO to allow depreciation, interest and salary to partners. It has been stated that the decision of the Tribunal in the case of Creative Projects & Contracts (P) Ltd. (supra) is not applicable on the facts of the present case as the assessee himself had admitted for application of net profit rate of 8 per cent. On the other hand, the contentions raised before learned CIT(A) were reiterated by learned counsel of the assessee. We have heard rival submissions and considered them carefully. It is seen that during the course of survey since the books of account were incomplete and relevant vouchers were not found, therefore, the assessee was required to offer explanation. At that point of time the assessee admitted that whatever the true profits that will be declared in the return of income. It was also admitted that he will pay tax on the income by applying net profit rate of 8 per cent ....
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....ceedings only one of the partners had admitted application of net profit rate of 8 per cent subject to non-allowing of any other expenses. This admission is not conclusive because under wrong notion one of the partners had claimed that net profit rate of 8 per cent may be applied subject to not allowing any expenditure. Nowhere it is mentioned that depreciation, interest and salary paid to partners may not be allowed which is otherwise allowable as held by various Benches of the Tribunal and also by the Hon'ble jurisdictional High Court. After survey proceedings it was noticed that due to wrong notion the application of net profit rate of 8 per cent had been admitted and therefore, the return was filed on the basis of P&L a/c prepared by the auditor. The retraction by the assessee is bona fide as otherwise the profit of the assessee comes to a very lower figure i.e., ₹ 4,94,620 which is the amount which was declared by the assessee in the return filed on 20th March, 2007. The ratio of Hon'ble Supreme Court is also squarely applicable on the facts of the present case where it has been categorically held that admission made by assessee was not conclusive. The Hon'ble Supreme Co....
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....not be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect and the assessee should be given a proper opportunity to show that the books of account do not disclose the correct state of facts." As stated above that various Benches of the Tribunal as well as Hon'ble jurisdictional High Court have held in various cases that net profit rate is allowable subject to allowing depreciation, interest and salary to partners separately. Therefore, on mere admission by one of the partners during the course of survey, the assessee should not be imposed tax on the amount of depreciation, interest and salary which is otherwise allowable. The learned Departmental Representative has also made strong objection that in earlier year there was a gross profit of higher amount i.e., more than 8 per cent which was shown after claiming depreciation, interest and salary to partners, Therefore, the AO was justified in applying net profit of 8 per cent without allowing any depreciation etc. It is seen that for asst. yr. 2004-05 though net profit rate of 14.68 per cent has been shown, however it is further seen that for asst. yr. 2005-06 the net pro....