TaxTMI 
TaxTMI 
2020 (11) TMI 561
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....and notice u/s 143(2) dated 24.09.2012 was served upon the assessee followed by questionnaire u/s 142(1)(ii) dated 15.1.2013. The appellant assessee maintained 19 [Nineteen] bank accounts, out of that 14 [Fourteen] bank accounts were incorporated in the regular books of account. However, following five bank accounts remains to be incorporated in the regular books of account:- S.No Name the Bank Type of A/ c A/c in the name of A/c Number 1 HDFC Bank Current M/s White Gold Enterprises 2572560004723 2 Union Bank of India Current M/s White Gold Enterprises 582601010050069 3 Union Bank of India Current M/s Monica Trading Co 582601010050068 4 Buldhana Urban Co-op Bank Ltd Loan A/c Shri Dwarka Pd Tayal 181/ 2005 to 1210 5 Buldhana Urban Co-op Bank Ltd CIA Shri Dwarka Pd Tayal 21/180 3. The appellant assessee offered additional income to the tune of Rs. 27,32,000/- [1.33% of Rs. 20,53,98,366/-] before the Investigation wing on the total unrecorded turnover of Rs. 20,53,98,366/- as executed through the above bank accounts. That disclosed/undisclosed turnover as executed through all the b....
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....] That on the facts and in the circumstances of the case the Ld Assessing officer failed to bring on records any complexity in the books of account of the appellant prior to reference to the special audit U / s 142 [2A] of the Act. 1.3] That on the facts and in the circumstances of the case the Ld CIT[A] erred in approving the assessment order as passed during the extended time period as allowed as per proviso to section 142[2C] of the Act as valid. 2] That on the facts and in the circumstances of the case the Ld CIT[A] erred in estimating the net profit of the appellant at Rs. 43,55,368/ - as against net profit as declared by the appellant was of Rs. 34,08,911/-. 3] That on the facts and in the circumstances of the case the Ld CIT[A] erred in maintaining the addition on account of investment in unrecorded business to the tune of Rs. 51,65,904/- even when sufficient amount of stock and cash was lying in the regular books of account of the appellant. (B) GROUNDS OF APPEAL AS TAKEN BY THE DEPARTMENT 1] The Ld CIT(A) has erred in directing the AO to estimate the Profit of business @1% of total turnover as against 5% of total turnover applie....
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....e Income Tax Act taken on record on 16-01-2014 4.4 After verifying the books , final report was sent to the Hon'ble CCIT, Indore recommending the case of the assessee for Special Audit U/s 142[2A] of the Act 28-01-2014 4.5 Approval was received from the Hon'ble Commissioner of Income Tax -2, Indore VIDE Letter No CIT-2/Indore/ Tech/ Spl. Audit/ 13-14/ 6088 dt 18/02/2014 & 20/02/2014 21-02-2014 4.6.1 The assessee again objected the reference to the Special Audit on 4.6.2 The objection as raised by the assessee was rejected by the assessing officer vide letter F.No ITO/ KGN/2013-14/ 4238 dt 26-02-2014 26-02-2014 4.7 The assessing officer directed the assessee to get his accounts audited from M/s Mahesh C Solanki & Co, Chartered Accountants vide letter F.No ITO/ KGN/2013-14/4252 dt 26-02-2014 dt. 26-02-2014 4.8 The time allowed to the apecial auditor to submit his report by 15-04-2014 4.9 The special auditor requested to extend time for completing the special audit letter is received by the assessing officer on 23-04-2014 4.10 On the request of the special auditor, the time for completing the special audit ....
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....cting of the special audit and time to furnishing of audit report was allowed till 26-02-2014. However, on receipt of request for more time for conducting of special audit, the same was extended from time to time to till 15-05-2014 and assessment order was passed on 07- 07-2014 i.e. within sixty days from the date of receipt of the audit report from the special auditor. Thus, the order as passed by the assessing officer was within the time as allowed U Is 153 of the Income Tax Act. Thus, these grounds of appeal as taken by the appellant are hereby dismissed . 4.2] In ground No 4 of the appeal, the appellant has challenged the rejection of the books of account by invoking the provision of section 145[3] of the Act. It is an undisputed fact that out of 19 [Nineteen] bank accounts of the appellant, only 14 [ fourteen] bank accounts were incorporated in the books of account and five bank accounts remains to be incorporated. The appellant himself during the course of assessment proceeding produced revised books of accounts wherein all other bank accounts were duly incorporated, the books of account so produced were also referred for special audit, hence, books of account as pre....
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.... delayed. Major emphasis of the Ld. Counsel for the assessee was that first due date allowed by Ld. A.O to the Special Auditor i.e. 15.04.2014 was important. Since till this date no extension was applied the assessment ought to have been completed latest by 14.06.2014 i.e. within two months from 15.04.2014. Since the limitation for passing the order was expired on 14.06.2014 the impugned assessment order dated 07.07.2014 is barred by limitation. 12. For examining this aspect we will first go through the relevant provisions which in this case are Section 142(2A), 142(2C) and proviso to Section 142(2C) and the same are reproduced below:- Section 142(2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner or Commissioner], direct the assessee to get the accounts audited by an accountant as defined in the Explanation below sub- section (2) of section 288, nominated by the Chief Commissioner or Commissioner] in this behalf and to fu....
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....accepted the Special Audit Report dated 23.05.2014 and further completed the assessment u/s 143(3) of the Act within two months from the date of receipt of Special Audit Report. We therefore find no reason to interfere in the findings of Ld. CIT(A) and find no merit in Ground No.1 raised by the assessee. Accordingly Ground No.1 of assessee's appeal is dismissed. 14. Now we take up Ground No.2 raised by the assessee and Ground No.1 raised by the Revenue. 15. The Assessee has challenged the finding of Ld. CIT(A) who has estimated the net profit of the assessee at Rs. 43,55,368/- as against Rs. 34,08,911/- declared by the assessee. On the other hand Revenue has challenged the relief given by Ld. CIT(A) of having applied 1% of net profit rate as against 5% net profit rate applied by Ld. A.O on total turnover. With regard to this issue of application of net profit rate Ld. Counsel for the assessee referred to the following written submissions:- 1.1] The appellant had filed his original return of total income on 20-09- 2011 declaring total income at Rs. 5,80,310/-. 1.2] The net profit as declared by the appellant assessee in his both the firms are as under:- S.....
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....he amount of consolodiated total turnover by the appellant assessee. 1.7.1] The assessing officer on the basis of discrepancies as pointed out from the undisclosed bank account rejected the books of account as maintained by the appellant assessee. 1.7.2] The assessing officer has not described any genuine reason for rejection of the regular books of account as maintained by the appellant assessee. 16. Ld. A.O estimated net profit rate @5% placing reliance on the decidion of Hon'ble ITAT, Indore Bench in the case of ACIT V/s Amar Agrawal ITA No.611/Ind/2012. Ld. Counsel for the assessee submitted that the case of the assessee is clearly distinguishable from that in the case of Shri Amar Agrawal (supra) on account of following reasons:- (a) The case of Shri Amar Agrawal (supra) pertains to Assessment Year 2007-08 and Hon'ble Tribunal referred to the provisions of Section 44AF whereas the assessee's case pertains to Assessment Year 2011-12 and provision of Section 44AF are not applicable. (b) In the case of Shri Amar Agrawal (supra) the case involved the application of Mandi Tax Rules, payment to farmers on purchase and the assessee having no rec....
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....( Appeal No ITA No 925/Ind/ 2018 dt 20-08-2020 ] 19. Per contra Ld. Departmental Representative vehemently argued supporting the order of Ld. A.O. 20. We have heard rival contentions and perused the records placed before us and carefully gone through the decisions referred and relied by the Ld. Counsel for the assessee. The issue raised in Ground No.2 by the assessee and Ground No.1 raised by the Revenue relates to estimation of Net profit rate. We observe that the assessee carried out various transactions of purchases and sale through 5 undisclosed bank accounts. The undisputed figure of undisclosed turnover in the case of M/s Monika Trading Co and M/s White Gold Enterprises is Rs. 5,44,64,764/- and Rs. 15,09,34,202/- respectively. The assessee has offered 1.33% of net profit on the undisclosed turnover in the Revised computation of total income filed during the course of assessment proceedings. Ld. A.O after relying on the decision of Amar Agrawal (Supra) applied the net porofit of 5% on the total turnover (disclosed + undisclosed) thereby computing Net Profit of Rs. 2,17,76,845/-. 21. When the matter came up before Ld. CIT(A) substantial relief was granted by Ld. CIT(A)....
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..../s White Gold Enterprises, the same is summarised as under:- S.No Particulars Monika Trading Co White Gold Enterprises 1 Sales 1,12,73,581 9,50,94,395 2.1 Net profit 1,60,220 4,45,282 2.2 % of Net profit 1.42% 0.47% 3.1 Consolidated turnover 10,63,67,976 3.2 Consolidated Net profit 0.57% 4.4.5] On perusal of both the table Le. as provided in paras 4.4.3 & 4.4.4, it is evident that of consolidated profit as declared by the appellant on the amount of disclosed or undisclosed turnover in the year under appeal was at 0.79 and consolidated profit as declared in the Asst Year 2012-13 which was duly accepted by the assessing officer was 0.57 . The margin of the appellant in large volume is significantly lower than the rate as provided U / s 44AF /44AD of the Act. The assessing officer while passing the assessment order applied the rate of net profit at 5 based on the decision the case of Shri Amar agrawal [ Appeal No ITA No 611/ Ind/ 2012]. The appellant deals in Agro product and the price of the product varies due to the quality of rains and soil, availability and supply of the material. Hence, net profit rate of ....
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....is Co-ordinate Bench in the case of Shri Sitaram Agrawal (supra). On going through this decision we find that in the case of Shri Sitaram Agrawal (supra) also there were undisclosed bank accounts which had undisclosed turnover. Assessee accepted the undisclosed turnover and offered net profit on such undisclosed turnover. Net profit rate adopted by the assessee namely Shri Sitaram Agrawal (supra) was the average net profit rate accepted by the department in the earlier years and the percentage of financial expenses (Bank interest, other finance charges) already incorporated in the regular books. In these given facts the Tribunal confirmed the finding of Ld. CIT(A) and accepted the net profit rate offered by the assessee observing as follows:- "26. From perusal of the detailed finding of fact by Ld. CIT(A) and the factual aspect we observe that the Ld. A.O has only taken the basis of undisclosed bank account for rejecting the books of accounts. Nowhere in the assessment order he has pointed out any other irregularity in the regular books of accounts maintained by the assessee which are duly audited. Ld. Departmental Representative has failed to bring on record any suc....
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....see net profit rate @ 0.29% is declared on the turnover disclosed in the regular books. Ld. A.O has not pointed out any mistake in the regular books maintained by the assessee. Just because that the assessee is having 5 bank accounts and not shown in the regular books cannot be the sole basis to reject the regular books of accounts. On the undisclosed turnover the assessee has already opted and duly offered the net profit seperately but on the disclosed turnover unless the Ld. A.O points outs specific mistake or doubt about the genuineness of the purchase/sale and expenses transactions, the book results cannot be doubted. This is also a fact that the assessee has maintained quantitative details and books are duly audited. So far as the book results i.e. net profit shown in the regular books @0.29% on the disclosed turnover of Rs. 23,01,37,927/- is concerned, we are of the view that the same should be accepted and estimation of Ld. A.O applying @5% of net profit and Ld. CIT(A) @1% of net profit on the disclosed turnover is devoid of any merits. 24. Now as far as the undisclosed turnover is concerned the assessee has offered net profit of 1.33%. This net profit rate has been calcu....
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....unted bank accounts. 27. Now both the assessee and Revenue are in appeal before the Tribunal. Assessee has challenged the addition confirmed by Ld. CIT(A) and Revenue is aggrieved with the relief granted by Ld. CIT(A). 28. Ld. Counsel for the assessee referred to following written submissions:- 2.1] The assessing officer qwhile passing the assessment order estimated the net investment at 12.5% of the Unrecorded sales as executed by the appellant assessee. 2.2] The appellant assessee having total turnover of Rs. 23,01,37,927/- in his proprietorship concerns, the amount of total turnover , cash and stock in these units are as per audited final account are as under:- S.No Name of the Firm Total Turnover [Rs] Cash & Bank [ Rs] Stock [ Rs] 1 M/s Monika Trading Co 5,77,24,480 7,11,867 NIL 2 M/s White Gold Enterprises 17,24,13,447 9,61,814 2,80,89,197 23,01,37,927 16,73,681 2,80,89,197 2.3] The assessing officer while passing the assessment order estimated the amount of Investment in the unrecorded sales of Rs. 2,56,74,870/- i.e 12.5% of total unrecorded turnover of Rs. 20,53,98,966/....
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.... herewith. The said detail was prepared on the basis of books of account which was before the assessing officer and also referred for Special Audit. Few dates as summarized is as under:- 2.8] That in view of the above, there was no negative balance of cash and Stock even after considering the closing bank balances of all the five bank accounts which remains to be incorporated in the regular books of account. 2.9.1] The appellant while calculating the peak has considered the following components: S.No Particulars 1 Cash as per regular books of account and as available with the assessee for his business 2 Stock of goods as per books of account and as available for sale out of book proceed of which was deposited in the bank accounts which was not incorporated in the regular books of account 2.9.2] The appellant assessee also declared additional income of Rs. 27,28,601/- on the amount of total unrecorded turnover. The said amount is also available with the appellant assessee against the peak credit if any calculated. However, in the present case, the cash balance and stock as per regular books of account was much higher than the bank b....
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....regular books of accounts and after examining the balance sheet in the case of the assessee that the assessee had employed funds to the tune of Rs. 2.88 crores and shown a turnover of Rs. 23.30 crores applied the same ratio and computed the unaccounted investment of Rs. 2.57 crores for carrying out the unaccounted turnover of Rs. 20.54 crores. Ld. CIT(A) while adjudicating this issue substained the addition to the extent of peak balance available in the 5 bank accounts on a particular date which in this case was 27.10.2010 and adopted the peak balance as Rs. 51,65,904/-. Ld. CIT(A) confirmed this addition of peak credit observing as follows:- "4.5.1] In Ground Nos 2 & 7 of the appeal, the appellant has challenged the addition of Rs. 2,56,74,870/- made on account of unexplained investment. The assessing officer while passing the assessment order added 1/8th of total unrecorded turnover of Rs. 20,53,98,966/- which calculated comes to Rs. 2,56,74,870/- was added to the total income of the appellant on account of unexplained investment in the business of the appellant. The appellant during the course of hearing with the table tried to explain that total unrecorded turnover in ....
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....n the basis of the sale transactions amounting to Rs. 4,24,396 estimated on the basis of documents seized in raid. Even the ITO and the CIT(A) have given the same reason for adding the aforesaid Rs. 50,000 as unexplained investment. Though the ITO is not bound the technical rules of evidence and pleadings and is entitled to consider any material which may not be technically accepted as evidence in a civil court, but he cannot make the assessment on a pure guess without reference to any evidence or material. No evidence or material has been referred to any evidence or material. No evidence or material has been referred to any relied upon for ,treating the aforesaid sum of Rs. 50,000 as unexplained investment and the only circumstance which has been referred in this connection is the estimated sale of Rs. 4,24,396. From the estimated sale it cannot necessarily be inferred that the assessee has invested Rs. 50,000 in some unexplained business. It being not a necessary inference is a pure guess and the finding seem to be based on surmises and conjectures. Thus, there was no material for the Tribunal to hold that the assessee had made an unexplained investment of Rs. 50,000 outside the ....
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.... CIT(A) that the addition for peak balance can be made only if it is more than the cash or stock in hand available in the regular books and profit offered as unaccounted turnover of preceeding year or years. Our relevant findings in the case of Sitaram Agrawal (supra) adjudicating this issue reads as under:- In our considered view assessee had carried out the transactions of sales and purchases with the regular parties of which some have been recorded in the regular books and some have not been recorded which are routed through the ICICI bank. This facts strongly supports the submission of the assessee that the physical stock and cash in hand in the regular books have been utilised for making unaccounted sales. It is noteworthy that the assessee is carrying out of books sales transactions in the past also and till the date of peak bank balance on 28.2.2014 the profits earned on unrecorded sales have been offered to tax and they form part of the peak bank balance. So in nutshell against peak balance found in the bank account not disclosed in the regular books in the instant case three things have to be considered, firstly stock in hand available with the assessee, secondly cash i....
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....hat of the Revenue ITA No.334/Ind/2018 is dismissed. The order pronounced in the open Court on 13.10.2020. ============= Document 1 Dwarkaprasad Chiranjilal Tayal Monika Trading Company & Whitegold Enterprise Peak Calculation For The Date 01-04-2010 To 31-03-2011 DATE CASH CASH BALANCE BALANCE AVAILABLE AVAILABLE IN MONIKA IN WHITE STOCK STOCK VALUATIO VALUATION N MONIKA WHITE TRADING GOLD TOTAL CASH & STOCK BALANCE Union HDFC Buldana Urban Bank Union Bank BULDHAN A LOAN (White TOTAL (Monika) AC Bank (Monika) (White Gold) AC Gold) AC NO. A/C (UNDISCL BANK BALANCE BALANCE OF CASH AND AS PER STOCK TRADING GOLD AS PER BOOKS NO 21/180 50068 AC NO. NO. 5826010100 0257256000 4723 OSED) AC UNDISCLO 58260101005 AVAILABLE 0069 NO. 181/1205-10 SED BOOKS 1-Apr-10 10,26,759 2-Apr-10 15-Oct-10 16-Oct-10 17-Oct-10 18-Oct-10 19-Oct-10 20-Oct-10 21-Oct-10 22-Oct-10 23-Oct-10 24-Oct-10 25-Oct-10 26-Oct-10 27-Oct-10 28-Oct-10 29-Oct-10 65,465 65,465 10,26,759 3,....