TaxTMI 
TaxTMI 
2021 (1) TMI 462
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....u/sec. 132 was conducted in the group cases of M/s.Khan Mohammed Diamonds & Jewellers Pvt. Ltd. on 20/09/2016. The company is incorporated in 2005 and is engaged in the business of gold jewellery, diamonds and silver articles. The assessee filed its original return of income u/s.139(1) declaring loss of Rs. 4,25,19,151/- and Rs. 45,81,242/- respectively for the A.Ys. 2016-17 and 2017-18. Subsequently in response to the notice issued u/sec. 153A, revised the return admitting total loss of Rs. 2,96,32,471/- for the A.Y.2016-17 and Rs. 45,81,242/- for the A.Y.2017-18. Thus, the assessee has reduced the loss of Rs. 1,28,86,680/- for the A.Y 2016-17 and there was no change in the A.Y.2017-18. 3.1 During the assessment proceedings, the AO has observed that assessee's net profit was ranging from 11.67% to 5.52% for the A.Ys. 2011-12 to 2015-16 and sharply decreased the net profit from A.Y. 2016-17 onwards. Assessee's net profit from A.Ys. 2011-12 to 2015-16 was worked out to 8.51% on an average and net profit for the A.Ys. 2016-17 & 2017-18 was (-) 7.09% & (-)1.19% respectively. Hence, the AO viewed that the reduction in the net profit was in order to pre-empt the declarations made by ....
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....that the gross profit or net profit ratios cannot be relied upon for the year under consideration. The AO noticed that there was a shortfall of profit from the A.Y. 2015-16 onwards and accordingly estimated the income at 5.52% for which the assessee had agreed for the addition and filed notarized affidavit for the A.Ys. 2016-17 & 2017-18. Accordingly, computed the income for the A.Y. 2016-17 at Rs. 4,61,22,924/- and for the A.Y. 2017-18 at Rs. 3,34,42,013/- as follows:- For A.Y. 2016-17 Income computed and accepted by the assessee's net profit @ 5.52% on G.T. of Rs. 602105879 Rs. 3,42,36,244 Add: undisclosed income declared during the course of search (on account of excess stock) Rs. 1,28,86,680 Rs. 4,61,22,924 Tax payable Rs. 1,79,87,920 For the A.Y. 2017-18 Income computed and accepted by the assessee's net profit @ 5.52% on G.T. of Rs. 56,33,77,667 Rs. 3,14,09,432 Add: undisclosed income declared during the course of search (on account of excess stock) Rs. 20,32,581 Rs. 3,34,42,013 Tax payable Rs. 49,45,830 5. Against the order of AO, the assessee went on appeal before the ld. CIT(A) and filed an ....
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....ll Aggarwal Vs. CIT (1979) 116 ITR 694 3. Bhandari Metals&State of Karnataka (2004) 136 STC 292 4. CIT Vs. Mr. P. Firm, Muar (1965) 56 ITR 67 5. Loni Enterprises Vs. ITO (TDS) [ITAT, Benguluru Bench in ITA No.2787/Bang/2017] 6. ITO Vs. Shri Sidhivinayak Dyeing & Printing Mills (P)Ltd. (2009) 119 ITD 169 7. Dina Nath Prem Kumar Vs. ITO (1982) 13 TTJ 442 (ITAT, Delhi Bench) 7. The ld.CIT(A) forwarded the submissions made by the assessee to the AO and called for the remand report. In turn, the AO submitted remand report stating that there was a claim of loss sustained in the business and the assessee itself filed an affidavit to estimate the net profit @ 5.52% instead of 8.51% that was proposed by the AO. The ld. CIT(A) called for rejoinder and viewed that admission given by the assessee in the form of letter and affidavit was with misapprehension of law and facts. Relying on the case law of Hon'ble Allahabad High Court in the case of CIT Vs. Smt. Malti Mishra [(2014) 221 Taxman 25, the ld. CIT(A) held that without pointing out any defects in the books of account, concealment of transactions or concealment of income surrender letter ....
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....by the assessee, therefore argued that there is no reason to interfere with the order of the ld. CIT(A) and the same required to be upheld. 11. We have heard both the parties and perused the material placed onrecord. 12. For the A.Y. 2016-17, the assessee filed return of income disclosing loss of Rs. 4,25,19,151/- u/s 139(1) and subsequently revised the loss to Rs. 2,96,32,471/- duly decreasing the loss to the extent of Rs. 1,28,86,680/- which was admitted as undisclosed income during the course of search. Similarly, for the A.Y. 2017-18, the assessee filed return of income declaring loss of Rs. 45,81,242/- and even in response to the notice issued u/sec. 153A the assessee filed return of income admitting the same loss and no change. A search u/sec. 132 was conducted in the case of the assessee and during the course of search, no evidence was found with regard to concealment of income as seen from the assessment order. The assessee has incurred the loss of Rs. 4,26,59,680/- for the A.Y. 2016-17 and Rs. 67,47,869/- for the A.Y. 2017-18 as per the profit & loss account. For the sake of convenience and clarity, we extract the tabulation of gross turnover and the net profit decla....
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....h the Income-tax Department i.e. stock books, registers, books of accounts. No evidence was found with regard to understatement of income. The reason given by the AO for resorting to estimation of income is neither convincing nor logical. As per the affidavit filed by the assessee before the ld. CIT(A), Investigation Wing has seized the stock registers and the valuation was also done by the panel valuer with regard to stock available in the business premises. Thus, the basis for resorting to estimation of income on non-identification of the items that was sold were old stocks or new stocks by the AO is unacceptable. In the instant case, the assessee has explained the reasons and circumstances for accepting the additional income in his affidavit filed before the ld. CIT(A) and the same was accepted by the Ld.CIT(A). The assessee placed number of decisions where it is viewed by the judicial precedents that mere admission cannot be basis for taxing the income which is not taxable. The department has to collect legitimate taxes and bring the material to support their case. In the instant case, the AO neither brought the material nor rejected the books of account and brought any mate....
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....that the turnover has reduced from Rs. 64.26 crores to Rs. 60.21 crores for the A.Y. 2016-17 which was further reduced to Rs. 56.33 crores for the A.Y. 2017-18 and the gross profit also reduced. Thus assessee's sales have been decreased which resulted in huge losses since the fixed cost cannot be reduced. Further on going through the paper book page No.88 we find that on 16.11.2018, the AO had issued the notice u/s 142(1) along with show cause letter proposing to make estimation of income @8.51% and the case was posted for hearing on 27.11.2018 at 3.30PM. Simultaneously one more notice u/s 142(1) was placed in paper book page No.91 to 94 calling for various details vide notice dated 16.11.2018 posting the case for hearing on 27.11.2018 at 3.30 P.M. Thus, it is observed that the AO even without verifying the details prejudiced to estimate the income @8.51% and landed in wrong conclusion that the assessee had understated the income without any basis. On verification of the assessment order, it is also seen that the last date of hearing was 15.12.2018 which shows that the assessment proceedings were completed by 15.12.2018. The assessee also placed copy of letter dated 15.12.201....
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.... 18.5) On examination of the notice U/s 142(1), the Assessing Officer has not pointed out any defects in the Books of accounts and simply questioned about the reason for the loss incurred, and further asked as to why the net profit should not be adopted @ 5.52% when compared with the previous asst year. For questioning this estimation, the Assessing Officer should bring the defects in the Books for which he could not be able to deduce the profit from the Books of accounts produced. In normal situations, the assessees usually give affidavit to confirm the company in showing the loss. According to the human probability theory when the assessing officer has not shown the default, why the appellant company will come forward to admit the income which is prejudice to his own. On perusal of the assessment order and the notices issued in the course of assessment proceedings, it is found that the Assessing Officer has not found any fault in the Books of account. Hence without defects in the Books of accounts mere admission will not, have the evidentiary value. 18.6) During the course of assessment proceedings, books of account were examined in depth. The stock records were sei....
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....ts and figures and with proper verification of the documents filed by the appellant as required u/s.145(3)of the Income tax Act, 1961. It is more pertinent to mention here that this being a case of estimation of profit, the responsibility is cast upon the Assessing Officer to establish with proper evidence that the books of account of the appellant are defective and hence deserve to be rejected u/s.145(3)of the Income-tax Act, 1961 before estimation of profit. As submitted by the appellant, A.O.'s observation that the appellant failed to substantiate the valuation of opening and closing stocks, is found to be acceptable as the valuation has been reflected in Form 3CD of audit report and also in the Trading account. In order to fulfill the Assessing Officer could have carried proper verification/examination of the books of account on the basis of the information furnished by the appellant. The most essential requirement for the Assessing Officer before resorting to estimation of net profit, profit, is to reject the books of account, point out the defects in the books of account u/s. 145(3), irrespective of the fact that whether the appellant made case, the Assessing Officer'....