TaxTMI 
TaxTMI 
2021 (2) TMI 706
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....Pvt. Ltd., on 20/09/2016. The assessments involved are 2016-17 and 2017-18. The company is engaged in the business of gold jewellery, diamonds and silver articles having branches at Rajahmundry, Kakinada and Visakhapatnam. The assessee filed its original return of income declaring loss of Rs. 8,06,87,262/- and Rs. 9,43,92456 respectively for the A.Ys 2016-17 and 2017-18. Subsequently in response to the notice issued u/sec. 153A, the assessee filed the revised the returns and declared the loss of Rs. 6,30,90,927/- and Rs. 9,43,92456/- for the said A.Ys. Thus, the assessee has reduced the loss of Rs. 1,75,96,335/- for the A.Y 2016-17 and there was no change in the return for the A.Y. 2017-18. 3.1 During the assessment proceedings the AO has observed that assessee's net profit was ranging from 9.04% to 9.91% for the A.Ys. 2011-12 to 2013-14 and sharply decreased the net profit from A.Y. 2014-15 onwards. Assessee's average net profit from A.Ys. 2011-12 to 2015-16 was worked out to 6.26% and the net profit of A.Y. 2016-17 & 2017-18 declined to -8.27% & -18.34% respectively. The AO viewed that reduction in the net profit was in order to pre-empt the declarations made during the search....
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....eration. The AO noticed that there was a shortfall of profit from the A.Y. 2015-16 onwards and accordingly he estimated the income at 2.15% for which the assessee has agreed for the addition and filed notarized affidavit for the A.Ys. 2016-17 & 2017-18. Accordingly, the AO estimated the income @ 2.15% on the total turnover and computed the income for the A.Y.2016-17 at Rs. 3,91,24,072/- and for the A.Y. 2017-18 at Rs. 7,95,21,933/- as follows:- For A.Y. 2016-17 Income computed and accepted by the assessee's net profit @ 2.15% on G.T. of Rs. 100,35,28,688/- Rs. 2,15,27,737 Add: undisclosed income declared during the course of search (on account of excess stock) Rs. 1,75,96,335 Asssessed income Rs. 3,91,24,072 Tax Payable Rs. 1,51,43,710 For the A.Y. 2017-18 Income computed and accepted by the assessee's net profit @ 2.15% on G.T. of Rs. 85,19,587/- Rs. 1,82,75,649 Add: undisclosed income declared during the course of search (on account of excess stock) Rs. 6,12,46,284 Asssessed income Rs. 7,95,21,933 Tax Payable Rs. 2,39,59,900 The AO stated in the assessment order that the assessee has agreed for the addition and filed the af....
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....) 13 TTJ 442 (ITAT, Delhi Bench) 6. 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 @ 2.15% instead of 6.26% 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 or the affidavit has to be ignored as the letter and affidavit were given with misapprehension of law and facts. Taking support from the decision of the Hon'ble Punjab & Haryana High Court in the case of Chhat Mull Aggarwal (supra) and other case laws, ld. CIT(A) held that the AO is not permitted to make any addition by estimating the income without rejecting the books of account....
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....uently revised the loss to Rs. 6,30,90,927/- duly decreasing the loss to the extent of Rs. 1,75,96,335/- 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. 9,43,92,456/-. Even in response to the notice issued u/sec. 153A the assessee filed return of income admitting the same loss for the A.Y. 2017-18. A search u/sec. 132 was conducted in the business premises and during the course of search, no evidence was found as seen from the assessment order with regard to understatement of income by the assessee. As seen from the assessment order, the assessee has incurred the loss of Rs. 8,29,97,013/- for the A.Y.2016-17 and Rs. 15,62,25,156/- 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 profits declared by the assessee for the A.Y. 2011-12 to 2017-18 which is tabulated in assessment order at page No.2 which reads as under:- A.Y. Gross turnover Gross profit GP to GT% Net profit NP to GT% Stock in trade ST to GT% 2011-12 115,45,18,322 25,53,678,19....
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....d the valuation was also done by the penal valuer with regard to stock available in the business premises. Thus, the basis for resorting to estimation of income of non-identification of the items that was sold is unacceptable. In the instant case, the assessee has explained the reasons and circumstances for accepting the additional income in it's affidavit 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 Courts 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 to resort for estimation of income. The profit of earlier years cannot be sole indicator for estimation of income, since, there were many financial implications explained by the assessee in it's explanation. The contention of the assessee is that the admission was given on pressure and under misapprehension. If the admission is given on misapprehension or pressure, the same is invalid and assessee is free to retract and the AO has to c....
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.... through the paper book page No.112 to 114 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 @6.26% and the case was posted for hearing on 27.11.2018 at 11.45 AM. Similarly one more notice u/s 142(1) was placed in paper book page No.115 to 116 calling for various details vide notice dated 19.11.2018 posting the case for hearing on 27.11.2018 at 3.15 P.M. Thus, it is observed that the AO even without verifying the details prejudiced to estimate the income @6.26% 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 all the enquiries and the assessment proceedings were completed by 15.12.2018. The assessee also placed copy of letter dated 15.12.2018 objecting for the proposed addition for estimation of income @6.26%. There was no indication of agreement for estimation of income vide letter dated 15.12.2018. It is also seen that the assessee has furnished the affidavit on 24.12.2018 before the AO, though there was no hearing. The above materia....
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....ich shows that the appellant company has siphoned the profit out of the company books. The appellant contention is on the date of search itself i.e.20.09.2016, that as per the Books of accounts there is a loss and the investigation department has taken note of it. Then there is no scope to allege that the appellant company has shown loss to mitigate the admission given during search proceedings. Assessing Officer has not disproved purchases and sates when comparing with Statutory records like VAT returns Hence, I am of the opinion that the admission given by the appellant in the form of letter and affidavit is with misapprehension of law and facts. 17.11) In the case of CIT Vs. Smt. Malti Mishra (2014) 221 Taxman 25,the Hon'ble Allahabad High Court held that the legal position has been clarified as under:- Para 12 of the order:- In the instant case there is no concealment on the part of the assessee regarding the transactions. All the transactions were duly disclosed. If the income as per law is exempted, then the offer of the assessee is meaningless as the law will prevail and will supersede the "offer" made by the assessee. In the instant case, surr....
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.... 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's action in making the addition of Rs. 2,15,27,737/- by estimating the net profit @ 2.15% on the gross of Rs. 100,35,28,....