2023 (3) TMI 758

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.... Govt. entities. The assessee is also the owner of stone crusher business carried on in the name of M/s. Sri Venkateshwara Stone Crusher. The assessee filed the return of income for the impugned AY as per details given below : - AY Date of filing Income returned 2016-17 27.9.2016 1,43,41,570 2017-18 22.9.2017 2,04,72,120 2018-19 30.10.2018 2,29,95,590 2019-20 23.10.2019 2,31,83,990 3. There was a search and seizure conducted u/s. 132 in the case of Sri Podili Ravi Shankar & Ors. on 24.4.2018 and a warrant of authorisation was issued in the name of assessee. During the course of search, at the premises of the assessee, documents showing unaccounted sale of jelly, M sand and dust were found and seized. Vouchers eviden....

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....ing Officer, Deputy Commissioner of Income-tax, Central Circle, Mysuru ("Ld AO/l) under section 143(3) read with section 153A of the Income-tax Act, 1961 ("Act/l) for the AY 2016-17 is contrary to the facts and circumstances of the present case and is not in accordance with law. 2. Grounds relating to disallowance under section 40A(3) - Rs.67,54,114/- The grounds mentioned hereinafter are without prejudice to one another. 2.1 The Ld CIT(A) erred in upholding the assessment order passed by the Ld AO making disallowance of Rs.67,54,114/- under section 40A(3) of the Act. 2.2 The Ld CIT(A) and the Ld AO erred in making adjustment under section 40A of the Act to the income accepted and declared by the Assessee on the estimation made ....

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....and profit computed by the Ld AO for which a specific query was raised while recording the statement under section 131 of the Act (refer page 2-3 AO order). It is submitted that the AO in the said computation has accepted that the Assessee purchases boulders which are the raw material for the stone crushing unit and after considering the purchase and the turnover the AO has estimated business income at 10% of the sales which has been accepted by the Assessee since he was not able to produce all the vouchers. The Assessee having accepted the income determined by the AO on estimation basis, then the AO is not correct in making a further adjustment under section 40A of the Act. The ld AR submitted that the disallowance made by the Ld AO and up....

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....disallowance u/s.40A(3) can be made when the profit is calculated on estimated basis. 10. The ld. DR supported the order of the lower authorities and also placed reliance on the decision of the Mumbai bench of the ITAT in the case of ITO v. D.D. Hazare, (1994) 48 ITD 595 (Mum) in this regard. 11. We heard the rival submissions and perused the material on record. The main contention of the assessee with regard to the disallowance u/s. 40A(3) is that when the income declared during the course of search is based on estimation, then there cannot be a separate disallowance u/s. 40A(3). We notice that the Hon'ble High Court of Allahabad in the case of CIT v. Banwarilal Bansidhar, [1998] 229 ITR 229 (All) had considered a similar issue and held ....

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....e alternative, is returned unanswered." 12. In assessee's case, we notice that the assessee has conceded the addition made towards unaccounted sale during the search proceedings. We also notice that the additional income has been computed on an estimated basis at 10% of sales. The relevant part of the AO's order in this regard is extracted as below:- "3. Unaccounted sales in Stone Crusher: Sri P B Karigowda owns a stone crushing unit in the name and style of Sri Venkateshwara stone Crushers located at Ganangur, Srirangapatna Taluk, Mandya District and was producing material like jelly, M-sand and dust. During the course of search, evidences for unaccounted sales of jelly, in sand and dust were found and seized. Vouchers evidencing unacc....

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....stimation. I accept the business income from my crusher unit across financial years 2014-15 to 2018-19 as estimated above. 1 will declare this income over and above the business income already deduced by me for those years." In the return of income filed ills 153A. the assessee has offered additional income on account of undeclared profit of Rs. 15,19,670 estimated as above in the statement u/s 131, The reason for estimation was that the sales registers were not available for the year whereas purchase vouchers for boulders were available. During the year Rs. 90,75,941 was the expenditure incurred for the purchase of boulders for which purchase vouchers have been seized in A/PBK/02, A/PBK/03, A/PBK/04, A/1)BK/05 and A/PBK/06 for the perio....