TaxTMI 
TaxTMI 
2017 (2) TMI 1553
X X X X Extracts X X X X
X X X X Extracts X X X X
....in not declaring the assessment order dated 14.11.2013 passed U/s 144 read with Section 153A of Income Tax Act, 1961 as time barred, without jurisdiction, void ab-initio and bad in law. 2. On the facts and in the circumstances of the case and in law the ld CIT (A) erred in rejecting contention of the assessee that the reference to special audit report under Section 142(2A) of Income Tax Act is purely based on the recommendation in appraisal report. The AO has not applied his mind with regard to the nature and complexity of the accounts of the assessee. It is contended that the AO's opinion cannot be substituted by another officer's opinion. Thus, the ld CIT (A) erred in not declaring the reference to special audit report under Section 142(2A) of Income Tax Act is bad in law and invalid and assessment order dated 14.11.2013 passed U/s 144 read with Section 153A of Income Tax Act, 1961 as bad in law and void ab-inito. 3. On the facts and in the circumstances of the case and in law the ld CIT (A) erred in rejecting contention of the assessee that the assessment order passed U/s 144 r.w.s. 153A of the Income Tax Act, 1961 is void ab-initio and bad in law and deserves ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....minus Rs. 21,30,508/-) to Rs. 2,59,56,858/- made by the AO without appreciating the facts given in special audit report which has also been held valid. 2. Whether on the facts and the circumstances of the case the ld CIT (A) was right in restricting the disallowance from Rs. 6,83,29,329/- to Rs. 3,35,092/- made U/s 40A(3) of the Act without appreciating the fact that this violation of the provision of the Section 40A(3) of the Act has been mentioned in the special audit report. 3. Whether on the facts and the circumstances of the case the ld CIT (A) was right in restricting the disallowance from Rs. 6,99,228/- to Rs. 4,81,614/- made U/s 40(a)(ia) of the Act without appreciating the fact that this violation of the provision of the Section 40(a)(ia) of the Act has been clearly mentioned in the special audit report. 4. "Whether on the facts and the circumstances of the case the ld CIT (A) was right in deleting the addition of Rs. 70,00,000/- made on account of bogus share capital introduced without appreciating the fact that during the course of assessment proceedings despite various opportunities of being heard granted to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....letters by submitting its reply on various dates copy at ( copy at PB pg 184-185, 191-214, 231-254, 257-263, 264-269, 270-275, 276-284, 285-286 289-296, 302-313, 319-324, 325-328, 329-331, 332- 334, 335, 336-338, and 339-343). During the course of search certain documents were found and seized relating to the assessee including a CPU containing the books of accounts named as "Jadavji" being duplicate/parallel books of accounts of the assessee company maintained in the form of memoirs, containing the entries of recorded and unrecorded transactions of the assessee company. However the books of accounts named as "Jadavji" were neither complete nor correct. During the course of assessment proceedings it was opined by AO that the entries in the books of accounts named as "Jadavji" were extremely complex in nature therefore the AO moved a proposal to ld CIT, Central, Jaipur vide letter dated 13.03.2013 for approval of special audit of accounts of the assessee u/s 142(2A) of Income Tax Act, 1961. In response to the proposal of AO, the ld CIT (Central), Jaipur issued a show cause notice dated 15.03.2013 (Copy at PB Page 176-177) to the assessee for approval of special audit and in response....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is noted that during the course of hearing of the appeal, the assessee filed paper book and written submission. The ld CIT (A) called remand report from the AO. The AO submitted his remand report. The assessee filed rejoinder on the remand report of the AO. The ld CIT (A) partly allowed the appeal by deleting/sustaining the additions as under:- S. No. Particulars Additions Made by AO in dispute before CIT (A) Amount (Rs.) Deleted by CIT (A) Amount (Rs.) Sustained by CIT (A) Amount (Rs.) 1. Trading addition 53097994 27141136 25956858 2. Disallowance u/s 40A(3) of Income Tax Act, 1961. 68329399 67994307 335092 3. Disallowance u/s 40 (a) (ia) of Income Tax Act, 1961 699228 217614 481614 4. Addition u/s 68 of Income Tax Act, 1961 on account of alleged bogus share capital introduced through Kolkata based companies 7000000 7000000 0 5. Disallowance of expenses naming bill premium 5516 5516 0 6. Disallowance 15% of total expenses of Rs. 11,08,906/- (After reducing Rs. 54,57,098/- already disallowed u/s 40(A)(3), 40(a)(ia) etc.) found recorded in the books of accounts named as "Jadavji" 1663....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the appellant assessee are rejected and ground No 1 and 2 are dismissed." 5.2 During the course of hearing, the ld. AR of the assessee objected the action of the ld. CIT (A) on the issues in question. The ld. AR of the assessee filed the written submission which has been taken into consideration. 5.3 On the other hand, the ld. DR relied on the order of the lower authorities. 5.4 We have heard the rival contentions and perused the materials available on record. It is noted from the order of the ld. CIT (A) that assessee has not brought any positive material to show that the approval given by ld. CIT (Central, Jaipur is without application of mind and the ld. CIT (A) also noted that the opinion of the AO that the accounts of the assessee are complex and based on objective consideration. Therefore, the ld. CIT (A) rejected the contentions of the assessee are rejected and dismissed both the ground Nos 1 and 2 of the assessee. Looking into the present facts and circumstances of the case, we concur with the order of the ld. CIT (A) on this issue. Thus Ground No. 1 and 2 of the assessee are dismissed. 6.1 The Ground No. 3 to 7 of the assessee's appeal are in respect of co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e earned from unaccounted purchases and sales in the company (PB page 34 43). Further the company being an artificial judicial person, cannot act like a living person. Therefore, whatever earning is there in the company, it comes form activities in the company. The assessee company has no another activity except the jewellery business. Therefore, considering the facts and circumstances of the case as discussed, I hold that the assessee has declared this income of Rs. 2,46,00,000/- on account of profit from unaccounted purchase and sales which was utilized in unaccounted asset. After considering the above facts and circumstances , the addition of Rs. 5,05,56,858/- - Rs. 2,46,00,000 = Rs. 2,59,56,858/- is sustained as against trading addition of Rs. 5,09,67,486+Rs. 21,30,508/- totaling to Rs. 5,30,97,994/- made by the AO. Thus the assessee gets relief of Rs. 2,71,41,136/-.'' 6.4 During the course of hearing, the ld. AR of the assessee prayed that the ld. CIT (A) erred in confirming the trading addition of Rs. 2,59,56,858/- by estimating GP rate @ 24% on the estimated sales of Rs. 26.00 crores out of the trading addition of Rs. 5,30,97,994/- made by AO. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... estimation or assumption may lead to change in financial statements. I agree with the contention of ld AR that in point no II of terms of reference for special audit, it has been clearly mentioned by the AO to recast the trading and P & L A/c on accounting principles and on the basis of seized material. The AO has not assigned the task to Special Auditors to compute the income or recast the Trading and P & L A/c by applying the presumption and assumption or on estimation. There was no scope of application of presumption, assumption, estimation, personal judgment etc in recasting of accounts. Further the auditor is not a quasi judicial authority and estimation and presumption is beyond the scope of audit. Further, the auditor reported the bogus purchases merely on assumption more so when the full particulars of purchases along with quantity is recorded in the seized documents. In no 1 book, there may be bogus purchase but no 2 books are always presumed to be true and correct and bogus purchases cannot be entered in no 2 books particularly when the quantitative details and description of purchase is recorded in seized books. The amount mentioned against head "Bill Premium" is not su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evant to mention here that in the case of the assessee the ld AO has assessed huge income in the hands of assessee but there is no evidence to show where this income was utilized because as a result of search no undisclosed investment/expenses was found by department. We have made detailed submission showing that the recasted accounts are incomplete, incorrect, arbitrary, based on presumption and assumption and also not prepared on the basis of accounting principles and without considering the seized documents properly. Further the assessee has made detailed submission before the lower authorities showing that the figures of purchases, expenses and sales have been determined by the special auditors in recasted accounts are at wrong figure. They made certain wrong adjustment or certain adjustments left to be made. The addition of Rs. 5,09,67,486/- made by the ld AO was based on the defective recasted accounts. Furthermore, the auditors have pointed out in common remarks that true and correct profit cannot be computed due to inherent shortcoming in the seized records/ method of recording entries in Jadavji. The common remarks of the special auditors are as under:- i. In para....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ces. Hence, we have attempted to carryout reasonable alternative procedure and methods to obtain sufficient or appropriate conclusion. However there may be lack of corroborative evidence to support certain entries in the financial statements drawn or there may be also exist certain other limitations imposed by the circumstances." Thus in this para the special auditors admitting the true and correct profit from the books of accounts named as "Jadav Ji" cannot be deduced. Furthermore, the ld AO himself has estimated the profit by applying GP rate of 26.21% on consolidated sales determined by the special auditors in recasted accounts. The ld AO determined the consolidated sales at Rs. 26,96,46,926/- and applied the GP rate of 26.21% to estimate the profit. In this way, he estimated the overall profit of the assessee at Rs. 7,06,74,459/-. Since the profit computed by the Special Auditors was Rs. 6,85,43,951/- so he made further addition of Rs. 21,30,508/-. This action of the AO shows that he himself does not believe that recasted accounts by the auditors are true and correct. The AO himself held indirectly that the true profit cannot be deduced from the recasted accou....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... small instances of the sales. d) As regard to the declaring the GP of 26.17% in AY 2009-10 this is to submit that in AY 2009-10 the sales of the assessee was only Rs. 1,28,24,830/- which is also not comparable. Further in previous assessment years i.e in AY 2006-07 to 2008-09 and in AY 2011-12 the GP of the assessee was below to 15% and the year AY 2009-10 was only year in which the assessee earned higher GP. There is substantial change in the circumstances in AY 2010-11 from AY 2009-10. In AY 2010-11 the sales of the assessee has substantially increased which could be possible only by lowering down the GP rate. Furthermore, in market, there are many other dealers/parties which are doing same business and the GP of the assessee can be compared with the other comparable cases. e) As regard to GP of AY 2010-11 worked out on the basis of trading account re-casted by special auditor this is to submit that in view of our previous submission the trading account is prepared on the basis of incomplete books of accounts in which the proper impact of all the purchases and common sales was not given, therefore this trading a/c do not show the real picture of trading affairs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e sample, all the products sold were diamonds or diamond studded Jewellery which was purchased from market. In diamond jewelry margin of profit remains always more than gold jewelry. Further there is huge difference in the GP of each transaction, therefore the average GP computed by Special Auditors is not indicative to real GP earned by the assessee for entire sales. Further the instances are only for few days. It is further relevant to mention here that the assessee citing some more instances showing much lesser GP, which the special auditors have not considered.: - S. No. Product code Purchases amount Date of sales Sold to Sales value GP 1 Market Item 2pscs K20788/Krng00098/ (R0000094) & K20783/Ktop00008 (R0000098) & Nosepin 1pc K1165/Jnp112 72,935 20.02.10 Namrata Rajpurphit 80,100 7,165 2 Market Item 1pc R000036/Klkt00023 1,58,056 13.10.09 Radha Akar 1,75,000 16,944 3 Market Item 2pcs K20791/Kbng00080 And K20800/Klkt00004 2,10,977 02.02.10 Vijay Singh Ji 1,50,000 (-) 60,977 4 R00000123/KMNG00 015 50,586 11.01.10 Smita Sharma 50,000 (-) 586 5 K20751/Kmng00022 Ring 1pc ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r gms 2653.05 1913.04 Profit margin (In Rs. ) 940.55 391.00 Profit margin (in%) 26.17% 16.95% From the perusal of above chart your honor will find that in AY 2009-10 the average gross profit earned by the assessee was Rs. 940.55 per gms while in the AY 2010-11 the same was Rs. 391 per gms, therefore the same effected the gross profit of the assessee. There was the reason for sharp increase in GP rate of AY 2009- 10 that the sales rate of the assessee was higher which resulted to substantial decrease in sales of the assessee in AY 2009-10. When the assessee lower down the sales rate in AY 2010-11 the sales of the assessee substantially increased. iv) While applying the GP rate of 26.21% ld. AO/24% by ld CIT(A), lower authorities have not cited any comparable case of the trader of same trade. In this regard we have submitted comparable case of M/s Rambhajo's (PAN: - AAJFR4553Q) who was assessed at Central Cirlce-1, Jaipur. This concern is also engaged in the same trade and dealing in the same products in which the assessee is dealing. The case of this firm for the AY 2010-11 was assessed by ITO Ward 1(1), Jaipur wherein the GP o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed method. It is also notable to compare the trading results of the assessee for the previous years which are as under:- S. No. A.Y Turnover G.P G.P. Ratio 1 2006-07 3531618.00 512723.00 14.52% 2 2007-08 18562148.00 2509297.00 13.52% 3 2008-09 20591252.00 3047886.00 14.80% 4 2009-10 12824830.00 3356643.00 26.17% Weighted Average GP 55509848.00 9426549 16.98% It is further noted that the ld. CIT (A) has estimated the higher gross profit @ 24% on estimated sales of Rs. 26 crores. The assessee had computed the gross turnover of Rs. 25,06,61,673/- on the basis of seized documents and books of account and has pointed out several mistakes and instances of double counting of sales computed by the Special Auditor in the estimates of gross turnover. The ld. CIT (A) as well as AO have not pointed out any defect in the calculation of gross turnover by the assessee on the basis of seized records. Therefore, It will be in the interest of equity and justice that weighted average gross profit rate of last four years i.e. 16.98% should be taken into consideration on turnover of Rs. 25,06,61,673/- wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tained in proper way therefore definite and correct profit cannot be derived from these books of account. The ld AO referred these books of account for special audit. The Special Auditors recasted these books of account but in recasting of these books, he pointed out certain limitation & remarks and expressed that the recasting of the books were made by applying certain estimation and assumptions. He also expressed his view under common remarks that the true and correct profit cannot be determined due to inherent limitation of records and method of accounting. The relevant remarks of the Special Auditors have been reproduced while disposing the ground no 3 to 10 of assessee in para 3.2.3. Further the assessee has pointed several adjustments which affect the trading results shown by the recasted accounts by the Special Auditors. The AO mentioned that he has not rejected the parallel and duplicate books of account maintained in name "Jadavji" but the fact remains that the assessment was framed u/s 144 of the Act by applying the provisions of section 145(3) of the Act and the AO himself has estimated the profit by applying GP rate of 26.21% on consolidated sales determined by the Spec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....19 DTR 305 held that if the profit is estimated by applying higher net profit rate after rejecting the books of accounts by invoking the provisions of Section 145(3)of the Act then no separate addition can be made on account of cash credit u/s 68 of the Act. The Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Smt. Santosh Jain, 296 ITR 324 held that Section 40A(3) cannot be invoked when the income is estimated by applying the gross profit rate. The Hon'ble Punjab & Haryana High Court followed the decision of The Hon'ble Allahabad High Court in the case of CIT Vs. Banwari Lal Bansi Dhar, 229 ITR 229. The Jaipur Tribunal in the case of Singhal Builders Contractor Vs. Addl. CIT, 133 TTJ 102 has also held that once an income of the assessee is estimated by applying the gross profit rate or net profit rate then no disallowance can be made u/s 40A (3) or any other provisions. The proviso to Section 40A(3) makes an exception that cash payment is not to be disallowed if it is an account of business expediency. After considering the submissions of the assessee, we feel that no separate addition is required to be made u/s 40A(3) because the books of accounts has been r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eproduced as under:- (a) In para 3.3 at Page 2 of common notes annexed with special audit report (Copy at Page 27-28 of SAR) it has been mentioned that ".........it emerges that by applying the standard auditing procedure, neither the statement of affairs nor profit or loss as desired can be determined". This proves that the way by which the books of accounts naming "Jadavji" has been written, correct statement of affairs and profit of the assessee company cannot be derived and only some estimation/guess work can be done with these. (b) In para 3.3.3 at Page 3 of common notes annexed with special audit report (Copy at Page 28 of SAR) it has been mentioned that ".........there may be transactions which are not entered in "Jadav Ji". In absence of specific details of such transactions, standard auditing procedure and methods of determination of income cannot be apply.". (c) In para 3.3.6 at Page 4 of common notes annexed with special audit report (Copy at Page 29 of SAR) it has been mentioned that "in the books of accounts titled as "Jadavji" most of the purchases, sales, transfers, returns have been entered in pieces whereas in regular books of ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....herwise there was no need to estimate the profit by applying GP rate on the consolidated sales determined by the special auditors in recasted accounts. C) In addition to above submission the most important crux of the case of the assessee is to determine whether the books of accounts recasted by the special auditors can be considered as complete and correct?. Whether true and correct profit can be deduced from these recasted books of account? In the instant case looking to the all circumstances, evidence and arguments there can be only one answer that is "No". It is an admitted fact that the recasted consolidated books of accounts and well as original books of account named as "Jadavji" are not complete and not correct. These books of accounts are not written in a systematic and scientific manner. Further the in absence of supporting or source documents on the basis of which these books of accounts has been prepared and also in absence of complete information no one can completely correct to these books of accounts. The special auditors have clearly admitted that true profit cannot be derived from these books of account. Further, stock quantity is not available. As per ter....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave to see whether the true profit can be deduced from books of account. Further, the ld AO himself has estimated profit by applying GP rate on consolidated sales recasted by special auditors and made addition for the shortfall in profits determined by the special auditors by recasting the accounts. ii) Therefore, true profit cannot be deduced from the books of account maintained in the name "Jadvaji" as well as from the recasted accounts by the special auditors more so when the special auditors themselves have admitted in common remarks that the true profit cannot be determined by recasting of account and the recasting of the accounts have been made by applying certain assumption, presumption, estimation and judgments and any change therein will also change the results shown by the recasted accounts. Therefore, the Ld AO made a perverse findings that true profit can be deduced from the books of account maintained in name "Jadavji or from recasted accounts prepared by the special auditors. In fact for all practical purpose he has rejected both set of books of account as he has estimated profit on consolidated turnover and assessment order was passed u/s 144 after applying ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... which itself consisting several defects. Thus, by this act the ld. AO holding that the assessee is partly correct and party incorrect for the same state of transactions. For the single act either a person can be correct or not correct. For the same affairs dual opinion cannot be framed for the same person. It is further relevant to mention here that the ld. AO assessing the total income of the assessee on the basis of consolidated affairs of assessee which consist the accounted and un-accounted business activities of the assessee and for this purpose he took the figure from consolidated trading and profit & loss a/c prepared by the special auditors. The consolidated accounts have entries for both type of transaction i.e. recorded in regular books and unrecorded in regular books. Therefore, if rejection of part of the transactions of consolidated account is made, it automatically makes the rejection of other part. Further, there are no two separate assessments one for regular transaction and other for unrecorded transaction. For both the transactions, single assessment order was passed that too u/s 144 of Income Tax Act by applying the provisions of section 145(3). Therefore in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ri Shankar Khandelwal v/s ACIT, Central Circle-1, Jaipur in ITA No. 154/JP/2011 AY 2005- 2006; 391/JP/2011 AY 2007-08; 392/JP/2011 AY 2008- 09 Order dated 12/08/2011 wherein it has been held that where the profit has been estimated no further disallowance u/s 40A(3) can be made. iii) P.C. Mundra vs. Assistant Commissioner of Income tax ITAT, JAIPUR BENCH ITA Nos. 229 & 230/JP/1999 & 1343 & 1344/Jp/1997 27th December, 2002 (2003) 80 TTJ (Jp) 945 Held that where trading addition has been made by estimating gross profit rate, provision of s. 40A(3) cannot be invoked. iv) Income Tax Officer vs. Sadhwani Brothers ITAT, Jaipur 'B' bench (2011) 142 TTJ (JP)(UO) 26 : (2011) 58 DTR 368 Asst. Year 2002-03 Held that AO having rejected the books of account and applied the net profit rate for the purpose of computing income, no disallowance could be made under s. 40A(3). In this case decision of Hon'ble Allahabad High Court in the case of CIT vs. Banwarilal Banshidhar (1998) 148 CTR (All) 533 : (1998) 229 ITR 229 (All), decision of Hon'ble Himachal Pradesh in the case of Amrit Singh & Co. vs. ITO 2010-TIOL-832-HC-HP and decision of Hon'ble Rajasthan High Court in the case of C....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... net profit rate Other ITAT Cases x) Chhattisgarh Steel Casting (P) Ltd. Vs. Assistant Commissioner of Income Tax* ITAT, Bilaspur Bench ITA No. 290/Nag/2007; Asst. Yr. 2004-05 15th February, 2008 (2008) 8 DTR (Bilaspur)(Trib) 14 Business expenditure-Disallowance under s. 40A(3)- Estimation of income-Disallowance under s. 40A(3) made by AO out of unrecorded purchases from the record seized by Excise Department was uncalled for where income was estimated and payment itself was not proved xi) Kirti Foods Ltd. Vs. Assistant Commissioner Of Income Tax ITAT, PUNE 'B' BENCH ITA. No. 208/PN/2007; (2011) 60 DTR (Pune)(Trib) 96 Disallowance under s. 40A(3)-Provisions of s. 40A(3) cannot be invoked with respect to the purchases found as per the seized material and unrecorded in the regular books of account-Therefore, it was impermissible for the AO to have made the disallowance under s. 40A(3) while computing undisclosed income in a block assessment especially in the circumstances wherein profit from the impugned unrecorded transactions has been estimated and declared -Dhanvarsha Builders & Developers (P) Ltd. vs. Dy. CIT (2006) 105 TTJ (Pune) 376 : (2006) 102 ITD 375 (Pune)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r relevant factors." The words "having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors" were added to "under such circumstances as may be prescribed" have some specific meanings. If the legislature intended to restrict the exemption only to the circumstances prescribed under rule 6DD than there was no need to add these words. The intention of the law is to give proper weightage to availability of banking facilities, business expediency and other relevant factors. The reliance is placed on the following decisions:- i) Jurisdictional High Court in the case of Kanti Lal Purshottam & Co. Vs. Commissioner Of Income Tax 155 ITR 519 (RAJ) held that Income-tax is a tax on the real income. Proviso to s. 40A(3) shows that the Legislature intended not to make the provision of s. 40A(3) very strict and absolutely mandatory. The rigor of the whole restriction was loosened by the proviso and by making r. 6DD ii) The appellant further seeks to place reliance on the judgment of the Hon'ble Calcutta High Court in the case of Girdhari Lal Goenka Vs Commissioner of Income Tax, reported in 179 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llowed in provision of section 40A(3) wherein it held that "------ having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors" should be allowed to the assessee. It is relevant to mention here that while claiming the exemption provided for applicability of provisions of section 40A(3) the assessee has to established that there are exceptional or unavoidable circumstances for not paying crossed cheques or draft as required by the rule. When it was intended by both the parties of the transactions that it should be an unaccounted transactions than this itself constitute an exceptional circumstance, where it is not practicable to make payments by crossed cheque having regard to the nature of transitions, so the benefit of exemptions provided under section 40A(3) should be allowed to the assessee. So far as proving the genuineness of expenses which has been recorded in books of accounted named as "Jadavji" this is to submit that all the expenses has been allowed by the ld. AO and the payments of such expenses was made out of corresponding undisclosed income, therefore the genuineness of such expenses cannot be....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and cases cited before your honor, the humble assessee prays your honor kind to confirm the findings of ld CIT (A) and reject the ground raised by revenue. 7.3 During the course of hearing, the ld. DR relied on the order of the AO. 74 We have heard the rival contentions and perused the materials available on record. It is noted that the ld. CIT (A) has restricted the disallowance u/s 40A(3) of the Act from Rs. 6,83,23,399/- to Rs. 3,35,092/- by observing as under:- "Therefore, in view of various judicial pronouncements, the addition on account of disallowance made u/s 40A(3) cannot be sustained where the profit was estimated by rejecting the books of account and by applying the provisions of section 145(3) of I.T. Act. Further, the fact remains that the assessee itself has disallowed Rs. 3,07,550/- u/s 40A(3) in the return filed u/s 153A (refer copy of computation is at PB page 77) and it has also agreed for further disallowance of Rs. 27,542/- on account of cash payment recorded in regular books of account. Thus, the disallowance to the extent of Rs. 3,35,092/- is on agreed basis. Therefore in view of the above facts and circumstances and respectfully foll....
X X X X Extracts X X X X
X X X X Extracts X X X X
....earing, the ld. DR relied on the order of the AO. 8.3 On the other hand, the ld. AR of the assessee supported the order of the ld. CIT(A). However, the ld. AR of the assessee submitted following written submission. "We have submitted that the assessee's books of account have been rejected by the AO for all practical purpose and the profit has been estimated by applying GP rate. Therefore, no further addition can be made on the basis of entries in the books of account. Reliance is placed on the following decisions:- (i) ITAT Cuttack Bench in the case of ITO v/s Sahadev Pradhan (2012) 18 ITR 0180. The findings of Hon'ble ITAT are as under:- "7. Having heard the rival parties and going through the impugned orders of the authorities below and also the decisions cited at Bar, we are inclined to find the contention of the learned Counsel of the assessee appropriate to the extent the learned CIT (A) has taken into cognizance the facts leading to the disallowance of the expenditure u/s. 40(a)(ia) by the Assessing Officer when he sought to consider the rejection of books of account taking recourse to Section 145(3) of the I.T.Act as the Assessing Offic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....IT (1998() 232 ITR 776 was taken note of when having rejected the book result it was not the case of the Assessing Officer to go back to those very books of account which indicated nondeduction of tax at source on certain expenditures that had ripened to be disallowed u/s. 40(a)(ia). Confining ourselves to the issue on hand we are inclined to follow the decision of the ITAT, Cuttack Bench in the case of Sanjay Kumar Pradhan v. ACIT in ITA No. 450/CTK/2011 dt.16.12.2011 (copy placed on record) indicating that it cannot be said that a change of stand can be taken up later when the finding of facts remains the same as were available to the Assessing Officer in view of the fact that part deduction of tax on certain payments do not lead to the finding that all the expenditures incurred were susceptible to be disallowed u/s. 40(a)()ia) for want of deduction of tax at source. For the reasons discussed above, we do not find any infirmity in the impugned order of the learned CIT(A), which we uphold by dismissing the appeal of the Revenue." (ii) ITAT Hyderabad in the case of M/s Teja Constructions v/s ACIT (2010) 36 DTR 0220 Held that when books of account of the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....account, copy of bank account in all the cases to prove the identity, genuineness and creditworthiness of the cash creditors. The ld Assessing Officer made addition on the basis of investigation conducted by the ITO, Investigation Wing, Kolkata but the ld Assessing Officer of the assessee has not clarified what inquiry had been conducted and what evidences collected which goes against the assessee. The notice U/s 131 issued by the ITO, Investigation Wing, Kolkata were served in case of Vidya Agencies Pvt. Ltd. and Shivarpan Mercantiles Pvt. Ltd., but compliance could not be made on the given date because concerned officer was on leave. In case of Middleton Goods Pvt. Ltd. And Lactrodryer Marketing Pvt. Ltd., notices were served on the assessee and in compliance to the notice, the party submitted all the documents in the IT office. The case law referred by the ld CIT (A) i.e. decision of Hon'ble Delhi High Court in the case of Nipun Builders and Developers Pvt. Ltd. Vs. CIT and Vijay Power Generator Ltd. Vs CIT (supra) are not squarely applicable on the facts of the case as there was short time available with the Assessing Officer as well as Investigation Wing of Kolkata. The copy o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppliers Pvt Ltd. 12,500 1,25,000 23,75,000 25,00,000 It is observed from the records that the AO made similar addition on same facts and ground in AY 2006-07 & 2008-09. The appeal of the assessee for AY 2006-07 had been decided by ld CIT (A) in favour of the assessee and addition was deleted. The department has not filed appeal in Tribunal against the appeal order for AY 2006-07. The addition in appeal for AY 2008-09 was confirmed by ld CIT (Appeal), Central Jaipur. The assessee filed appeal before Hon'ble ITAT, Jaipur Bench, Jaipur. The appeal of the assessee was decided by Hon'ble ITAT in ITA No. 686/JP/2014 vide order dated 27.11.2015 wherein the addition confirmed by ld CIT (A) was deleted Copy PB pg 1051-1065/ Vol -3. The relevant Para of findings of Hon'ble ITAT in the case of assessee is as under:- 6.1 On facts also, the assessee has produced before the Assessing Officer copy of share application, confirmation of the cash creditors, copy of PAN, copy of Board resolution, copy of Director's report, auditor's report, copy of balance sheet, copy of P&L account, copy of bank account in all the cases to prove the identity, genuineness and creditworthiness ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ill premium debited in books of accounts "Jadavji''. The facts as emerges from the order of the ld. CIT (A) is as under:- "3.6.3 I have considered assessee's submission and the factual matrix of the case. I have decided the issue of trading addition in ground no 3 to 10 above by holding that the true profit cannot be determined on the basis of recasted books of account prepared by Special Auditors due to certain limitation pointed out by Special Auditors in their report and the AO himself assessed the trading results of the assessee by estimating the GP rate of 26.21% on consolidated sales. Therefore, the separate addition on account of bill premium cannot be sustained. Further the AO made a finding that the assessee has not challenged the reduction of corresponding purchases relatable to the bill premium expenses. This finding of AO is against the facts. The AO has reproduced a chart at page 46-47 of his order wherein the assessee claimed the purchases should be increased by Rs. 3,37,50,507/-. In this chart Purchases from M/s Baheti Gems and Mr Girdhari are included. Further the assessee has given plausible explanation for the genuine purchase from these parties and justi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s regular books both shows the issue of cheque against the purchases. Had this entry was against the bogus bill, than there would be entry of receipt of cash as against issue of cheque in no.2 books of account. The special auditors treated this purchase as bogus only on the basis of presumption and assumption without making further inquires. The supplier party charged extra Rs. 2000/- on account of billing charges. It was practice of this party to charge some extra if bill is taken against the goods supplied. If the goods is taken without bill than no charges of the bill. Therefore bill premium is part and partial amount of goods purchased. Further the bills premium was only credited in a/c of the party and amount against purchases was paid by cheque. Later on this entry was w. Off by transferring the same in discount a/c meaning which the payment of bill premium was not made to this party. Further, no show cause notice was given by the AO before accepting the audit report which says this purchase as bogus. (ii) Mr. Girdhari purchases of Rs. 5,05,992/- Bill premium Rs. 3516/- During the year under consideration the assessee company made purchases of Rs. 5,05,992/-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s and circumstances as discussed above, addition of Rs. 5,516/- made by AO on account of bill premium cannot be sustained and AO is directed to delete this addition. Assessee's appeal in Gr No 16 stands allowed." Taking into consideration the present facts and circumstances of the case, we find no infirmity in the order of the ld. CIT (A) which is sustained. Thus Ground No. 5 of the Revenue is dismissed. 11.1 As regards Ground No. 6 of the Revenue wherein the Revenue is aggrieved that the ld. CIT (A) has erred in deleting the addition of Rs. 1,66,336/-made by the AO by disallowing 15% of total expenses of Rs. 11,08,906/- found recorded in the books of account named as "Jadavji''. The facts as emerges from the order of the ld. CIT (A) is as under:- 3.7.3 I have duly considered assessee's submission and taken a note of the factual matrix of the case. As I have already decided the issue of trading addition in ground no 3 to 10 in above para by holding that the true profit cannot be determined on the basis of re-casted books of account prepared by Special Auditors due to certain limitation pointed out by Special Auditors in their report and the AO himself assessed the tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n PD account against the self assessment tax liability. The facts as emerges from the order of the ld. CIT (A) is as under:- "3.10.4 I have considered assessee's submission and the factual matrix of the case. In this case, a search & seizure operations u/s 132(1) of Act was carried. Pursuant to the notice issued u/s 153A of the Act, assessee filed its return of income for AY 2010-11 on 31.03.2012 declaring total income of Rs. 2,31,17,670/- which includes the income of Rs. 2,46,00,000/- surrender on account of income earned from unaccounted sales. On perusal of the return filed on 31.03.2012 for AY 2010-11, it is seen that assessee itself computed total tax liability including interest to Rs. 98,17,671/- and out of the total tax liability, assessee has paid Rs. 45,00,000/- on 31/03/2011 and Rs. 817670/- on 30/03/2012 and for the remaining amount of Rs. 45,00,000/- request was made to Ld CIT Central Jaipur for adjustment against amount lying in PD A/c by filing a letter on 31/03/2012 under copy to DCIT Central Circle-2 Jaipur. AO has not allowed any adjustment of cash lying in the PD A/c against self assessment tax liability till 17.12.2013 even though assessee had made....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The argument set up by the Revenue is that the expression 'existing liability' is referred in the context of the IT Act, 1961. The WT Act, 1957, The Expenditure tax Act, 1987, the GT Act, 1958, and the Interest-tax Act, 1974, and since in the other statutes, there is no concept of advance tax, therefore the expression 'existing liability' used in s. 132B(1)(i) cannot be understood to mean advance tax liability under the IT Act, 1961. In our considered opinion, interpretation placed by the Revenue is misplaced and would lead to absurd results. 9. It is well understood that as per s. 4 of the Act, an assessee is chargeable to income-tax in respect of his total income. Sub-s. (2) of s. 4 prescribes that the income-tax so chargeable shall be deducted at source or paid in advance, where it is so deductible or payable under any provision of the Act. We have observed earlier that advance tax liability is governed by ss. 208 to 210 of the Act. Similarly, s. 140A provides for payment of self-assessment tax on the basis of any return of income required to be filed by the assessee. The relevant provisions also prescribe the dates and the amount of tax required to be paid by an assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2(5) of the Act is passed, the AO could not direct that the assets seized be adjusted towards advance tax liability. The Hon'ble High Court specifically noted that it is only after an order under s. 132(5) is passed that the assessee can make a request that the seized amount which is sought to be released in his favour be adjusted or appropriated towards the liability to pay advance tax. Though, in the context of the present assessment year before us, the provisions of s. 132(5) are not applicable and therefore, strictly speaking, the ratio of the judgment of the Hon'ble Madhya Pradesh High Court does not apply, so however it is pertinent to observe that the Hon'ble High Court has not read any blanket prohibition in the Act against adjusting the seized assets against liability for payment of advance tax. Therefore, there is no justification for the CIT (A) to rely upon the order of the Madhya Pradesh High Court in the case of Ramjilal Jagannath (supra) and deny the claim of the assessee. In case of ACIT Central Circle-23 New Delhi Vs. Sh Arun Kumar Gupta, Hon'ble ITAT New Delhi in ITA No. 4108/Del/2010 by respectfully following the decision of Nikka Mal Babu (supra) an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gra on 29.03.2010 which was duly received in the office on the same day. Further, another letter was written to the CIT-1 on 21.03.2010. Letter dated 05/07/2010 was also written to the DCIT Central Circle stating that return of income for A.Y. 2010-11 had been filed on 30/6/10 with tax payable of Rs. 2,92,25,240/- and therefore requesting the AO once again for adjustment of tax liability with the cash lying in the PD account. In the circumstances, the assessee had done all it could do so as to ensure that cash lying in the PD account would be adjusted towards the advance tax liability. However, it seen that no action was www.taxguru.in ITA No. 290 /Agra/2013 A.Y. 2010-11 5 taken on the assessee's petition by any of the authorities before whom the assessee has filed the petition. To my mind, it is an apparent injustice to the appellant to hold on the cash belonging in the assessee in the Government Account and at the same time charge interest for non-payment of advance tax on the due dates. It is clear that the appellant's application for adjustment has been submitted before the various authorities, the seized cash should have been either been adjusted as requested by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l tax liability including interest to Rs. 98,17,671/- and out of the total tax liability, assessee has paid Rs. 45,00,000/- on 31/03/2011 and Rs. 817670/- on 30/03/2012 and for the remaining amount of Rs. 45,00,000/- request was made to Ld CIT Central Jaipur for adjustment against amount lying in PD A/c by filing a letter on 31/03/2012 under copy to DCIT Central Circle-2 Jaipur. AO has not allowed any adjustment of cash lying in the PD A/c against self assessment tax liability till 17.12.2013 even though assessee had made request to Ld CIT (Central) Jaipur on 31.03.2012 It is also noted that the AO had not adjusted the credit of amount lying in the PD account against self tax liability. The ld. CIT (A) has allowed the same giving the direction as under:- "In view of facts and circumstances of the case as discussed above and respectfully following the decisions of aforementioned judicial pronouncements AO is directed to re-compute the interest chargeable u/s 234 B after giving credit of amount of Rs. 45,00,000/- ( Lying in PD A/c) against the self assessment tax liability fallen due on 31-03-2012. The assessee's appeal on this ground stands allowed" It is also noted t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the task of framing an assessment to the auditor. 3. On the facts and in the circumstances of the case and in law the ld CIT (A) erred in rejecting contention of the assessee that the special auditors have conducted the audit beyond the scope of the provisions of Section 142(2A) by recasting the books of account by applying presumption and assumption and such audit report cannot be considered for the Assessment of the assessee. Therefore and thus, the ld CIT (A) erred in not declaring the entire assessment as bad in law and void ab-initio. 4. On the facts and in the circumstances of the case and in law the ld CIT (A) erred in rejecting contention of the assessee that the learned A.O. passed the Assessment Order based on no evidence or on irrelevant evidence and on surmises and conjectures and the facts of the case stated in the assessment order are contrary to the records and is against the doctrine of äudi alterm partem", a principle of natural justice and therefore and thus the ld CIT (A) erred in no declaring the Assessment Order u/s 144 read with Section 143(3), as bad in law and ab-initio void. 5. On the facts and in the circumstances of the cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....et entries certain information were required from assessee from time to time. All of these were complied by the assessee vide reply on various dates (copy at PB pg 184-185, 187-188, 191-214, 231-254, 257-263, 264-269, 270-275, 276-284, 285-286 289-296, 302-313, 319-324, 325-328, 329-331, 332- 334, 335, 336-338, and 339-343). During the course of search certain documents were found and seized relating to the assessee including a CPU containing the books of accounts named as "Jadavji" being duplicate/parallel books of accounts of the assessee company maintained in the form of memoirs, containing the entries of recorded and unrecorded transactions of the assessee company. However the books of accounts named as "Jadavji" were neither complete nor correct. Further these books of accounts consists the entries pertaining to AY 2010-11 only. No parallel/duplicate books of account of assessee company for AT 2011-12 was found by the search party. . During the course of assessment proceedings it was opined by ld. AO that the entries in the books of accounts named as "Jadavji" were extremely complex in nature therefore the ld. AO moved a proposal to ld CIT, Central, Jaipur vide letter dated 13....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Particulars Additions Made by AO in dispute before CIT (A) Amount (Rs.) Deleted by CIT (A) Amount (Rs.) Sustained by CIT (A) Amount (Rs.) 1. Undisclosed income/profit 91,37,068 32,66,862 58,70,206 3. Disallowance u/s 40A(3) of Income Tax Act, 1961 2,71,50,538 2,70,29,587 1,20,751 4. Disallowing 25% of total purchases of Rs. 15,51,792/- made from M/s Aditya Gems by treating the purchases as unverifiable and bogus. 3,87,948 3,87,948 0 Total Addition 3,66,75,554 30,68,4397 59,90,957 16.3 Now the assessee as well as Revenue are in appeal before us against the order of the ld. CIT(A). 17.1 The Ground No. 1 of the Revenue's appeal is in respect of restricting the trading addition of Rs. 91,37,068/- to Rs. 58,70,206/- 17.2 The Ground No. 2 to 5 of the assessee's appeal are in respect of confirming the addition of Rs. 58,53,506/- by estimating the gross profit rate @ 20% on declared sales of Rs. 12,28,29,758/- as against 14.01% declared by the assessee. 17.3 From the above grounds raised by the Revenue and assessee, it is observed that the ld. CIT (A) has restricted the addition of Rs. 91,37,068/- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a 3.3.6 of Heading "BREIF FACTS AND BSERVATIONS:- annexed with special audit report (Copy at Page 29 of SAR) it has been mentioned that:- "In the books of accounts titled as "Jadavji" most of the purchases, sales, transfers, returns have been entered in pieces whereas in regular books of accounts, these have been entered in gms/cts. Therefore, in absence of common unit of measurement for those transactions which are not entered in regular books or vice versa, the correct quantitative stock cannot be determined by applying the standard auditing procedure. Some examples to this effect are listed in enclosed Appendix-3". (iv) In para 5.1.8 at Page 8 of common notes annexed with special audit report (Copy at PB Page SAR-33) it has been mentioned that "The figures of adjustments have been derived by applying professional judgments and surroundings materials. Significant estimations and assumptions have been made, wherever corroborative evidences are not available or considering the limitations imposed by circumstances, if it is warranted to do so. Therefore, any change, in such professional judgement or estimation or assumption, may lead to change in financial....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Year 2010-11 corresponding to AY 2011-12 was found in the accounts maintained under the name "Jadavji". No any other incriminating seized document pertaining to AY 2010-11 was brought on records showing unaccounted sales or purchases other unaccounted business activity of the assessee company. The sales were accepted at Rs. 12,28,29,758.50 on the same figure which the assessee disclosed in regular books of account. Separate Trading and Profit and loss account of parallel and duplicate books of account in name "Jadavji" was prepared by Special Auditor which shows no transaction expect opening stock of Rs. 7,60,132.17 which was transferred to the stock of regular books. After taking into consideration this brought forwarded stock, no excess stock as on date of search was derived. The copy of such Trading and Profit and Loss Account is placed at Page 131 of SAR (Vol-III of PB). The consolidated Trading and Profit and loss account is placed at page 81 of SAR (Vol - III of PB), which shows no transaction in Jadavji except opening stock of Rs. 7,60,132.17 and certain adjustment entries in the audited books of account. The adjustment entries carried out by special auditors may be summaris....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of closing stock by Rs. 11,02,755.78 and consequentially excess GP. Further, I found that the discrepancy in stock was calculated on the basis of defective accounts which the AO has rejected. As regard the discrepancy in stock on account of entry of transfer of stock at Indore, the assessee has given plausible explanation that it has sufficient brought forwarded undisclosed income from previous year to cover the alleged discrepancy in stock. Further I found that the AO has rejected the books of account and therefore, the profit should not be computed on the basis of same set of rejected books of account. The AO has held that the addition of Rs. 91,37,068/- represents the undisclosed income/profit earned from sales of Rs. 12,28,29,758/-. Therefore, the ld AO has treated the addition as business income of the assessee. The GP declared by the assessee in regular books of account is Rs. 1,72,12,445.56 (pg 81 of SAR Vo; III PB ). To this if Rs. 91,37,068/- is added than the GP comes to Rs. 1,72,12,445.56 +91,37,068= Rs. 2,63,49,513.56 which gives GP of 21.45% on sales of Rs. 12,28,29,758/-. The assessee has cited an example of comparable case of M/s Rambhajo's. (PAN: - AAJFR4553Q) wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d this income of Rs. 15,00,000/- on account of profit from jewelry business which was utilized in unaccounted assets. After duly considering these facts and circumstances, the trading addition of Rs. 73,53,506/= minus Rs. 15,00,000/- = Rs. 58,53,506/- is sustained. Further the Special Auditor has pointed out double payment of advertisement expenses by Rs. 4000/- and non maintenance of proper vouchers against packing expenses and vehicle expenses of Rs. 50000/- & Rs. 13500/- . Therefore, I disallow Rs. 4000/- against advertisement expenses, and 20% out of packing and vehicle expenses which comes to Rs. 10000+2700 totaling to Rs. 12700/-. Thus the total addition of Rs. 58,53,506/- +Rs. 4000/-+Rs. 12700/- = Rs. 5870206/- is sustained as against addition of Rs. 91,37,068/- made by AO. This addition would cover all the discrepancies in stock calculated by AO on the basis of rejected books of account. Thus, the assessee gets relief of Rs. 32,66,862/-. Assessee's appeal is partly allowed." 17.4 During the course of hearing, the ld. AR of the assessee prayed that the ld. CIT (A) erred in confirming the trading addition of Rs. 58,53,506/- by estimating GP rate @ 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....close to weighted average GP rate. Reliance is placed on the decision of Hon'ble Rajasthan High Court in the case of CIT Vs Bhawan Va Path Nirman (Bohra) & Co (No. 1) 258 ITR 431 wherein it has been held that the past history of the assessee is best guiding factor. In view f the above submission, the humble assessee prays your honor kindly to delete the addition of Rs. 58,53,506/- confirmed by ld CIT (A) and dismiss the ground raised by the department and allow the ground of the assessee." 17.5 During the course of hearing, the ld. DR relied on the orders of the AO. 17.6 We have heard the rival contentions and perused the materials available on record. It may be mentioned that in the case of the assessee for the assessment year 2010-11, we have adopted the method of weighted average applying the gross profit rate of 16.98%. Hence, there is no change in the facts and circumstances of the case, the gross profit rate of 16.01% should also be adopted in this case also taking into past history of the assessee by considering the gross profit, turnover for the 2006-07 to 2012-13 as under:- S. No. A.Y Turnover G.P G.P. Ratio 1 2006-07 3531618.00 51....
X X X X Extracts X X X X
X X X X Extracts X X X X
....obabilities without having any corroborative evidence. This action of the special auditor is beyond the scope of terms of reference. The terms of reference of special audit is to recast the account on the basis of seized documents. Further, the purchases relating to Sameer Bhai belong to AY 2010-11 wherein the profit was estimated by applying GP rate. On the facts and circumstances of the case and after duly considering assessee's submission, I am inclined to agree with the contention of ld AR that the assessee was not engaged in any unlawful business. The fact remains that the assessee was indulged in unaccounted sale and purchase business of jewellery and the provisions of section 40A(3) of the Act cannot be used as penal action, the law prescribes separate penal action u/s 271(1)(c) or 271AAA for the unaccounted income. Further, for this year, no duplicate sets of books of account were found. The AO has rejected the regular books of account and the assessment has been made u/s 144 of I.T. Act by applying the provisions of section 145(3) of the Act. In absence of parallel or duplicate books for the year under consideration, the question of rejection or not rejection of parallel o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble Jurisdictional High Court in the case of CIT Vs. G.K. Contractors, 19 DTR 305 held that if the profit is estimated by applying higher net profit rate after rejecting the books of accounts by invoking the provisions of Section 145(3)of the Act then no separate addition can be made on account of cash credit u/s 68 of the Act. The Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Smt. Santosh Jain, 296 ITR 324 held that Section 40A(3) cannot be invoked when the income is estimated by applying the gross profit rate. The Hon'ble Punjab & Haryana High Court followed the decision of The Hon'ble Allahabad High Court in the case of CIT Vs. Banwari Lal Bansi Dhar, 229 ITR 229. The Jaipur Tribunal in the case of Singhal Builders Contractor Vs. Addl. CIT, 133 TTJ 102 has also held that once an income of the assessee is estimated by applying the gross profit rate or net profit rate then no disallowance can be made u/s 40A (3) or any other provisions. The proviso to Section 40A(3) makes an exception that cash payment is not to be disallowed if it is an account of business expediency. After considering the submissions of the assessee, we feel that no separate addition is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e not before us, we are of the opinion that the issue needs re-look/reconsideration by the A.O. for estimation of the assessee's income. It is needless to mention that assessee shall be given a fair opportunity of hearing as regards the estimation of the undisclosed business income and the assessee shall cooperate with the A.O. by producing all the relevant material for such estimation. Since payments mentioned in the seized material are not being considered as the expenditure of the assessee, the applicability or otherwise of the provisions of sections 40A(3) and 40(a)(ia) of the I.T. Act is also not relevant at this stage." Therefore in view of aforementioned judicial pronouncements, the addition on account of disallowance made u/s 40A(3) cannot be sustained where the profit was estimated by rejecting the books of account and by applying the provisions of section 145(3) of Act. Further, the fact remains that Festival Expenses Rs. 39600/- + 44827/- and Gift Expenses Rs. 36324/- totalling to Rs. 120751/- pertain to profit and loss account and for which the assessee has also agreed before the AO for the disallowance. Thus, the disallowance to the extent of Rs. 1,20,751....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ort, audited balance sheet including profit & loss a/c and its annexure of the party of AY 2011-12. Further, the assessee stated that the assessee has also made purchases from this party in FY 2011-12 and filed documents in support of the genuineness of the purchases and the party attended before the AO and confirmed the sales to the assessee and thereafter the purchases made in AY 2012-13 from this party was treated as genuine. The assessee filed the copy of assessment order for AY 2012-13 along-with documents showing the purchases from this party. I have also called for assessment records of AY 2012-13 for necessary verification of facts and found that this party appeared before the AO and purchases from this party in AY 2012-13 was treated as genuine. This proves that the party is genuine party and the party is existing on the given address, filing Income-tax record and also getting refunds from the Dept. The aforementioned documents are part of case record and even AO has recorded the same in the order sheet dt 25/2/2015 for the scrutiny assessment of AY 2012-13. Therefore in view of the above facts and circumstances the addition of Rs. 3,87,948/- cannot be sustained. ....