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2014 (12) TMI 524 - AT - Income TaxEstimation of profits – Directions made by Tribunal to AO for consideration – Held that:- In the first round of appeal, CIT(A) considering that assessee could have purchased material for making turnover outside the books of accounts, has considered the average purchases in the earlier years to arrive at 60% of the cost of sales, being purchase cost - there are clear indications/directions of what AO was supposed to do and also gave certain opinions - without considering these, AO travelled beyond the directions of ITAT and beyond the scope of consequential assessment proceedings in determining the income at 100% of the so-called undisclosed turnover - the entire addition as confirmed by CIT(A) cannot be upheld - to that extent, assessee automatically gets relief without going into any other aspects. Undisclosed turnover and ratios – Held that:- Assessee contended that turnover was recorded by parties for the purpose of supervision and those two parties from whom statements are recorded are not partners of the firm - these aspects were already considered in first round of appeal and admittedly, the spiral bound diaries are held by ITAT to be ‘material available at the time of search and the same relates to assessees’. What profit can be estimated on the basis of material available on record, including the material found during the course of search operations – Held that:- The seized material do pertain to assesses - The detailed discussion of CIT(A) to that extent is upheld - turnover can be estimated at 1: 1.28, this turnover pertains to both the firms and not to one firm alone, as the combined turnover in the books of accounts pertains to both the firms, stated for the purpose of controlling the transactions - Therefore AO is directed to rework out the total turnover taking the ratio at 1: 1.28. and apportion between two firms on the basis of declared turnover in each year. Adjudication of year(s) in which this estimation can be resorted to – Held that:- Assessee has estimated in all years in the Block period, without restricting to the years in which such dairies are available – relying upon Rajnik and Co. vs. ACIT [2001 (4) TMI 53 - ANDHRA PRADESH High Court] - there is admission by the partner that they were resorting to same method in earlier years as well Even then, the GP adopted in other years was less - However in this case, assessee has not admitted that the turnovers recorded are undisclosed – In fact the statement was that they recorded in small note books for the purpose of controlling and belongs to both firms and are of accounted transactions - incriminating material was available only in AYs 2003-04, 2004-05 and part of AY 2005-06 in the Block period – Thus, estimation can only be done in those years only - Even though AO verified some DDs pertaining to AY 2002-03 for rejecting books of account, the invoices / data impounded are in relation to invoices recorded in Books of account - There is finding by AO that invoices are accounted but payments by DDs are not matching - that alone cannot be taken for estimation of undisclosed turn over in AY 2002-03 - AO is directed to calculate the additional sales turn over in both assessee’s case in those three assessment years i.e., AY 2003-04, 2004-05 and Part of AY 2005-06 only - it is not correct to tax 100% of the undisclosed turnover as income as assessee certainly incurs expenditure including cost of purchases - 10% net profit on the additional turnover would be justified – Decided partly in favour of assessee.
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