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2018 (3) TMI 2037 - AT - Income TaxIncome surrendered in search proceedings - determination of profit on undisclosed turnover - Disallowance of expenses - assessee during the search & seizure operations had surrendered an amount as business income from trading of Pan Masala - AO applied gross profit rate of 3.7% which is based upon earlier years audited accounts whereas during the year under consideration the gross profit earned by the assessee only 1.91% - D. R. stated that in unaccounted turnover the assessee also saves heavy amount on account of non payment of taxes and therefore, the application of higher gross profit rate was necessary - as per DR assessee could not produce any evidence to substantiate his claim and moreover during search proceedings he had surrendered commission income and therefore, the claim as expenses is an afterthought and rightly not allowed the claim. HELD THAT:- Application of gross profit rate of accounted turnover cannot be applied to unaccounted turnover as the assessee generally earns more profit on the unaccounted turnover and moreover to create a deterrent for assessee not to make unaccounted transactions in future and in view of justice to both parties, we deem it appropriate that average of gross profit rate of 3.7% and 1.91% should have been applied to the unaccounted turnover. The average gross profit rate of these two years comes out at 2.8%. Therefore, AO is directed to apply gross profit rate of 2.8% on the unaccounted turnover as calculated by CIT(A) which after relief given by learned CIT(A) comes out at Rs. 1,08,87,67,854/-. Out of the gross profit thus arrived the assessee will be allowed deduction on account of expenses to the extent of Rs. 7,73,600/- which learned CIT(A) has also given and out of such net profit the profit declared by the assessee to the tune of Rs. 2.35 crore will be reduced and remaining amount is liable to be taxed in the hands of the assessee. In view of the above ground No. 1,2,3 & 4 of the appeal of the assessee are partly allowed. Assessee had declared a commission income and now in the return of income it claimed expenses to earn that income which has not been substantiated - CIT(A) has already allowed relief to the extent of Rs. 5,00,000/- and we do not find any infirmity in that order and in view of the inability of the assessee to explain and support the claim of expenses, we dismiss ground No. 5 & 6. Calculation of unaccounted turnover - While calculating the undisclosed turnover the Assessing Officer has reduced an amount of Rs. 27,33,82,332/- which is not correct as learned CIT(A) has held that the turnover of the assessee as per audited account and as per VAT returns worked out to be Rs. 37,15,41,587/- Learned CIT(A) has rightly allowed relief to the assessee by replacing the incorrect accounted figure of sales with the correct figure of accounted sales and therefore, there is no infirmity in the order of CIT(A). Therefore, ground No. 1 is dismissed.
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