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2025 (5) TMI 2045 - AT - Income TaxAddition being the profit @ 25% on the suppressed sale receipts - gross receipts / sales declared in the return filed in response to the first notice issued u/s 148 - HELD THAT - The income which is to be estimated should be based on the actual receipts / sales especially when the assessee has reconciled the same and has given the actual receipts / sales as per the impounded material by excluding the duplicate entries. Even the survey team had also accepted that there are lot of duplicate entries which must be ruled out while arriving at the right figure of un-recorded or under-reported sale receipts. Under these circumstances the action of the AO in rejecting the reconciliation statement submitted by the assessee is not justified. CIT(A) is equally unjustified in upholding the action of the AO. Since the matter requires thorough verification we deem it proper to restore the issue to the file of the Assessing Officer with a direction to make accurate computation of the receipts / sales year-wise removing duplicate entries find out the gross receipts / sales declared in the return filed in response to the first notice issued u/s 148 and only if there remains any suppressed sales / receipts then estimate the profit on the same @ 25% as has been done. Grounds raised by the assessee are accordingly allowed for statistical purposes. Levy of penalty u/s 271(1)(c) issue also restored to his file for fresh adjudication after completion of the assessment.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this matter are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Justification of Addition of Rs. 32,55,846/- on Suppressed Sales Receipts Relevant Legal Framework and Precedents: The Assessing Officer is empowered under section 147 of the Act to reopen assessments where income has escaped assessment. Section 133A authorizes survey actions, during which incriminating evidence may be collected. Section 271(1)(c) imposes penalty for concealment or furnishing inaccurate particulars of income. The law mandates that additions must be based on cogent evidence and not mere suspicion or guesswork. Court's Interpretation and Reasoning: The Assessing Officer relied on documents impounded during the second survey (Bundle No.1) which contained charts of sale consideration received in cash and cheque for various land sale schemes. Despite the assessee's assertion that these sales were accounted for, he failed to demonstrate reconciliation with books of account or returns filed. The AO noted that the total sales receipts declared after the first survey were Rs. 2,44,06,563/-, but the impounded material indicated additional unaccounted sales of Rs. 1,30,23,386/-. The AO thus made an addition of Rs. 32,55,846/- by applying the profit rate of 25% (the same rate declared by the assessee during the first survey). The CIT(A) upheld the AO's addition, observing that the assessee failed to justify why higher sales were declared in the first survey compared to the second, and that the profit rate of 25% was consistent with statements recorded during the first survey and the assessment order. The CIT(A) rejected the assessee's claim of a lower profit rate as an afterthought without supporting evidence. Key Evidence and Findings: The impounded documents from the second survey, statements recorded during both surveys, and the reconciliation charts submitted by the assessee. The AO found duplication entries in the impounded material but held that even after excluding duplicates, there was unaccounted sales. The assessee's failure to reconcile the figures convincingly was a significant factor. Application of Law to Facts: The AO's estimation of income was based on tangible evidence from survey proceedings and impounded documents. The assessee's inability to reconcile or provide credible explanations justified reopening the assessment and addition of suppressed income. The profit rate applied was consistent with the assessee's own earlier declaration, thus reasonable. Treatment of Competing Arguments: The assessee argued that the first survey declaration was on estimate basis and higher than actual sales, and that duplicate entries inflated the figures. The AO and CIT(A) rejected these contentions due to lack of adequate reconciliation and justification. The assessee's shifting stand on profit rate was also disbelieved as an afterthought. Conclusions: The AO and CIT(A) were justified in making the addition and applying the 25% profit rate based on the evidence and the assessee's own declarations. However, the Tribunal found that the AO and CIT(A) did not adequately consider the reconciliation submitted by the assessee and the existence of duplicate entries as acknowledged by the survey team. The Tribunal held that additions cannot be based on assumptions or guesswork and that the assessee should not be penalized for declaring higher sales during the first survey. Therefore, the issue was restored to the AO for fresh adjudication with directions to accurately compute receipts year-wise after removing duplicates and to estimate profit only if suppressed sales remain. Issue 2: Appropriateness of Profit Rate Applied on Suppressed Sales Relevant Legal Framework and Precedents: Estimation of income under section 147 must be reasonable and based on objective material. Profit rates applied should reflect business realities and be supported by evidence. Court's Interpretation and Reasoning: The AO applied 25% profit rate as declared by the assessee during the first survey. The assessee claimed a lower profit rate of 19.98% based on audited books but later retracted and admitted 25% was correct. The CIT(A) rejected the lower profit rate claim as an afterthought without evidence. The Tribunal noted the absence of cogent evidence supporting the lower profit rate and that the AO's application of 25% was consistent with available material. Key Evidence and Findings: Statements recorded during survey, assessment orders, and the assessee's own declarations. No independent evidence was produced to substantiate a profit rate lower than 25%. Application of Law to Facts: The AO's profit rate estimation was reasonable and based on the assessee's own prior declaration. The Tribunal did not interfere with the profit rate applied but required the AO to re-examine the suppressed sales figures before applying the profit rate. Treatment of Competing Arguments: The assessee's claim of a lower profit rate was rejected due to lack of evidence and inconsistency in submissions. Conclusions: The profit rate of 25% applied by the AO is appropriate subject to verification of suppressed sales figures. Issue 3: Validity of Penalty Proceedings under Section 271(1)(c) Relevant Legal Framework and Precedents: Penalty under section 271(1)(c) is leviable if concealment of income or furnishing inaccurate particulars is established. The penalty proceedings are linked to the correctness of the assessment. Court's Interpretation and Reasoning: The CIT(A) confirmed penalties levied for assessment years 2014-15 and 2016-17 following the assessment orders. Since the Tribunal restored the assessment issues to the AO for fresh adjudication, it also restored the penalty matters for fresh consideration after the reassessment. Key Evidence and Findings: The penalty orders were contingent on the additions upheld in assessments. The Tribunal found it appropriate to decide penalty after finalization of income assessment. Application of Law to Facts: The penalty proceedings cannot be sustained independently of the assessment order. Since the assessment additions were restored for fresh adjudication, penalty matters also require fresh consideration. Treatment of Competing Arguments: The assessee challenged the penalty as unjustified. The Department supported penalty confirmation. The Tribunal deferred the penalty issue pending reassessment. Conclusions: Penalty orders are restored to the AO for fresh adjudication post reassessment. Issue 4: Adequacy of Reconciliation and Evidence Submitted by the Assessee Relevant Legal Framework and Precedents: The burden of proof lies on the assessee to demonstrate correctness of declared income and reconcile discrepancies. The Assessing Officer must consider reconciliation statements and evidence submitted. Court's Interpretation and Reasoning: The assessee submitted reconciliation charts excluding duplicate entries and claimed declared sales were higher than actual. The AO and CIT(A) disbelieved the reconciliation, citing failure to justify why higher sales were declared earlier and inability to reconcile impounded documents fully. The Tribunal found that the AO and CIT(A) did not adequately appreciate the reconciliation and the admission by the survey team about duplicate entries. The Tribunal emphasized that additions should not be based on assumptions or guesswork and that the assessee should not be penalized for declaring higher sales in the first survey. Key Evidence and Findings: Reconciliation charts submitted by the assessee, impounded documents, survey statements, and admissions regarding duplicate entries. Application of Law to Facts: The Tribunal held that the AO should have conducted a thorough verification to remove duplicate entries and accurately ascertain suppressed sales before making additions. The assessee is entitled to the benefit of reconciliation unless disproved by clear evidence. Treatment of Competing Arguments: The AO and CIT(A) relied on suspicion and lack of reconciliation; the assessee relied on submitted reconciliation and survey team's acknowledgment of duplicates. Conclusions: The issue requires fresh examination by the AO with proper verification and reconciliation. 3. SIGNIFICANT HOLDINGS "It is the settled proposition of law that no addition can be made merely based on assumption, suspicion, guesswork or conjuncture or irrelevant inadmissible material." "The estimates of profits by the Assessing Officer are not fanciful or whimsical but appear to be guided by the principles of objectivity, fairness and consideration of justice and maintain some sort of equilibrium." "Merely because the assessee had offered more sales / receipts as against actual receipts the assessee in our opinion cannot be penalized for declaring higher figure." "Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to make accurate computation of the receipts / sales year-wise removing duplicate entries... and only if there remains any suppressed sales / receipts, then estimate the profit on the same @ 25% as has been done." "The penalty proceedings so initiated may be quashed and are restored to the file of the Assessing Officer for fresh adjudication after completion of the assessment." Core principles established include the necessity of basing income additions on concrete evidence rather than assumptions, the right of the assessee to have reconciliations properly considered, and the linkage of penalty proceedings to the final outcome of the assessment. The Tribunal emphasized fairness, objectivity, and thorough verification in tax assessments involving survey-based evidence. Final determinations on each issue were to restore the matter to the Assessing Officer for fresh adjudication with directions to verify and reconcile sales receipts accurately, apply profit estimation only on confirmed suppressed sales, and reconsider penalty proceedings accordingly. The appeals were allowed for statistical purposes pending such fresh adjudication.
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