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2024 (9) TMI 1707 - AT - Income TaxUnaccounted Receipts and Unaccounted Expenses - AO treated the entire unaccounted cash receipts as the income of the assessee for the relevant assessment years - AO did not allow for any deductions or expenses related to these receipts effectively treating the gross receipts as taxable income and also made an addition u/s 69C treating the unexplained expenditure as deemed income of the assessee - AO also did not allow any set-off against the unaccounted receipts effectively treating the expenditures as independently unexplained and taxable. Whether the entire unaccounted receipts should be taxed as income or whether only the profit element embedded in these receipts should be considered? - We find that the CIT(A) has correctly applied the net profit rate to the unaccounted receipts based on the principle laid in President Industries case. There is no material evidence to suggest that the entire unaccounted receipts represent the income of the assessee. DR s submissions while highlighting procedural violations do not justify taxing the gross receipts without considering the expenses involved in generating such receipts. Once profit is estimated no further additions can be made for procedural violations like cash payment limits or TDS non-compliance. This is consistent with judicial principles that when profit is computed based on estimation it covers all aspects of the business including potential violations. We also find that the 12% Net Profit Rate (NPR) applied by the CIT(A) is reasonable given the nature of the case. The assessee was found to have engaged in unaccounted cash transactions and in such cases where the full details of receipts and expenses are not available higher profit rates are often justified. The application of a higher NPR ensures that any profit derived from undisclosed income is appropriately taxed and it compensates for the lack of documentation. We find that no concrete evidence has been provided by the assessee to substantiate a lower profit rate. Assessee has not demonstrated with comparable industry data or business-specific records that a lower NPR should be applied. In cases involving unaccounted income courts have consistently upheld the application of a higher NPR. We further note that the assessee has not provided any alternative basis for applying a lower NPR. In the absence of any detailed documentation or business records from the assessee the CIT(A) s estimation of 12% NPR stands justified. Estimation by nature requires some discretion and it must account for the lack of transparency in the assessee s accounts. Therefore the assessee s ground of appeal challenging the 12% NPR is dismissed. Additions related to the poker income and expenses which arose from noting found in the seized material during the search operation - CIT(A) deleted addition - HELD THAT - For both the Assessment Years 2017-18 and 201819 the CIT(A) rightly observed that the poker-related amounts had already been addressed under the general headings of unaccounted receipts and unaccounted expenditures. Hence making separate additions for these items would result in double taxation of the same income. CIT(A) s decision was based on a thorough examination of the facts supported by the principle that seized material should be considered in its entirety. This approach ensured that the assessment captured the real income of the assessee without inflating the tax liability through double additions. CIT(A) correctly deleted the separate additions for poker income and expenses for both Assessment Years 2017-18 and 2018-19 as these were already included in the broader unaccounted receipts and expenditures. Accordingly the grounds of the Revenue on this issue are dismissed. Assessment u/s 153A - Delayed PF/ESIC Contributions u/s 36(1)(va) - In the present case the additions made by the Assessing Officer (AO) regarding the delayed deposit of employees contributions to PF and ESI for the assessment years 2013-14 to 2017-18 fall under unabated assessment years as no proceedings were pending for these years when the search was initiated. As per the judgment in Abhisar Buildwell 2023 (4) TMI 1056 - SUPREME COURT for completed assessments no additions can be made unless they are based on incriminating material found during the search. The revenue and CIT(A) both failed to point out any incriminating material found during the course of the search that would warrant the disallowance under section 36(1)(va) of the Act for these assessment years 2013-14 to 2017-18. As the assessment year 2019-20 was an abated assessment year due to the search proceedings the AO made additions for late deposit of employees contributions citing a delay for contributions related to June 2018 which were deposited on 16th July 2018. The CIT(A) rightly deleted the addition noting that 15th July 2018 was a Sunday and hence the payment on the next working day (16th July 2018) was within the permissible time limit. This finding aligns with the judicial principles governing General Clauses Act where payments made on the next working day following a holiday are treated as timely payment. Accordingly the corresponding grounds of appeals filed by the assessee are allowed and grounds of revenue deserve to be dismissed. Treatment of unexplained cash discovered during the search and seizure operation carried out at the assessee s premises - AO made an addition based on the cash seized during the search treating it as unaccounted income u/s 69A - assessee s contention that the cash represents business receipts from daily operations aligns with the nature of its business activities and the usual practice in the hospitality industry of dealing with cash transactions - HELD THAT - AO s invocation of Section 69A to treat the seized cash as unexplained income is not justified in this case. Section 69A applies when money is found in possession of the assessee for which no explanation is provided. However the assessee has provided a plausible explanation supported by evidence that the cash was generated from the business and was not accounted for yet. Since the unaccounted receipts and payments for the relevant period were already considered for taxation adding the seized cash separately would lead to taxing the same income twice. The CIT(A) rightly deleted the addition recognizing that a substantial portion of the unaccounted income had already been brought to tax and that the addition would result in duplication.
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