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TMI Blog2004 (2) TMI 324X X X X Extracts X X X X X X X X Extracts X X X X ..... for the asst. yr. 1997-98 were impounded. While framing assessment, the AO rejected the books of accounts and applied GP rate at 19 per cent against the admitted GP rate of the assessee at 3-5 per cent. The AO issued notice under s. 142, as well as under s. 148 for calling for return for the respective assessment years. The AO continuously issued various notices under s. 142 along with various letters calling for information. All the notices were served on Shri S. Raman, husband of the assessee. Ultimately, as there was no response from the assessee, the AO issued a show-cause notice on 19th March, 2001. In response to this notice, the assessee filed a common reply and she filed returns of income on 26th March, 2001, for the asst. yrs. 1997-98 and 1998-99. However, the return for the asst. yr. 1996-97 was filed in response to notice under s. 142 dt. 22nd March, 1999. Since the returns were filed mainly on 26th March, 2001, the assessment were getting barred by limitation on 31st March, 2001 and hence the AO completed the assessment on 28th March, 2001. While completing the assessment, the AO applied the GP rate of 19 per cent. Aggrieved by this, the appellant-assessee filed appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, on one hand, wrong totaling of day book balance has been noticed, on the other hand, cash shortages of certain dates have been alleged. (iv) The very fact that for two out of three years, without any material, the AO has estimated gross profit which shows that AO had resorted to s. 145 for those two years. In view of the above, it is extremely difficult for me even to presume that books of accounts could be considered to be correct or complete. Correct profits cannot be ascertained if we start from these accounts. Therefore, the only option is to reject the book result as unreliable and to compute an estimate of gross profit or net profit. Since the ledger accounts are not creditworthy even recording of expenses cannot be accepted to be either complete or correct. Therefore, the only prudent choice is to go for an objective and reasonable estimation of net profit based on the turnovers. The assessed turnovers in the sales-tax orders will be the only proper legal basis. Until and unless the sales-tax authorities on some ground reopen or reassess these turnovers, it is always objective to accept the assessed sales as the basis for profit estimation." Before the learned CIT(A), t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) and, on the basis of that, the learned CIT(A) made reference for remand report from the AO. The counsel further filed a bunch of price list of its main products indicating the customer's price and dealer's price and dealer's margin and also filed dealer's and customer's price list for major items during 1998-99. He further argued that for the asst. yr. 1998-99, the total purchase was Rs. 1.59 crores as against Rs. 1.34 crores recorded by survey party; the purchases were from reputed companies, and the invoices can easily be verified and that there was no scope for confabulation in regard to these deals. He further argued that in the sales-tax orders, no discrepancy regarding purchase or sales had been noticed. Therefore, for this assessment year, the AO had adopted incomplete purchase register, which was not related, and the GP rate of 19 per cent was meaningless and even the learned CIT(A) had not doubted the above argued facts. On the other hand, learned Departmental Representative relied on the orders of the learned CIT(A). 2.2 We have heard rival submissions and gone through the assessment order, the order of the learned CIT(A) and the paper book of the assessee containi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, the appeals of the assessee are partly allowed. 3. Departmental appeal (ITA No. 1366/2002). 3.1. The only issue in this Departmental appeal is regarding deletion of the addition by the learned CIT(A), of unexplained cash credit under s. 68. While framing assessment, the AO observed that there was a credit entry in the appellant's bank account in the Indian Overseas Bank for an amount of Rs. 1.8 lakhs as on 3rd April, 1996 and the same was not posted in the books of accounts. It was explained before the AO that the cheque was received from one of the parties who had purchased goods from the appellant's proprietary concern towards part of the sale consideration and the complete details of the payer and from which bank and from whom this cheque was received were provided. Inspite of this explanation, the AO made the addition. Aggrieved by this, the assessee preferred appeal before the learned CIT(A). The learned CIT(A), after going into the facts of the case gave his findings, which are reproduced below: "In this regard, the appellant has submitted before that in the absence of proper maintenance of books of accounts, fool proof ledgerisation could not be expected to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessment order: "During the financial year the assessee with her husband had undertaken trip to Singapore, Malaysia, Bangkok and Ceylon for a total stay of 10+7 days away from India and her son Mr. R. Krishnamurthy visited Singapore. The entire expenses relating to travel, stay, foreign currency requirement of the assessee and her husband have been met by MRC Electronics (Onida) in appreciation of the business done for them by the assessee. Mr. R. Krishnamurthy's trip to Singapore was sponsored by M/s Godrej India Ltd. in appreciation of the business done by him on their products. In the absence of any details furnished by the assessee, an addition of Rs. 5 lakhs as suggested by the ITO, CIB II, is made under s. 28(iv) as deemed profit." 4.2. The AO found that Rs. 5 lakhs had been enjoyed by the assessee and her family members on account of business transactions and this deemed profit as per s. 28(iv) of the Act was taxable and he added the amount of Rs. 5 lakhs on this account to the returned income of the assessee. Aggrieved, the assessee moved in appeal before the learned CIT(A). Before the learned CIT(A), it was argued that it was normal practice for companies to giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, Malaysia, Bangkok, Ceylon, etc. for a total stay of 17 days and her son Shri Krishnamurthy, undertook a trip to Singapore. The entire expenditures relating to the travel, stay and foreign currency requirements were met by these companies and the total expenditure incurred by these companies on the above foreign trips is Rs. 5 lakhs. Before the AO, it was admitted that the foreign trip was a scheme and it was in appreciation of the business done and it is related to business and these factors were explained before the CIT(A) also. We have gone through the provisions of s. 28 (iv). The relevant portion is reproduced below: "28. The following shall be chargeable to income tax under the head "profits and gains of business or profession"- (i)..... (ii)..... (iii)...... iv) the value of any benefit or perquisite, whether convertible into money or not arising from business or the exercise of a profession;" From the above, it is clear that perquisites of business are taxable and that cl. (iv) deals with the value of such benefits/perquisites whether convertible into money or not. In the present case, the value of the foreign trip is Rs. 5 lakhs and it had arisen to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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