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TMI Blog2014 (8) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... O are: "1. Ld CIT(A) has erred in law and on facts in confirming the estimated total unaccounted income at (Rs.16,04,036/- for A.Y.2001-02), (Rs.31,87,728 for A.Y.2002-03) and (Rs.25,04,025/- for A.Y.2003-04) as against the estimated total unaccounted income offered by the assessee at (Rs.14,85,000/- for A.Y.2001-02), (Rs.17,86,000/- for A.Y.2002-03) and (Rs.14,58,000/- for A.Y.2003-04) for the year under consideration." 2. Facts in brief as emerged from the corresponding assessment order passed u/s.153A r.w.s. 143(3), dated 29.12.2008 were that the assesseefirm is in the business of coal trading. A search was conducted on "Dosani Group" on 4th of August, 2006. In compliance of a notice u/s.153A a return was filed on 7th of August, 2008 declaring an income of Rs. 18,82,090/-. Consequence upon a search "four kaccha note books" marked as Annexure A/2, A/3, A/5 and A/8 were seized. It was found that the assessee was daily recording cash transactions which were stated to be as follows: "(i) Accounted purchases (ii) Accounted sales, (iii) Accounted expenses, (iv) Unaccounted purchases, (v) Unaccounted sales, (vi) Unaccounted expenses. 2.1 According to AO, in those "kaccha note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as that the total income disclosed by the assessee at Rs. 96.09 lacs on the basis of 5% profit on unaccounted credit entries was in proximity with the income disclosed of Rs. 1 crore by the assessee in the statement recorded on 05.08.2006. He has also found that the AO has sought details of suppliers of raw materials, buyers, bank accounts, unsecured loans, etc., which were furnished to the AO during the course of assessment proceedings. Rather, it was so remarked in a Remand Report of the AO dated 28.09.2009. The submissions of the assessee in that regard were accepted. There was one more observation of the learned CIT(A) that during the course of search there were no evidence of unaccounted sale invoices, purchase bills, stock register, creditor/debtor register. Even no excess stock of coal was found at the time of search. For the said reason, the explanation of the assessee was that there was unaccounted commission income only because the assessee has also earned commission income as a commission agent. Further more learned CIT(A) has also referred few findings on facts as under: "9B. The appellant has pointed out that the method adopted by the AO to determine profits / income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit ratio of 5.17% (as detailed in para 5 of this order). The average GP of the appellant, (as per para 9D of this order) on the regular sales is 6.5%. Since, the details in the seized diaries are missing in respect of A.Y. 2005-06 and incomplete in respect of A.Y. 2004-05, A.Y. 2006-07, it would be appropriate to confirm the income for these assessment years as disclosed by the appellant. In respect of A.Y. 2001-02, A.Y. 2002-03, A.Y. 2003-04 and A.Y. 2007-08, it would be appropriate to compute income at the G.P. rate of the appellant, on regular sales in these assessment years. Accordingly, the income for these years is worked out as under:- 4. From the side of the Revenue, learned CIT-DR, Mr. Subhash Bains has appeared and pleaded that this issue is to be decided along with the issue as raised by the Revenue Department in ground no.1, related to disallowance by invoking the provision of Section 40A(3) of IT Act. His vehement contention was that the AO himself has taken a very reasonable approach in determining the year-wise profit of the assessee. This action of the AO was basically because of a reason that he was keeping in mind the other substantive addition to be made un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orded in the regular books of accounts forming part of the income tax return filed for respective years. But it was also found that the diaries have contained unaccounted income stated to be from commission. The explanation of the assessee is that the coal received through railway wagons has directly been purchased and also delivered to the buyers and on such direct sales the assessee received only 5% commission offered on estimation. To corroborate the correctness of the disclosure of 5% income, the assessee has also raised two pleas to substantiate the claim. One plea of the assessee was in respect of matching the application of unaccounted income towards purchase of domestic articles, etc. The same had tallied with the said disclosed amount. The other plea of the assessee was that the total of the peak credit in those diaries had tallied with the total unaccounted income of the group, declared by the assessee. There is no dispute that through these methods in cases of search an unaccounted income can be determined by applying these two theories, i.e., 'peak theory' or 'investment theory'. These methods are to be applied in a situation when the details of the unaccounted income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year wise profits; which had shown steep rise upto 8.9% and thereafter steep fall upto 0.79% hence seems to be impractical method of calculation of profit in this case. When the admitted factual position is that there were no sales/purchase Bills were detected; no unaccounted coal stock was unearthed, no assets beyond the income offered was seized and the application of unaccounted income has matched with the assets/expenditure hence the income so offered by and large appears to be reasonable. Still to cover up the difference between the disclosure of 1.07crore and income offered for all the years at Rs. 96,09,883/- by adopting rate at 5%; we hereby hold that for the Assessment Year 2001- 02, 2002-03, 2003-04, the profit is to be calculated by adopting net profit rate at 5.2%. We direct accordingly. In this manner, the Ground No.1 of the Revenue Department and the Cross Objection of the Assessee are hereby partly allowed. 7. Ground No.1 raised by the Revenue for A.Y. 2001-02 to 2007-08 is as under: 1) The ld. CIT(A) has erred in law and on facts and in circumstances of the case in deleting the disallowance of (Rs.55,13,155/- for A.Y.2001-02), (Rs.7,85,099/ for A.Y.2002-03), (Rs.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the coal related to the commission transaction. The transaction which was recorded in the seized note books was not in the nature of purchase and sale of the goods. Therefore an income @ 5% was offered in the line of the provisions of Section 44 AF of IT Act. Even, though the profit on such transaction was much less than the percentage offered. It was further submitted as follows: "The appellant had acted only as a commission agent / intermediary / facilitator, in respect of the transactions entered in the seized note books. The appellant had not claimed any such expenses / purchases. This aspect was brought out in the note filed with the returns u/s. 153A. The decision reported in 177 Taxman 450, in case of Anand Swarup Khandelwal, was cited to state that once the appellant acted as a bailee of goods/commission agent, the provisions of section 40A(3) would not be attracted. It was also argued that as per judicial decision(s), the provisions of section 40A(3) even otherwise, cannot be considered in assessments u/s. 153A. The decision reported in case of CIT vs. Banwarilal Bansidhar, 229 ITR 229 was also referred to state that once it was considered prudent to estimate profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh Bains has placed reliance upon the decision of Hon'ble Gujarat High Court in the case of Hynoup Food and Oil Industries (supra) and stated that even in the case where unaccounted and undisclosed income was came to the notice of the Revenue Department consequence upon a search, then also the provisions of Section 40A(3) can be applied. Learned DR has also placed reliance upon the decision of Hon'ble Apex Court in the case of Attar Singh Gurmukh Singh Vs. ITO, 191 ITR 667 (SC) for the legal proposition that even after the payment were proved to be genuine still it can come under mischief of Section 40(3). Mandatory contravention of Rule 6DD is not explained satisfactorily to the AO. 10. On the other hand from the side of the assessee, learned AR, Mr. Tushar P. Hemani appeared and pleaded that where the income is determined on estimation then no disallowance can be made u/s.40A(3). Case laws cited are as follows: "(i) CIT Vs. Banwarlal Bansidhar, 229 ITR 229 (All) (ii) CIT Vs. Smt. Santosh Jain, 296 ITR 324 (P&H) (iii) ITO Vs. Kenaram Saha Subhash & Subhash Saha, 301 ITR 171 @ 216 (Cal) (AT) (SB) (iv) CIT Vs. Aggrawal Engg. Co., 302 ITR 246 (P&H)" 11. We have heard both the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se notice seeking any clarification regarding disallowances being made u/s 40A(3) of the Act, otherwise during the course of assessment proceedings itself, business modus operandi could have been \ explained. Your Honours would also appreciate that even in appraisal report at para 7(iii) while discussing about business modus operandi of the Appellant, it has been categorically mentioned that the Appellant is procuring /wagonloads of coals and the wagonloads are sold directly to many parties at a good commission. Copy of the relevant extract of the appraisal report is annexed hereto and marked as Annexure A to this additional submission." 11.1 In those circumstances, we have examined the case laws referred by both the sides. In one of the decision cited as Anand Swaroop Khandelwal, 171 Taxman 450 (Del.), it was found that the assessee had acted as a bailee and at no point of time found the bullion was passed over to the assessee. In that case, the Revenue Department was not in a position to establish that the assessee had received the possession of the bullion as an actual buyer. So it was held that the transaction question being not a purchase and sale of the assessee in his own r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law and on facts in confirming the estimated total unaccounted income at Rs. 36,083/- for the year under consideration. 2. Ld. C1T(A) has erred in law and on facts in confirming the action of learned AO in levying interest under Sec.234A/B/C/D of the Act. 3. Ld. CI'I'(A) has erred in law and on facts in confirming the action of learned AO in initiating penalty under section 271(l)(c) of the Act without recording mandatory satisfaction as contemplated under the Act." 14. In respect of the closing stock AO in the Assessment Year for A.Y. 2007-08 dated 29.12.2008 passed u/s.143(3) has held that since most of the purchases were made in the month of June and July and there was no sales recorded; hence, according to him the good purchased must be lying in assessee's godown. The AO was of the view that the purchases (- minus) sales was the closing stock must be lying with the assessee. He has computed the value of the closing stock at Rs. 20,02,602/- and taxed in the hands of the assessee. 15. When the matter was carried before the First Appellate Authority, learned CIT(A) has deleted the addition as per the following observation: "In respect to A.Y.2007-08 the AO had noted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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