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2015 (4) TMI 541 - ITAT MUMBAI

2015 (4) TMI 541 - ITAT MUMBAI - TMI - Net profit estimation - CIT(A) reducing the estimated profit of ₹ 28,84,038/- at 12.5% on a turnover of ₹ 2,30,72,304/- to 5% on turnover of ₹ 2,14,74,304/- to ₹ 10,63,715/- and to take working capital at ₹ 2,50,000/- and addition reduced to ₹ 19,95,196/- which includes unexplained expenditure of ₹ 7,21,233/- being profit from business - rejection of books of accounts - Held that:- Assessee was carrying on business .....

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jecting books of account, the AO computed the income by applying estimated net profit rate as well as made addition in respect of amount deposited in bank as well as repayment of loan effected during the year. The CIT(A) appreciated each observation of the AO and after giving detailed finding confirmed the action of the AO for rejection of the account.

On the basis of observation made by the AO in its order vis--vis details of account submitted along with the return of income the CI .....

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also confirmed on account of payment made towards the credit card. Thus, the total addition of ₹ 7,21,233/- was made u/s.69C. In sum and substance, out of total addition of ₹ 36,06,744/- made by the AO, the CIT(A) upheld the addition of ₹ 19,95,196/-. Detailed findings recorded by CIT(A) have not been controverted by department by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the finding recorded by CIT(A) resulting into part d .....

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ssee can raise a plea which is in support of CIT(A)s action. The ground taken by the assessee is not in support of CIT(A)s action but amounts to separate ground for which neither assessee has filed any appeal nor any cross objection. Accordingly, we refrain from entertaining this ground and confirm the action of CIT(A) for making addition of ₹ 4,75,616/- on account of unexplained expenditure/payment. - Decided against revenue. - ITA No.1829/M/2013 - Dated:- 31-3-2015 - Shri R.C. Sharma A .....

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#8377; 2,30,72,304/- to 5% on turnover of ₹ 2,14,74,304/- to ₹ 10,63,715/- and to take working capital at ₹ 2,50,000/- and addition reduced to ₹ 19,95,196/- which includes unexplained expenditure of ₹ 7,21,233/- being profit from business. 2. The appellant prays that the order of the CIT(A) on the above grounds be reversed and that of the Assessing Officer be restored. 2. Rival contentions have been heard and perused material on record. The facts in brief for that a .....

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survey team that the assessee is not maintaining books of accounts. During the assessment proceedings the assessee has filed tax audit report in Form 3CB & 3CD alone with Balance Sheet and P&L account. As per AO, the assessee had started business from one more shop from October 2008, situated at Shop No.1 to 5, Soham Plaza, Ghodbunder Road, Thane (West) and has not incorporated business transactions in the audited books of account. The AO observed that only a lump sum amount of ₹ .....

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n made. 4. The AO rejected books of account and estimated income by applying net profit rate at 12.5% on turnover of ₹ 2,30,72,304/-. Accordingly an addition of ₹ 28,84,038/- was made. 5. The AO also made an addition of ₹ 4,75,616/- after having the following observations; The assessee along with his two brothers has taken a loan of ₹ 80,00,000/- from India bulls to finance the above mentioned property and during the year installments amounting to ₹ 14,26,848/- are .....

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me of the business for repaying the said loan. As the assessee is not cooperating in giving details either to the department or to the authorized representative, I have no alternative but to add the amount as income of the assessee. 6. The addition of ₹ 2,45,617/- was also made after having following observations; The assessee has made credit card payments of ₹ 2,45,617/- in cash. This cash is siphoned off from business from unrecorded sales. The assessee has not filed any details as .....

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s; pounded Diary marked as Annexure A-3 11, During the Course of survey proceedings u/s 133A at CBD shop of the assessee, a red coloured diary, marked "College" was impounded and was numbered as No A-3 of the list of impounded books/documents containing pages from 1 to 188. A copy of this diary was provided to the assessee and he was asked to give details of entries on each page. The assessee did not file any details so he was again asked to give the details when his statement was reco .....

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pect of entries mode therein. On going through the diary it is seen that it records wages paid to various workers on various dates pertaining to A. Y. 2009-10. It also contains certain entries of large amount which you have not explained till date. The total of all these entries including wages works out to ₹ 41,00 lacs. In the absence of any plausible or logical explanation given by you, please explain why this amount of ₹ 41 lacs should not be added in your total income. You may co .....

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nference has been drawn as per circumstances and understanding of the case. Also the amounts are taken as per actual working based on the seized diary instead of the amount estimated in question 1 reproduced above. 11.3 Almost all the pages contain details of wages/salary paid to workers. On the top left corner of each page contains name of worker, date of joining and rate of monthly wages. Then in the page the payment of amounts on various dates are mentioned. In some of the pages date of leavi .....

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of this the assessee has shown in his books, payments towards labour charges of ₹ 3,20,523/and salary of ₹ 1,65,500/- totaling to ₹ 4,86,023/-. Therefore, the difference of ₹ 12,43,302/- and ₹ 4,86,023/- being ₹ 7,57,279/- is added as unexplained and unrecorded expenditure and added to the total income. 11.4 On page No. 6 of this diary (copy enclosed as Annexure 'II' to this order), various figures are written and totalled. The total has been worked ou .....

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ut of the unaccounted income of the assessee and added to the total income. 11.5 On page No. 4 (copy enclosed as Annexure 'III' to this order), an amount of ₹ 7,19,600/- has been written and after subtracting an amount of ₹ 1,40,000/- from this is, the net figure of ₹ 5,79,000/- has been arrived at. The assessee, when asked to explain these entries, failed to give any explanation in this regard also. These figures apparently represent the working of balance loan amount .....

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entries. Apparently, these amounts are payments made towards business at Vashi. In the absence of any information, the amount of ₹ 1,73,000/(1,60,000 + 13,000) is treated as expenditure made out of unaccounted income of the assessee and added to the total income. 11.7 To sum up the additions from page 11.3 to 11.6 which are pertaining to impounded diary works out to ₹ 33,00,879/- (Addition ₹ 33,00,879/-] 12. In order to do justice to the case and to eliminate the double additio .....

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l 40,22,112 From the above table it can be seen that the income estimated is ₹ 33,99,406/- whereas income worked out on the basis of assets acquired/liabilities squared off/investments made by the assessee is ₹ 40,22,112/-. Keeping all the facts in view and also the fact that the assessee has not kept books of accounts, the income of the assessee is estimated at Rs,40,22,112/-. After reducing the declared income of ₹ 5,15,368/- from above, the balance, amounting to ₹ 35,0 .....

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le of M/s Bikaner Sweets & Namkeen and also derived income as a partner of M/s Bikaner Sweets & Namkeen. The assessee filed its return of income on 25.09.2009, declaring Total Income of ₹ 6,15,150/-. Initially, return was processed u/s 143(1) of the Income Tax Act, 1961. A survey action u/s 133A of the Income Tax Act, was carried out at the Assessee's premises on 18.10.2010. Notice u/s 143(2) and u/s 142(1) were issued and served upon the Assessing requiring him to file details .....

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learned assessing officer the appellant is in appeal before your Honour:- 1)The learned Assessing Officer has erred in rejecting the books of accounts of the Assessee u/s 145 of the Income Tax, 1961 and by treating the business of the Assessee as manufacture without considering the facts & circumstances of the case as well as law. 2)The Learned Assessing Officer has erred in making additions of ₹ 40,22,112/- to business income on account of alleged: • Inia Bull loan repayment  .....

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ts & circumstances of the case as well as law. Since all the grounds relates to each other hence combined submission for the same is as under- The Ld.A.O. has noticed that the assessee is not maintaining books of accounts on regular basis and some of the bank accounts are not incorpated in the books of accounts maintained by the assessee and he has rejected books of accounts of the appellant. Regarding ash deposit in bank accounts, we have to submit that the assessee has two shops, one at Va .....

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60,000/- Total Rs.64,95,265/- Form the above account it is clear that for account in SBBJ, Thane duly accounted the deposits pertains to shop at Thane for which the assessee offered income income of ₹ 1,47,990/- which works out to be approx. 5% of the total deposits. Therefore sai bank account can not be treated as undisclosed bank account. Secondly accounts in NKGSB, these accounts are saving accounts in personal capacity. Since these accounts did not belongs to the business of the appell .....

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ent to supplier before depositing the net amount in the bank account can not considered against such payment. Therefore there is no need to further increase the turnover. Further the Ld.A.O. has assumed net profit @ 12.5% of the total turnover without any basis. No comparative data of other assessee engaged in the same business were provided by the Ld. AD. before taking such high NP rate. Further the assessee is offering net profit of 3% of its total turnover, therefore rate of 12.5 % is on very .....

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ing income:- 1. Payment for repayment of loan ₹ 4,75,616/- 2. Payment of credit card dues ₹ 2,45,617/- 3. Payment of wages to labourers Rs.33,00,879/- Total Rs.40,22,112/- In the above estimation the Ld. A.O. failed to note that payment on account of above expenses/liability already considered for while arriving estimation of net profit. These all payment pertains to business expenses. Hence when the A.O. is estimating Net Profit @ 12.5% then in balance 87.5% is expenses which the A. .....

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r is requested to kindly restrict the addition to only ₹ 5,48,247/- as against ₹ 35,06,744/- made by the Ld. A.O. This being our interim submission, we shall please to submit further details evidences, if any, required to your Honour in deciding the appeal." 4.2 I have considered the submission and also findings made at the time of survey. It is admitted fact that deposits made in these accounts maintained including the ones maintained in personal capacity also are from the busi .....

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to him @3% as net profit or maximum at 5% should be taken to estimate income from Thane shop. 4.3. As discussed above books of account being maintained only for Belapur branch for which no defects were found by the A.O. , I am of the view that same cannot be rejected. Simultaneously the transactions pertaining to Thane shop admittedly remained undisclosed where purchase and sales are not recorded, A.O. has rightly opted to treat the deposits as turnover of appellant's business from the same .....

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pounded material also that these expenses were unrecorded though found incurred from entries in the impounded diaries, it is not the case that they were not incurred. The, it is also noted from the bank account statement that there are withdrawals also. Hence I am of the considered opinion that entire deposits cannot be added as income of the appellant without giving effect to such expenses incurred for that very business .Since source of deposits in the bank accounts maintained as saving accoun .....

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in absence of any details maintained it can be taken at @5% . I have gone through the turnover estimated and seen that A.O. has made estimate to workout unrecorded sales at ₹ 1,00,000/per month per shop which is without any basis. 4.4. 4.6 I have gone through assessment folder and it is noted that an audit objection has been raised in the case over wrong estimation of turnover to the extent of ₹ 43,07,200/-. The auditor has raised the objection that A.O. has taken cash deposit of  .....

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n at ₹ 30,06,265/- which are major part of sales of Thane shop. Then cash deposits in other two undisclosed accounts are ₹ 20,29,000/- in NKGSB Bank and ₹ 14,60,000/- in PJSB Bank. In view of this, appellant was asked to reconcile the figure of turnover by taking cash deposits made in the undisclosed bank account vide letter no.CIT(A)33/Remand Report/2012-13 dated 21.11.2012, reproduced as under:- During the course of appellate proceeding you have submitted that total turnover .....

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s been taken at 20,29,000/- only. In view of the same you are asked to reconcile the cash deposit made in NKGSB bank and consequently turn over." 4.7 In response, appellant has filed reply giving name of the bank, account number, total cash deposit along with copy of bank account statement as given by the bank. Appellant has submitted that the figures have rightly been taken by them as well as A.O for the account maintained with bank PJSB, State Bank of Bikaner, NKGSB Co-op Bank CD/5437. As .....

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ed by the A.O. at ₹ 2,12,72,304/- is taken at ₹ 2,14,74,304/-. Accordingly, addition on this count which includes the estimated profit at 5% on the turnover is worked out to ₹ 10,63,715/. 4.8. Further, as this branch was opened at Thane during the year only and after lapse of six months of the previous year, an addition for the amount required as working capital to be made. It is noted that A.O. has not taken into account the working capital requirement for the business of the .....

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Co-op. Bank, Saving Account in the name of Assessee 20,29,000 4 Parship Janta Sahakari Bank, Saving Account in the name of Assessee 14,60,000 5 Turnover declared by the Assessee 1,47,77,039 Total turnover 2,15,22,303 Net profit (5%) of the total turnover) 10,76,115 Less:- Income already offered by the appellant 5,15,368 5,60,474 4.9. I have gone through the same. The appellant has shown total turnover of ₹ 2,15,22,303/- out of which amount invested to start the business at Thane has been t .....

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hus addition this count which includes the estimated profit at 5% on the turnover worked out, which comes to ₹ 10,63,615 along with working capital of ₹ 2,50,000/- an amount ₹ 13,13,715/- has to be made. 4.10 Further as there is a finding in survey that expenses did include some expenses for non -business purpose only, same have to be looked into, which the appellant says have all been taken into account while offering 5% profit. I am not in agreement with appellant on this iss .....

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be made. Here in the case during survey itself, it was found that there were non-business expenses also incurred by the appellant thought not recorded and exact amount with specific details of these two expenses are available also, I am of the opinion that same should be disallowed straightway instead of enhancing the percentage of profit; especially when no comparables have been made available. In view of this, the payment found to have been made to India Bull an amount of ₹ 4,75,616/- b .....

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to workout unrecorded sales at ₹ 1,00,000/- per month per shop is not tenable, on the other hand having found that such expenses are done form such unrecorded sales and balance only is deposited in these bank accounts, I am of the considered opinion that same being not forming cash deposited in these accounts and hence forming part of the turnover on which estimate has been made, cannot cover these unrecorded expenses and so they have to be added u/s. 69C of the Act separately. As a result .....

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ered rival contentions, carefully gone through the orders of the authorities below and found from the record that assessee was carrying on business of sweet and namkeen. During the year under consideration there was survey at the business premises of the assessee in which it was found that assessee was not maintaining proper books of account. It was found that assessee was having bank account which were not disclosed in the return of income. It was also found that the assessee has taken some loa .....

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t. On the basis of observation made by the AO in its order vis-à-vis details of account submitted along with the return of income the CIT(A) found that total sale of the assessee was ₹ 2,12,72,304/-. After applying net profit rate on total sales, the net profit was worked out at ₹ 10,63,615/-. The CIT(A) also worked out working capital requirement at Thane Shop at ₹ 2,50,000/- on the basis of 15 days cycle in procurement of raw material and sale of products. The CIT(A) a .....

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