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2015 (9) TMI 72 - GUJARAT HIGH COURT

2015 (9) TMI 72 - GUJARAT HIGH COURT - TMI - N.P. estimation - Tribunal applied net profit ratio of 5.2% - Held that:- We are in complete agreement with the view taken by the learned tribunal as well as learned CIT(A). When the evidences of total expenditure or purchase were not available with the revenue and consequently the assessee as well as A.O. both decided to determine the income by applying a reasonable estimate of profit and that estimation was found very near to the income offered by t .....

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as not definite about the said stock; hence, no authentic finding was given but it was held by him that there might be stock in godown. We, therefore, hold that in such a situation learned CIT(A) was correct in deleting the addition which according to him was based upon conjecture only.- Decided against revenue.

Application of provisions of Section 40(A)(3) of the Act becomes infructuous, as once the question No.1 is held against the revenue and the judgement and order passed by the l .....

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titions, and as such all these appeals arise out of the common judgement and order passed by the learned Income Tax Appellate Tribunal, "A" Bench, Ahmedabad ("hereinafter referred to as "the learned tribunal" for convenience) in the case of the very assessee but with respect to different Assessment Years, all these appeals are decided and disposed of by this common judgement and order. 2.00. Feeling aggrieved and dissatisfied with the impugned common judgement and order .....

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sake of convenience, facts for A.Y. 2001- 2002 are narrated and considered :- 3.01. In Tax Appeal No.235 of 2015, which is arising out of the judgement and order passed by the learned tribunal in IT(SS) No.594/Ahd/2010 for A.Y. 2001-2002, the revenue has proposed the following substantial questions of law :- "(A) Whether the Appellate Tribunal has substantially erred in applying net profit ratio of 5.2% for A.Y. 2001-2002, 2002-2003 & 2003-2004 since no estimation of profit is required .....

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leading to the present Tax Appeal No.235 of 2015 for A.Y. 2001-2002 in nutshell are as under:- 4.01. That the assessee firm is in the business of coal trading. A search was conducted on Dosani Group on 4/8/2006. In compliance of a notice under section 153A, a return was filed by the assessee on 7/8/2008 declaring income at ₹ 80,82,090/-. That consequences upon a search 4 Kachcha Note Books marked as Annexure-A/2, A/3, A/5, & A/8 were seized. It was found that the assessee was daily rec .....

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r Books of Accounts. Therefore, after the search, in addition to the income as per the original return, the return filed in compliance of notice u/s. 153A the unaccounted transaction was also offered of respondents.14,85,000/-. 4.03. That the assessee adopted an estimation profit @ 5% on the unaccounted cash sales of ₹ 2,96,89,000/-. It appears that those accounted cash sales were also found recored in the seized Kachcha Note Book. The A.O. was not in agreement of estimation of income @ 5% .....

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worked out profit at ₹ 16,15,803/- which was also held as unaccounted profit and accordingly tax in the hands of the assessee. That in the subsequent years the same pattern was followed by the A.O., however, in the A.Y. 2002-2003 & A.Y. 2007-2008, as loss was computed. 4.05. That in an appeal the learned CIT(A), who was deciding appeals of all the years prepared consolidated chart of the profit ratio as calculated by the A.O. vis-a-vis 5% profit shown by the assessee, was compared in .....

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% 4.06. That in addition of the above chart, the learned CIT(A) also compared income disclosed by the assessee with the income declared as per the original return which reads as under :- A.Ys. Original Returned Income 5% Income on credit entries in seized records declared by appellant Profit rate as per A.O.'s calculation Income Returned u/s 153A 2001-02 2,97,090 14,85,000 1,00,000 18,82,090 2002-03 2,83,264 17,86,000 1,25,000 21,94,264 2003-04 3,29,700 14,58,000 4,50,000 22,37,700 2004-05 6 .....

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ned CIT(A) also found that the aforesaid was apart from the income of ₹ 11.25 Lacs further disclosed in the return. The learned CIT(A) also observed and found that in the notice u/s 142(1) of the Income Tax Act for different A.Yrs. The A.O. had sought details of supply of raw materials, buyers, bank accounts, unsecured loans, deposits, gifts received or given, details of movable and immovable properties, copies of capital account, partnership deed etc. and also required production of origi .....

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.O. Total Income 2001-02 29689000 6.50% 1929785 325749 1604036 2002-03 35711612 11.80% 4213970 1026242 3187728 2003-04 29151749 9.30% 2711112 207089 2504023 2007-08 (from 1/4/06 to 3/8/06) 4554591 3.20% 145747 109664 36083 4.09. That as the learned CIT(A) estimated the income for all years as above, the learned CIT(A) observed that the disallowances made by the A.O. under section 40(A)(3) of the Income Tax Act has been rendered infructuous and therefore, deleted. Therefore, the additions made by .....

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found and in fact as on 4/8/2006, 632 MT goods was found. 4.11. Feeling aggrieved and dissatisfied with the order passed by the learned CIT(A) in modifying the additions made by the A.O. in the respective years as above, the revenue preferred appeals before the learned tribunal, being IT(SS) No.594 to 599 of 2010 as well as 2312 of 2010 for A.Y. 2001- 2002 TO 2007-2008 and also preferred Cross Objections Nos.245 to 248 of 2010 for A.Y. 2001-2002 to 2002003-2004 and also A.Y. 200702008, in so far .....

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nal, the revenue has preferred all these appeals to consider the aforesaid questions of law. 5.00. We have heard Ms.Mauna Bhatt, learned advocate appearing on behalf of the revenue at length. 5.01. At the outset, it is required to be noted that the learned CIT(A) has reduced the gross profit to certain extent after allowing unaccounted expenses on estimation. The relevant discussion is made by the CIT(A) is in para 9(A) to 9(E). 5.02. As per the settled law, the gross profit on the unaccounted e .....

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rving in para 11 as under :- "11. We have heard both the sides at some length. We have perused the case laws as cited by both the sides. In the light of the facts of the case and the compilation filed, the admitted factual position was that a diary was seized in which the assessee has recorded the trading activity of coal which was duly recorded in the regular books of account and the return of income was disclosed on the basis of the said book results. But it was also found in the said dia .....

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modus operandi of the assessee. "4. However, the Appellant is maintaining kachcha books for another kind of activity which in the nature of commission agent. In such kind of kachcha books the Appellant maintains the details on behalf of the said parties, for whom, the coal are sold, on which the Appellant is getting only certain percentage of commission on sales. 5. The Appellant is neither required to make collection from the parties to whom coal are sold on behalf of other parties nor is .....

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transactions. The only purpose of maintaining such kachcha books was to ensure that the Appellant claims its commission on all such kind of sales of coal which were effected through the Appellant. The noting in Kachcha books does not give any profit or loss, purchase or sell data in particular. Details provided in particular format during the search operation was only on the request of the authorized persons. The ld. Assessing Officer had never issued a show cause notice seeking any clarificatio .....

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ant 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 & CO No.245, 246, 247 & 248/Ahd/10 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 .....

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'ble High Court and have noted that as per the question framed before the Hon'ble Court it was to decide that whether the Appellate Tribunal is right in law and on facts in deleting the disallowance made u/s.40A(3) holding that the exceptions to that section in Rule 6DD(j) can be applied for payments which were made in the course of a business outside the books? Thus the issue before the Hon'ble High Court was that in case the payments made outside the books an assessee can resort to .....

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the search was carried out there were no evidence of expenditure and the AO was not able to lay hands on unaccounted purchases. Because the evidence of total expenditure or purchases was not available to the Revenue Department, therefore, the assessee as well as the AO, both have decided to determine the income by applying a reasonable estimate of profit. That estimation was very close to the income offered by the assessee. Resultantly, the grounds raised for all the years by the Revenue are he .....

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e. 5.05. With respect to A.Y. 2007-2008, which was against the order passed by the learned CIT(A) deleting the amount of ₹ 20,02,612/- being the value of undisclosed closing stock added by the Assessing Officer, after considering the seized documents pertaining to assessment year under consideration, and cross objections filed by the assessee before the learned tribunal, while dismissing the appeal preferred by the revenue as well as Cross Objections preferred by the assessee for A.Y. 2007 .....

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Officer after considering the seized documents pertaining to assessment year under consideration." Grounds for A.Y.2007-08 raised by the Assessee. "1. Ld. CIT has erred in law and on facts in confirming the estimated total unaccounted income at ₹ 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. CIT(A) has erred in law and on facts in confirming .....

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the purchases (-minus) sales was the closing stock must be lying with the assessee. He has computed the value of the closing stock at ₹ 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 that the entries in the seized diaries were for the period of 01.04.2006 to 04.08.2006. Also that purchases were m .....

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04/08/2006 and inwards of 207 MT from 01/08/2006 to 04/08/2006 less outward of 14.9 MT i.e. stock of 632 MT as on 04/08/2006. If the assumption of the AO was valid in respect of A.Y. 2007-08, the stock available with the appellant should have been another 793 MT. However, such a quantity (632 MT + 793 MT) of stock was not found. Hence, the addition for unaccounted stock, was based on a conjecture and can not be sustained. It is therefore deleted and the related ground of appeal is allowed." .....

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ation learned CIT(A) was correct in deleting the addition which according to him was based upon conjecture only. Resultantly, we find no force in this ground of the Revenue; hence dismissed. 17. Now we are left with the Cross Objection of the asseesee for A.Y.2007-08. We have noted that for the assessment year 2007-08 the period was only from 01.04.2006 to 3rd August, 2006; hence, it was not for the complete financial year. Because of that reason the Revenue authorities have computed the profit .....

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