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M/s La Sonia Wines Versus ACIT, CC-41, Mumbai

2015 (9) TMI 447 - ITAT MUMBAI

Unexplained drastic variation in net profit rate - AO mentioned that considering the fact that the sales are not verifiable, it will not be unreasonable to compute the profits at the rate of 5% of the disclosed sales - Held that:- We are of the considered opinion that neither the AO nor the CIT(A) examined the books of accounts. Both of them did not pin point any defects in the books of account. Further selling its products in cash is not against the law. A different percentage of profit cannot .....

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to 2010-11 prior to the assessment u/s.153C of the Act which is the first assessment for the years under consideration, the scope of assessment expands to the original jurisdiction as well as jurisdiction conferred u/s.153A and in other words, the A.O may conclude the assessment based on the findings of the search and also on the basis of any material existing or brought on record of the A.O. In view of the above, the ground raised in this regard is not entertained. - Decided against assessee. .....

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int Commissioner of Income-tax or an Addl. Commissioner of Income-tax under sub section 1 of section 117 of the Act. In view of the above, the ground of appellant is hereby dismissed. - Decided against assessee. - ITA Nos.3163 to 3168/Mum/2015 - Dated:- 25-8-2015 - SHRI R.C.SHARMA,J. For The Assessee : Shri Satish R. Mody For The Revenue : Shri Jasbir S. Chouhan ORDER These are the appeals filed by the assessee against the order of CIT(A), Mumbai for the assessment years 2005-06 to 2010-11, resp .....

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cumentary evidence furnished by the Appellant during appellant proceedings. 2] On the facts and circumstances and in law, the learned Commissioner of Income Tax (A) - 49 totally erred in estimating deemed profit rate of 5% on the turnover u/s. 44AF of the Income Tax Act, 1961. The assessee has maintained the Book of Accounts as per section 44AA and got his Books of Accounts audited u/s. 44AB of the Income Tax Act, 1961. 3] On the facts and circumstances and in law, the learned Commissioner of In .....

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roval of the Joint Commissioner of Income Tax is absent u/s. 153C of Income Tax Act, 1961. 5] On the facts and circumstances and in law, the learned Commissioner of Income Tax (A) - 49 has erred in making addition in the net profit purely on the basis of conjecture and surmises without any supporting material and hence, it is submitted that income to be computed in accordance with Books of accounts maintained u/s.145 of the Income Tax Act, 1961. 6] On the facts and circumstances and in law, the .....

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ds of Appeal during the course of appeal. 3. Briefly stated the facts of the case are that the assessee is a firm constituted of three partners being Mr. Subhash Deshmukh, Mrs. Anu Wadhawani and Mrs. Lata Deshmukh. This firm runs a wine shop under the name and style of M/s La Sonia Wines. There was search and seizure action u/s 132 of the Act was conducted in the case of Shri Subhash Deshmukh and his other group companies alongwith the residential premises on 28.03.2011 and on subsequent dates. .....

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8, ₹ 1,65,3501- for AY 2008-09, ₹ 3,04,975/- for AY. 2009-10 and ₹ 2,26,439/- for AY. 2010-11. The assessee is engaged in the business of running a wine shop. The assessment was completed u/s 143(3) r.w.s. 153C of the Act on 11.03.2013 determining total income at ₹ 6,55,890/- for AY. 2005-06, ₹ 9,95,000/- for A.Y. 2006-07, ₹ 9,57,040/- for A.Y 2007-08, ₹ 8,95,850/- for AY. 2008-09, ₹ 11,21,580/- for AY.2009-10 and ₹ 14,61,245/- for A.Y.2010-1 .....

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any has credited total sales of ₹ 1,12,89,203/- for A.Y.2005-06, ₹ 1,48,22,740/- for A.Y.2006-07, ₹ 1,65,11,490/- for A.Y.2007-08, ₹ 1,59,41,080/- for A.Y.2008-09, ₹ 1,94,94,500/- for A.Y.2009-10 and ₹ 2,33,04,050/- for A.Y.2010-11 against which it has shown gross profit of ₹ 10,45,557/- for A.Y.2005-06, ₹ 12,33,890/- for A.Y.2006-07, ₹ 19,93,844/- for A.Y.2007-08, ₹ 10,46,652/- for A.Y.2008-09, ₹ 13,42,019/- for A.Y.2009-10 and & .....

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in the return for A.Y.2011-12. The NP rate as worked out in all the assessment years is given as under :- 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Sales 11289203 14822740 16511490 15941080 19494500 23304050 24133710 Net profit 139512 148484 226753 165350 300616 169896 7778760 Net profit as %of sales 1.23 1.00 1.37 1.03 1.54 0.72 32.23 5.2 The AO mentioned that the assessee offered additional income in the year of search only. Hence, it cannot be said that there was no suppression .....

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05-06, ₹ 7,41,137/- for A.Y.2006-07, ₹ 8,25,575/- for A.Y.2007-08, ₹ 7,97,054/- for A.Y.2008-09, ₹ 9,74,725/- for A.Y.2009-10 and ₹ 11,65,202/- for A.Y.2010-11 being 5% of sales. Since the assessee had already shown a net profit of ₹ 1,39,512/-, 1,48,484/-, ₹ 2,26,753/-, ₹ 1,65,350/-, ₹ 3,00,616/- and ₹ 1,69,896/- for the A.Ys.2005-06 to 2010-11, respectively the addition of ₹ 4,24,948/- for A.Y.2005-06, ₹ 5,92,653/- for A.Y .....

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amp; surmises, without any supporting material; the .Ld. AO failed to note that the N.P. rate for the current year is not only higher than 'the immediately succeeding year but is higher than any of the earlier years as well as of the succeeding year. It is submitted that when earlier years' N.P. rate was accepted, addition in the current years is not justified, merely on the basis of conjectures & surmises {Ref: Inani Marbles P. Ltd. 316 ITR 125 (Raj.)}. The Ld. AO ought not to have .....

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ssessee- that is the mandate of section 145 of the Act. 2) It is submitted that, it is settled position, that when books are not rejected, no addition can be made to profit rate. Reliance in this regard is placed upon the decision of the Hon'ble Rajasthan High Court in CIT V/so Maharaja Shree Umed Mills 192 ITR 565- (Raj.). The said view was followed by the Hon'ble Tribunal in Mewar Textile Mills 64 TT J (Jp.) 502. 3) It is submitted that the assessee is subjected to tax audit and when n .....

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instances of profit rate so as to justify the addition. Further, it is settled position that profit rate addition can only be made on the basis of the assessee's own figures and that too for earlier years and not subsequent years. 5) The appellant further submits that the assumption of 5% net profit is only in the case where the conditions of Section 44AF of the Act are satisfied. In the case of the appellant since the turnover is above 40 lacs the provisions of Section 44AF are not satisfie .....

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appellant relied upon the decision of the Hon'ble Rajasthan High Court in the case of Inani Marbles (P.) Ltd.316 ITR 125, in support of its contention that once earlier years net profit rate was accepted the additions in the current years are not justified. It is also contended that the AO cannot rely upon the net profit rate of the later assessment year 2011-12 as a bench mark. In this regard, it is stated that in the case of Inani Marbles (P.) Ltd., the AO applied gross profit rate at 15% .....

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settled at 2.51 % by the highest fact finding authority i.e. IT AT, for the immediately preceding assessment year, the same was followed for the relevant assessment year 2000-01 instead of 15% GP rate. This judgement shows that GP rate of other assessment years can be adopted as a bench mark for determining the gross profit rate for the current assessment year. Nowhere in the order, the Hon'ble High Court of Rajasthan held that the gross profit rate of later year cannot be adopted. In the ca .....

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te of that he took 5% profit on turn over. The assessee further mentioned that books of accounts were properly maintained u/s.44AA and audited u/s.44AB. When this ground was raised before the ld. CIT(A), he mentioned as under :- 8.4 In the case of the appellant the AO did not use the word "the books of account are rejected", however, he proceeded to estimate the income at reasonable net profit rate, based upon the higher net profit rate disclosed by the appellant for the assessment yea .....

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rejected. Even if it is assumed that the AO failed to reject the books of account, the CIT(A) being vested with the powers of the AO can also reject the books of account and independently estimate the income based upon the material available on record. In my view, the book results cannot be relied upon since they have been found to be defective based on the disclosure made by the appellant during the course of search which resulted in admission of additional income of ₹ 75 lacs for the ass .....

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145. Method of accounting 1 (1) Income chargeable under the head" Profits and gains of business or profession" or" Income from other sources" shall be computed in accordance with the method of accounting regularly employed by the assessee: Provided that in any case where the accounts are correct and complete to the satisfaction of the 2 Assessing] Officer but the method employed is such that, in the opinion of the 4 Assessing] Officer, the income cannot properly be deduced th .....

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of any interest on securities received by him in a previous year if such interest had not been charged to income- tax for any earlier previous year.] (2) Where the 7 Assessing] Officer is not satisfied about the correctness or the completeness of the accounts of the assessee, or where no method of accounting, has been regularly employed by the assessee, the 8 Assessing] Officer may make an assessment in the manner provided in section 144. 5.7 As evident from the above section, rejection of book .....

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oks of account , it cannot be rejected. 5.9 We have considered these grounds carefully. We are of the considered opinion that neither the AO nor the CIT(A) examined the books of accounts. Both of them did not pin point any defects in the books of account. Further selling its products in cash is not against the law. A different percentage of profit cannot be adopted only because the assessee makes cash sale. We, therefore, delete the addition made by the AO. These grounds of the assessee are allo .....

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e made in the hands of the other person u/s.153A/153C, which could have been made in a regular assessment. Reliance, in this regard, is placed upon the recent decision of the Hon'ble Bombay High Court in CIT V/s. Murli Agro, Income Tax Appeal 36 of 2009, CIT VIs. Bharati Vidyapeeth ITXAl854 of 2012 dt. 12th Sept.'14 and that of the ITAT Special Bench in the case of All Cargo Global Logistics Ltd., vs. DCIT (2012) 137 ITD 287 (Mum.) (SB). The view was reiterated recently by the Hon'bl .....

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risdiction and the provision(s) of the pending assessments getting abated, would be rendered otiose. This is not the scheme of the Act as observed in SSP Aviation (2012) 252 CTR (Del) 291: (2012) 207 T AXMAN 260 (Delhi) (para 13). In view of the above the addition made on account of profit, while framing the assessment under section153C is bad in law as no incriminating material found during the course of search. 6.2 The CIT(A) observed that :- 12.4 By looking into the above observations of the .....

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s only processing of return u/s.143 (1) of the Act, the assessment made u/s.153A of the Act for the first time, the issue of change of opinion does not arise. It appears that in the case of appellant no assessment was completed either u/s.143 (3) or u/s.147 or under any other provisions of the Act except processing of the return of income u/s.139 (1) of the Act. Since no assessment was made in this case for the assessment years 2005-06 to 2010-11 prior to the assessment u/s.153C of the Act which .....

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s ground of assessee is dismissed. 7.1. In regard to Ground No.4, assessee contended that the approval of the Joint Commissioner, as mandated u/s. 153D is absent and hence the assessment is bad in law. It was further submitted that, as held by the Hon'ble Bombay High Court in 'Akil Gulamali Somji Income Tax Appeals (Lodg.) 1416- 1419 of 2012 dated 15th Jan'2013, the approval is mandatory and its absence would render the assessment null & void. 7.2. The CIT(A) observed as under :- .....

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