TMI Blog2015 (12) TMI 766X X X X Extracts X X X X X X X X Extracts X X X X ..... tion the specific objections pointed out by the Assessing Officer (extracted supra) as well as finding of the Commissioner of Income Tax(A), we are of the view that assessee failed to establish the existence of AOP. This line of argument has been taken after the survey during the assessment proceeding. Thus, the income from the 25 benami unaccounted accounts is to be assessed in the hands of Shri S.N. Rathi, individual. - Decided against assessee. Computation of profit from the benami bank account - Held that:- In assessment order relates to the issue, as to why alleged books of accounts should not be rejected. But after rejection of the books, the ld. Assessing Officer failed to substantiate his conclusion for computing the profit at @ 10% of the turnover. Taking into consideration the finding of the Commissioner of Income Tax(A), we do not see any reason to interfere in his orders in all the assessment years. Thus, grounds of appeal of the assessee as well as by the revenue on this issue, in all these assessment years are rejected. The Ld. Assessing Officer shall compute the profit from the benami bank accounts @ 2.45% of the turnover and assessed it in the hands of Shri S.N. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Assessing Officer has worked unexplained investment of ₹ 28,57,013/-. In principle, we agree with the Assessing Officer that addition on account of unexplained investment for initiating the business has to be made but the telescoping of the unexplained income assessed in the hands of assesse for Assessment Year 2003-04, 2004-05 + additions made on account unexplained investment initially made in Assessment Year 2003-04 has to be granted. Ld. Assessing Officer shall give credit of ₹ 4,64,196/- + ₹ 3,41,942/- i.e. the peak investment and income for Assessment Year 2003-04. He shall further give credit of ₹ 14,53,727/- i.e. the income assessed for Assessment Year 2004-05. After setting these amounts against ₹ 28,57,013/-, he shall make addition of remaining amount in this Assessment Year on account of peak investment. In Assessment Year 2006-07, Assessing Officer has made addition at ₹ 27,37,624/-. Ld. First Appellate Authority has confirmed this addition. The assessee is in appeal. We agree in principle with the Commissioner of Income Tax(A) that initial investment made by the assessee has to be added as unexplained investment of the assesse. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance can be made in this year. - Decided in favour of assessee Charging interest u/s. 234B and 234C for the fault of advance tax - Held that:- The moment Assessing Officer has changed status of taxability, then, the credit of taxes paid in one entity ought to be given to the entity in whose hand income is ultimately taxed, we have upheld the action of Assessing Officer that income from unaccounted transaction ought to be assessed in the hands of Shri S. N. Rathi (individual) because assessee failed to establish the existence of any AOP. In these circumstances, the credit of taxes paid in the status of AOP deserves to be given to the assessee. Therefore, we set aside this issue to the Assessing Officer with direction that ld. Assessing Officer shall re- examine this issue after hearing the assessee. This ground of appeal is allowed for statistical purposes in all the assessment years. - 2037/Ahd/2008, 2038/Ahd/2008, 2039/Ahd/2008, 2673/Ahd/2009, 2807/Ahd/2011, 2808/Ahd/2011, 2809/Ahd/2011. 2402/Ahd/2009, 2548/Ahd/2009, 2549/Ahd/2009, 2843/Ahd/2011, 2652/Ahd/2009, 2653/Ahd/2009 & 2654/Ahd/2009 - - - Dated:- 29-5-2015 - Shri G.D. Agrawal, Vice President and Shri Rajpal Yadav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Do Do Do 13 2843/Ahd/2011 Assessee (AOP) 2005-06 Do Do 14 2654/Ahd/2009 Deptt. Do Do Do 2. Before we embark upon an inquiry on the individual grounds of appeal taken by the respective parties in their respective assessment year, it is pertinent to take note of the brief backgrounds which will show, as to how, the issues in each appeal are inter-connected with each other. Shri Satyanarayan U Rathi is running a proprietorship concern in the name and style of Druv Prints. A survey u/s. 133A of the Income Tax Act, 1961 was carried out in Rathi Group of Cases on the 31st January, 2006 at shop no. 1288-90, 1220-21, 4358-60 and 4430-37, Radhakrishna Taxtile Market, Ring Road, Surat. 3. During the course of survey action, inventory of cash, books of account and physical stocks found were prepared. At shop No. D-1288- 1290, 25 unaccounted bank accounts maintained by the Group with Shangali Co-operative Ltd were found. The AO has na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h will take care of the dispute in these cases also. When he changed his counsel for the purpose of handing these matters before ITAT only then he was advised to file appeal against the order of Commissioner of Income Tax(A) passed in his individual cases. Therefore, he filed the appeal. He further contended that there is no deliberate attempt at the end of assessee to make the appeals time barred. Learned counsel for the assessee while taking us through the affidavit contended that in case it is found that assessee failed to explain the delay then these appeals be treated as cross objections. He further contended that issues are inter- connected in all these appeals. Ld. counsel for the assessee further contended that rule 27 of ITAT rules 1963, provides that respondent, though, he may have not appealed may support the order appealed against on any of the grounds decided against him. Ld. Authorized Representative on the other hand contended that there is huge delay of 1252 days. The assessee has not given any plausible reasoning for filing the appeal after expiry of limitation. 6. We have duly considered the rival contentions and gone through the record carefully. The orders of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed bank accounts and other material did not belong to the persons in whose names these are existing, rather they are benami accounts of assessee. The stand of the assessee, Shri S.N. Rathi is that, he along with his two brothers namely; Shri Shivprakash U Rathi and Shri Vinodkumar alias Shri Anil U. Rathi were running the business jointly. A particular account cannot be ascribed to anyone person and, therefore, the income from such unaccounted accounts and material has been offered in the hands of AOP at 2% of the turnover. For buttressing this stand, it was pleaded that some of the accounts were operated by family members and even by employees. All these three brothers had operated number of benami accounts thus it exhibits that AOP was in existence. 12. Sub-section 31 of section 2 of the Income Tax Act provide the definition of expression person , it includes I. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx II. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx III. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx IV. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx X an association of persons or a body of individuals, whether incorporated or not, Thus, the act recognizes an association of person as an individual taxable body. The questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out by the Assessing Officer (extracted supra) as well as finding of the Commissioner of Income Tax(A), we are of the view that assessee failed to establish the existence of AOP. This line of argument has been taken after the survey during the assessment proceeding. Thus, the income from the 25 benami unaccounted accounts is to be assessed in the hands of Shri S.N. Rathi, individual. This ground of appeal raised by the assessee in his appeals is rejected in all the years. 14. The next issues are common in all the four years. The learned counsel of the assessee at the time of hearing placed on record the details in tabular form exhibiting the additions made by the Assessing Officer on account of unaccounted income earned by the assessee from the benami source/benami bank accounts. The additions partly deleted by the Commissioner of Income Tax(A). The deletion has been challenged by the revenue in its appeals, whereas confirmation of additions has been challenged by the assessee in his appeals. In order to appreciate all these issues in a more scientific way, we deem it appropriate to take note of all these details. They read as under:- Addition made by AO and Reduction grante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank accounts, loose paper and other materials were found disclosing 25 benami bank accounts maintained with Shangali Co- operative Bank Ltd. The assessee, Shri S.N. Rathi had filed a return of income at 2% of the turn-over available in the benami bank account in the hands of AOP. The existence of AOP was not accepted by the Assessing Officer and income has been assessed in the hands of Shri S.N. Rathi, individual. The Commissioner of Income Tax(A) has also disbelieved the existence of AOP and upheld the assessment in the hands of Shri S.N. Rathi, individual. The grounds of appeal raised by the asssessee in his appeal, with regard to existence of AOP have been rejected by us in the forgoing paragraphs. The computation of turn-over is not in dispute. Now, the question before us is, what rate of profit to be applied on the turnover for computing the income from the benami accounts. 17. We have duly considered the rival contentions and gone through the records carefully. Section 145 has a direct bearing on the controversy, therefore, it is salutary upon us to take note of this provision. 145(1) Income chargeable under the head 'Profits and gains of business or profession' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 19. Admittedly, there are no proper books, the details are worked out from unaccounted bank accounts. Thus, income of the assessee from unaccounted bank accounts has been determined on estimate basis. This action of the Assessing Officer i.e. estimation of income has been upheld by the Learned CIT(Appeals). The next question case arises, is that what should be the estimated addition required to be made by the Assessing Officer to the income of the assessee. For this purpose, sub-section (3) of section 145 contemplates that Assessing Officer makes an assessment in the manner provided in sec. 144 of the Income-tax Act, 1961. This section reads as under: Section 144. (1) If any person - (a) Fails to make the return required [under sub-section (1) of section 139] and has not made a return or a revised return under sub- section (4) or sub-section (5) of that section, or (b) Fails to comply with all the terms of a notice issued under sub-section(1) of sec. 142 [or fails to comply with a direction issued under sub-section (2A) of that section ] or (c) Having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143, The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances of each assessee. 21. In the light of above, let us take a note of the finding recorded by the Assessing Officer for computing the profit from these accounts at 10% of the turn-over. The finding of Assessing Officer in Assessment Year 2003- 04 read as under: Why G.P. is considered and not N.P. The benami concerns were created by the assesse to earn unaccounted income and to avoid tax incidence. The assesse had not maintained books of account and details of expenses. The Designated Auditor has also observed this issue at the time audit and has made qualifying remarks reproduced in foregoing para. It is most likely the administrative and overhead expenses have been debited to account of the regular concerns. Hence, G.P. is considered as unaccounted income of the assessee earned through aforesaid benami accounts instead N.P. disclosed by the assessee at 2% and proposed at 3.51% vide his office letter dated 6.6.2006. The total unaccounted turnover of the assessee through the aforesaid unaccounted concerns is worked out at ₹ 13956827/-. Unaccounted income of the assessee on this score is worked out at 10% at ₹ 1395682/- and added to the total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereby estimating the net profit of the appellant at a higher rate of 10%. Although it is true that the report of the special auditor is not binding on the Assessing Officer but in absence of any adverse material or adverse circumstances or sufficient or satisfactory reason for rejecting or discarding the special audit report, it has to be considered and relied upon. I am also of the considered view that a special auditor appointed by the Department is a kind of arbitrator between the Department and the appellant and if the decision of an arbitrator is contested by the Department, the sanctity and credibility of such a special audit would be lost. Therefore, I hold that the Assessing Officer was not justified in adopting the net profit of the appellant @ 10% without any basis instead of @ 2.45% as reported by the Special Auditor u/s 142(2A) of the Act. Accordingly, I hereby direct the Assessing Officer that the net profit of the benami accounts should be taken at ₹ 3,41,942/- i.e. @ 2.45% of turnover of ₹ 1,39,56,827/- and the appellant get a relief of ₹ 10,53,740/-. 23. As observed earlier, whenever an adjudicator used to estimate the income, element of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s upheld the application of profit rate at 2.45%, If we weigh the reasoning assigned by the Ld. First Appellate Authority vis- -vis that of Assessing Officer in the findings extracted above, then scale would tilt in favour of Ld. First Appellate Authority, because Ld. First Appellate Authority has made reference to the comparable cases as well as the opinion of special auditor. On the other hand, Ld. Assessing Officer did not point out any comparable cases or any special material which has an influence for giving rise to such a profit. The other discussion made by Assessing Officer in assessment order relates to the issue, as to why alleged books of accounts should not be rejected. But after rejection of the books, the ld. Assessing Officer failed to substantiate his conclusion for computing the profit at @ 10% of the turnover. Taking into consideration the finding of the Commissioner of Income Tax(A), we do not see any reason to interfere in his orders in all the assessment years. Thus, grounds of appeal of the assessee as well as by the revenue on this issue, in all these assessment years are rejected. The Ld. Assessing Officer shall compute the profit from the benami bank accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ressed sale/turnover by the Assessing Officer amounts to double addition. 27. We have duly considered the rival contentions and gone through record carefully. The assessee has filed paper books, whereby the papers collected during the course of survey have been placed on record. The assesse has pointed out to the Assessing Officer that the transactions available in the loose paper were taken to the bank accounts. The Assessing Officer could not independently establish that alleged transactions collected from these loose papers are separate transactions. He has estimated the income on the basis of entries found in benami bank accounts. He has taken gross amount in those bank accounts as a turnover of the assessee. According to the Assessing Officer, certain transactions indicating the sale to unknown source, and assessee failed to give any explanation. The contentions of the assessee is that except one sale vide BF3/43 for a sum of ₹ 4,335/- all other sales are to its associate concerns. The amounts collected from these sales were taken to the bank accounts and have been considered in the total turnover. In our opinion, Ld. First Appellate Authority has appreciated the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rked the initial capital by taking a peak deposit and, therefore, to our mind ld. Assessing Officer has rightly made the addition at ₹ 4,64,196/- for Assessment Year 2003-04. The addition at ₹ 4,64,196/- is restored. 31. As far as Assessment Year 2004-05 is concerned, initial investment of ₹ 1,30,720/- has been worked out. To our mind, no addition can be made in this year because assesse has the benefit of availability of unexplained capital added in Assessment Year 2003-04 at ₹ 4,64,196/- + unexplained income from the benami account at ₹ 3,41,942/-. These two amounts can take care of the alleged unexplained investment at ₹ 1,30,720/-, therefore no addition is to be made in Assessment Year 2004-05. 32. As far as Assessment Year 2005-06 is concerned, ld. Assessing Officer has worked unexplained investment of ₹ 28,57,013/-. In principle, we agree with the Assessing Officer that addition on account of unexplained investment for initiating the business has to be made but the telescoping of the unexplained income assessed in the hands of assesse for Assessment Year 2003-04, 2004-05 + additions made on account unexplained investment initial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been filed regularly. On perusal of the accounts, Ld. Assessing Officer found that assessee has disclosed gross profit at ₹ 8,39,513/- @ 5.69% of the turnover as against GP at @ 11.34% declared in the immediately preceding year. The Assessing Officer was of the view that the GP declared by the assessee is on the lower side, therefore, he applied the GP rate of 10%, and addition of ₹ 6,36,836/- was made to the income of the assessee. 39. On appeal, Ld. Commissioner of Income Tax (Appeals) has deleted the addition. Ld. Commissioner of Income Tax (Appeals) has observed that turnover in this year has been increased to 150% to immediately preceding year which was at ₹ 53,52,843/- and the same has been increased to ₹ 14763497/-. According to Commissioner of Income Tax (Appeals), though total amount of the GP has been increased but in terms of percentage it has gone down. Ld. Commissioner of Income Tax(A) further observed that Assessing Officer failed to point out any defects in the regular books of accounts maintained by the assessee. 40. On consideration of the facts and circumstances, we do not find any error in the order of Commissioner of Income Tax (App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue is that ld. Commissioner of Income Tax (Appeals) has erred in deleting the addition of ₹ 16,195/-. This addition has been made by making the disallowance out of interest expenses. The assessee has availed unsecured loans from members of Shri Joshi and Shri Paliwal family. On the strength of the details produced by the assessee, it was contended that these loans were availed in earlier years and expenses were not disallowed in those years, therefore, no disallowance can be made in this year. On due consideration of facts and circumstances, we do not find any error in the order of Ld. Commissioner of Income Tax (Appeals) because this year assessee has not taken fresh loan from the member of Joshi and Paliwal family. The genuineness of the loans was not doubted in earlier years and expenses were allowed. Therefore, no disallowance can be made in this year. We don't find any error in the order of Ld. Commissioner of Income Tax (Appeals). This ground of appeal is rejected. In the result, appeal of the revenue in Assessment Year 2004-05 is partly allowed. 45. ITA No. 2039/Ahd/2008 (Assessment Year 2005-06), in this year, we have already adjudicated ground no. 3, 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P addition at ₹ 3,64,402/-. We find that in the regular books of assessee, assessee has disclosed a GP of 8.19% which was not accepted by the Assessing Officer. He estimated the GP at 10% and made the addition. On appeal, Ld. Commissioner of Income Tax (Appeals) has deleted this addition. In view of our finding recorded in Assessment Year 2004-05, 2005-06 on this issue, we do not find any error in the order of Commissioner of Income Tax (Appeals), this ground of appeal is rejected. In the result, this appeal is treated as partly allowed. 49. Now, we take remaining grounds of appeal in the assessee's appeals. The first common ground assesse's appeal is that ld. Assessing Officer has erred in not giving credit for taxes paid in the case of Shri SN Rathi and others (AOP). It is pleaded, when, he has assessed the income of Shri S.N. Rathi and other (AOP) in the hands of assessee (individual) then, he erred in charging interest u/s. 234B and 234C for the fault of advance tax. As observed earlier that assesse has offered the income in the status of AOP from the benami accounts, ld. Assessing Officer did not accept the existence of AOP and treated the income in the hand o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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