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Prakash Bhagwandas Versus Income-tax Officer, Ward-5 (3) , Surat.

2016 (4) TMI 554 - ITAT AHMEDABAD

Presumptive computation of profits for taxation for business - taxing the peak amount - presumptive profit u/s 44AD/44AF - Held that:- A sum equal to 8% of gross receipts can be shown by assessee for being engaged in the work of exhibition of work contract (civil construction work) and as per the provisions of section 44AF when assessee is engaged in a retail business then a sum equal to 5% of the total turnover can be shown as income if the total income as per the books of accounts is less than .....

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of labourers on the sarees. On the other hand, the undisclosed credit of ₹ 16,87,380/- have been pleaded by the assessee to have been carried on in the course of business of trading in sarees and dress materials and such type of business comes within the purview of provisions of section 44AF relating to profits and gains on retain business. In total the turnover of the assessee at ₹ 20,97,940/- (Rs.4,10,560/- + 16,87,380/-) has been accepted by both the lower authorities. Ld. CIT(A) .....

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r authorities as business receipts. Once the business has been established and there is a special provisions for a businessman having turnover less than ₹ 60 lacs for applying net profit @ 5%/8% of the gross turnover as the case may be then we do not find the action of ld. CIT(A) to be proper in applying 47% rate of profit. However, looking to the facts that assessee has not disclosed the turnover routed through State Bank of India, Surat in its regular books of account then it will be jus .....

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ccount for the very reason that the impugned bank account was not disclosed in the return of income filed. We, therefore, quash the order of ld. CIT(A) and sustain the additions made by the Assessing Officer at ₹ 2,18,249/-.- Decided partly in favour of assessee - ITA No.1873/Ahd/2013 - Dated:- 2-3-2016 - Shri Rajpal Yadav, JM, & Manish Borad, AM. For The Appellant : Shri Mehul Shah, AR For The Respondent : Sri Vilas V. Shinde, DR PER Manish Borad, Accountant Member. This appeal of the .....

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turnover of ₹ 16,87,380/- as claimed by the assesses and by taxing the peak amount. 2. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income Tax (Appeals) has erred in further enhancing the income by Rs. j 5,76,2897- by estimating net profit @ 47% on turnover of ₹ 16,87,3807- as unaccounted' job work profit. 3. It is therefore prayed that above addition made by assessing officer and confirmed by Id. Commissioner of Income Ta .....

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24.1.2011 declaring total income of ₹ 2,49,042/-. The case was selected for scrutiny assessment and notice u/s 143(2) of the Act was issued on 25.8.2010. As per AIR information assessee had deposited ₹ 16,87,380/- in the bank account held with SBI, Sosyo Circle Branch, Surat and this bank account was not disclosed by the assessee in his books of account. On being asked by the Assessing Officer about the reason for not disclosing these transactions of ₹ 16,87,380/- (by cash as .....

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edit of ₹ 16,87,380/- which works out at ₹ 1,34,990/- and accordingly added the same to the income of the assessee. Also there was a minor addition of undisclosed bank interest of ₹ 569/- and overall total addition of ₹ 2,18,249/- was made and income of the assessee was assessed at ₹ 3,82,350/-. The assessing officer did not accept the revised return filed under section 139(5) of the Act because the return was revised after the processing of return u/s 143(1) of the .....

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t ' is not in accordance with law. The assessment in this case has been completed u/s 143 (3) on 22.10.20) I und u/s !39(5) of the Act, the appellant had time to file revised return of income till 30.03.2011. However, treating the return of income filed on 24.01.2011 as valid does not mean that profit disclosed therein in respect of deposits of Rs .16, 87, 380/- is correct. 7.2 The section 44AF provides for 5 % of the total turnover to be taken as * Profit; and Gains " or " Profess .....

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t was never disclosed to the department, till a notice u/s 143(2) was issued apart from notice u/s 142(1) asking for various details from the appellant. 7,3 In the revised return filed, the appellant claimed that the deposits in undisclosed bank account are sales proceeds of unaccounted trading business. However, no evidence of existence of said retail trade has been furnished . As mentioned earlier, most of the withdrawals from the bank account are ATM withdrawals, while most of the deposits ar .....

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l business and the correctness of turnover shown. Once the existence of retail business is established and the correctness of turnover is also established, the profit can be taken at 5% of the turnover provided the business does not exceed ₹ 40,00,000/-. 7.5 In the case of the appellant, he failed to establish any evidence regarding existence of retail trade. Therefore, the deposits made in the undisclosed bank account either represent "undisclosed job work receipts' of the appell .....

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he so called ATM withdrawals represent expenditure, the most reasonable view , which can be taken in this case is an estimation of net profit at 47% of ₹ 16, 87,3807-. Therefore, the two additions made of Rs. I, 34, 990/- and ₹ 82,690/- are replaced by an addition of ₹ 7,93,969/- and the assessment is enhanced accordingly. 7,6 In this case, separate penalty proceedings are not being initiated, for the reason that the A.O has already initiated penalty proceedings, u/s 271 (1)(c. .....

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of jari labour income and in the year under appeal he has filed his return of income showing business income from jari labour income and the same has not been controverted by the Revenue. In other words it has been accepted by the Revenue that assessee is engaged in the business. Ld. AR further submitted that all the transactions in the impugned bank account are related to business of trading sarees and labour income and few transactions are through cheques also. Therefore, ld. AR submitted that .....

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of 5 % only as provided u/s 44AF of the Act. Again he has also wrongly added an amount of ₹ 82,690/- being the .peak credit of the undisclosed bank account No, 30408683898 with State Bank of India, Sosyo Circle Branch, Surat. In connection ld. AR stated that assessee has deposited ₹ 90.000/-(Rs.40.000/- on 30-06-2008. ₹ 25,000/-. on 02-07-2008 and ₹ 25.000/- on 08/07/2008) .in the said bank account which is already debited in capital account and therefore there is no ques .....

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the said bank account of ₹ 82,690/- and the same is required to be deleted. Further in light of the .above facts the action of the income-tax Officer taking 8% net profit of total turnover of ₹ 16.87.380/- is wrong against the net profit of 5 % on such turnover declared under section 44AF of the Act and therefore, on excess profit at 3% at ₹ 50,621/-should be reduced and delted from total income. 7. In support of his claim ld. AR further relied on various decisions which are as .....

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d the orders of lower authorities. 9. We have heard the rival contentions and perused the material on record. There are two issues before us which relate to profit estimation on the undisclosed credits of ₹ 16,87,380/- and application of peak theory for undisclosed investment at ₹ 82,690/-. Undisputed facts both on the part of assessee and the Revenue are that the assessee is engaged in the business of jari labour income and he has been regularly filing its return of income as busine .....

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7; 35,33,414/-. The learned CIT(A) also confirmed the finding of the Assessing Officer that the bank account in which the aforesaid amount was deposited was not the HUF account but it was the bank account of the assessee himself. However, by observing in paras 4.2 and 4.3, the learned CIT(A) has restricted the addition to the extent of ₹ 1.80 lacs by way of business income from retail trade of the assessee. Paras 4.2 and 4.3 reads thus: "4.2. I have gone through the asst. order passed .....

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O, making application for PAN on 28.07.2009, neither getting registered under Gujarat VAT Act nor filing any returns under it, failure to furnish name and address of the suppliers in respect of Iron scrap business claimed by the appellant - all these facts clearly establish that claim of the business of HUF was an afterthought and it was rightly rejected by AO, 4.3. Now, coming to the next contention of the appellant that the transactions in the said bank a/c were related to the Iron Scrap busin .....

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al to the amounts to be paid/cheques to be cleared and the bank balance is a meager amount not exceeding ₹ 1,000/- (except in couple of instances). The manner of carrying out both credit and debit transactions clearly indicate that payments have been made to the different parties out of cash deposited which is claimed by the appellant from the sale proceeds In this view of the matter, sales (credit) will precede the purchases (debit) in the bank account. The contention of the appellant is .....

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upon the terms and conditions between the concerned parties. Therefore in the present case the contention of the appellant that the transactions in this bank a/c pertain to his business deserves to be accepted but still there would be a question of determining income in respect of these transactions. There is no evidence on record excepts the statement of the appellant with regard to the nature of business carried on by him and the details relating to the computation of income. The appellant ha .....

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he book result declared by the appellant cannot be accepted even the most of the credits (sales) are matching with the debits (purchases) which shows that the appellant has not deposited entire sale proceeds in this bank a/c. Therefore I have no alternative but to estimate income by estimating the sales. The total turnover of the appellant in this business is estimated at ₹ 36 lacs and the net income u/s 44AF would work out to ₹ 1.80 lacs. Accordingly the addition of ₹ 35,33,41 .....

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the learned CIT(A) as well as learned ITAT. The learned CIT(A) as well as learned ITAT have rightly held that the entire amount of ₹ 35,33,414/- cannot be added in the income of the assessee as undisclosed income. 10. Considering the evidence on record and the total turnover of the assessee which came to be estimated! at ₹ 36 lacs, the CIT(A) has worked out the net income of the assessee under Section 44AF to ₹ 1.80 lacs. We have no reason to interfere with the order passed by .....

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asis as referred in the provisions of section 44AD and 44AF of the Act. Before going further let us go through the provisions of these two sections :- A. Section 44AD - Presumptive computation of profits for taxation for business (Provisions as Applicable from A.Y. 2011-12, the old provisions pertaining to Section 44AD will continue to apply till March 2010) 1] Applies to: Any eligible assessee engaged in an eligible business. Eligible assessee is defined as an individual, HUF, resident partners .....

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eeding the AY 2013-14. 2] Deemed Income: 8% of the total turnover or gross receipts of the assessee on account of such business or any higher amount voluntarily declared by him shall be deemed to be his income chargeable to tax. Refer to A] Conditions and B] Computation below. Provisions of Chapter XVII C relating to Advance Payment of taxes will not apply to the eligible assessee in respect of eligible business only. - See more at: http://taxguru.in/income-tax/income-tax-provisions-related-to-p .....

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rovision. If his turnover from the above business do not exceed ₹ 40 lakhs. 2] Deemed Income: 5% of the total turnover of such person or a higher sum voluntarily declared by him shall be deemed to be his income from such business. Refer to A] Conditions and B] Computation below. Common Conditions and Computation method: A. Conditions: All deductions u/s. 30 to 38 including depreciation deemed to be allowed. No further deduction allowed under those sections. The written down value of asset .....

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count audited u/s. 44AB in respect of the above business. If the assessee wants to declare lower income than the deemed profits as calculated above, he will have to maintain the books of account as per s. 44AA and get the accounts audited as per s. 44AB irrespective of turnover if his total income exceeds basic exemption limit. B. Computation: The income calculated above shall be aggregated with income from any other business or other heads of income under the other provisions of the Income-tax .....

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ave lower relevance and usage. 12. From going through the provisions of above two sections we find that a sum equal to 8% of gross receipts can be shown by assessee for being engaged in the work of exhibition of work contract (civil construction work) and as per the provisions of section 44AF when assessee is engaged in a retail business then a sum equal to 5% of the total turnover can be shown as income if the total income as per the books of accounts is less than the presumptive profit u/s 44A .....

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forms the contractual work with the help of labourers on the sarees. On the other hand, the undisclosed credit of ₹ 16,87,380/- have been pleaded by the assessee to have been carried on in the course of business of trading in sarees and dress materials and such type of business comes within the purview of provisions of section 44AF relating to profits and gains on retain business. In total the turnover of the assessee at ₹ 20,97,940/- (Rs.4,10,560/- + 16,87,380/-) has been accepted b .....

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