TMI Blog2016 (6) TMI 455X X X X Extracts X X X X X X X X Extracts X X X X ..... ve that the expenses claimed by the assessee are in the nature of semi-variable expenditure, so that they would vary with the increase in the volume, though not in linear proportion thereto. As such, to contend, as does the assessee, that its’ profit be estimated at 11.95%, i.e., as reported for A.Y. 2005-06, or justifying its results with reference thereto, is not acceptable in-as-much as the expenditure would not stand to increase in the same proportion (of sales). The turnover for A.Y. 2005-06, assuming the entire of it as of other than STBs, to our mind, represents a normative level (attained after over a decade of being in business), based on which the income for the subsequent years could be estimated. The expenditure can be said to have stabilized at 88% of the turnover. The excess turnover would therefore entail expenditure not to the extent of 88% (100-12) thereof. We estimate the same at 2/3 thereof, i.e., at say 58.66% or (say) 60%. As such, the additional turnover would entail a margin of 40%. The additional turnover (over that for A.Y. 2005-06), i.e., ₹ 17.33 lacs (Rs.79.87 lacs – ₹ 62.54 lacs) would yield a profit of 40%,while the balance turnover of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctively, filing a revised return for A.Y. 2007-08 on 16.7.2008. The assessee was examined on oath u/s.131 of the Act on 4.4.2008 by the Assessing Officer (A.O.) on various aspects of his business, apart from which he also had a business of providing internet connections (M/s. Microvision Network), besides another of service and maintenance of water purifiers (M/s. Unicom Corporation), stated to be run by his wife (refer statement, placed at PB pgs.5-9). The cable TV business was 15 years old, with a strength of about 2053 primary (main) connections and 1414 secondary (additional) connections. Some connections had to be provided free of cost which was usually to the office bearers of the housing society (whereat cable TV network facility was provided) or to other influential persons of the area, the total of such (free) connections being between 100-150. The charge per connection is ₹ 350/-, though a lesser amount is also charged. Set top boxes (purchased from Hathway) are also provided, and which have nil to nominal (Rs.200 to ₹ 300) margin. The assessment for A.Y. 2006-07 was reopened by issue of notice u/s. 148 on 25.8.2008, also issuing notice u/s. 143(2) for A.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned expenditure was, accordingly, disallowed and, confirmed on the same basis, so that, aggrieved, the assessee is in second appeal. 3. Before us, the ld. Authorized Representative (AR) would, adverting to the Question # 18 (of the assessee s deposition dated 04.4.2008) and answer thereto, contend that the assessee had made reference to a note-book containing details of unaccounted expenditure. It was, therefore, incorrect to say that the note-book being now relied upon is not reliable for the reason that no such note-book had been found during survey. The assessee had also filed a police complaint on 12.9.2007 regarding theft of various documents from his office, and which explained the non-recovery of any such note-books in survey. It is only the net income, i.e., net of expenses, that could be brought to tax. The net profit ratio, which under the circumstances becomes the only reasonable measure to estimate income, for A.Ys. 2006-07 and 2007-08, taking the total income and expenditure for those years into account, works to 11.67% and 11.28% (of the gross receipt) respectively, as against 11.95% and 9.62% for A.Ys. 2005-06 and 2008-09 respectively, since accepted u/s. 143(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... working out the undisclosed income out of the unaccounted receipts, you have deducted certain expenditure stated to be unaccounted. What type of evidence is available for the claim of such expenditure? Ans. The books impounded only contain unaccounted receipts. There is one more book for the period December 2007 to January 2008 which is produced herewith for verification. This book also contains details of expenditure incurred from time to time. The nature of expenses are such that these expenses could not be accounted in regular books of accounts. Therefore we had to keep certain collection outside books of accounts to meet such expenses. This book will be produced for further verification as and when called for. This statement by the assessee, and particularly the reference to a note-book therein, as well as its production (for verification), has not been impugned or contradicted by the Revenue in any manner. True, the nature of the unaccounted expenditure being the same, i.e., as of that accounted for, there is no justification for keeping the same outside books, and which in turn is stated to be the reason for suppression of turnover, leading the Revenue to infer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r some small disallowance Note: a Gross Receipt Includes receipt as per Profit Loss account as increased by additional receipts as per note book found in Asstt. Years 2006-07 and 2008-09 Note :b Expenses includes Expenses as per Profit Loss Account Plus expenses which are sought to be allowed now and not allowed before at Assessment CIT(A) Level in Asstt. Years 2006-07 to 2008-09. It was, during hearing, on the Bench observing a decline in the business since A.Y. 2007-08, explained by the ld. AR, that with the advent of the organized sector in the cable TV sector, the business witnessed a consistent decline and, in fact, closed down subsequently. Our first observation in the matter is that the figures reported by the assessee do not apparently match with that stated in the assessment order/s (refer para 2), and would therefore require being verified, even as we may proceed in our exercise of estimation of profit on the footing that the same represent the profits of the assessee s proprietary business (M/s. Micro Vision), i.e., taking into account all the receipts accounted and unaccounted, as well as the entire expenditure. In othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a margin, even if nominal. Secondly, the statement of no margin is qualified by the word now , and which would only indicate a reference to recent months, while here the year under reference is the financial year 2006-07. Coming, next, to the turnover by way of subscription, the assessee s operating results would first be required to be reckoned after elimination of the STB turnover, against which no profit has been admittedly disclosed by the assessee. We further observe that the expenses claimed by the assessee are in the nature of semi-variable expenditure, so that they would vary with the increase in the volume, though not in linear proportion thereto. As such, to contend, as does the assessee, that its profit be estimated at 11.95%, i.e., as reported for A.Y. 2005-06, or justifying its results with reference thereto, is not acceptable in-as-much as the expenditure would not stand to increase in the same proportion (of sales). The turnover for A.Y. 2005-06, assuming the entire of it as of other than STBs, to our mind, represents a normative level (attained after over a decade of being in business), based on which the income for the subsequent years could be estimated. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
