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Prabhat Jhunjhunwala Versus Asst. CIT-16 (1) , Mumbai

Estimation of the assessee’s income - unaccounted receipt - reliance of books of accounts - Held that:- The assessee’s books of accounts (including note books and other documents) would indicate the purchase or the sale price and, therefore, yield the undisclosed profit, which may be worked either on the basis of the percentage or at ₹ 250 per box. In this regard, we do note that the assessee has also stated vide his said answer that there is no margin ‘now’. This is firstly inexplicable i .....

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on 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 .....

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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 ₹ 62.54 lacs would a normative rate of 12%, i.e., at a total profit of ₹ 14.44 lacs or at a net profit of a little over 18%. To this would stand to be added, of-course, the profit on .....

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sposing the Assessee s appeals contesting its assessment u/s.143(3) r/w s. 147 and u/s. 143(3) of the Income Tax Act, 1961 ( the Act hereinafter) for the assessment years (A.Y.) 2006-07 & 2007-08 respectively. 2. The background facts of the case, which are not disputed, are that the assessee, an individual, in the business of cable TV operator under the proprietary (trade) name M/s. Micro Vision (at Mumbai-400 007), was subject to survey u/s.133A of the Act on 11.2.2008. Certain collection b .....

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07 respectively. The returns for these years, admitting a total income of ₹ 11,43,929/- and ₹ 14,14,282/- respectively had already been filed on 31.10.2006 and 31.10.2007 respectively. Vide letter dated 24.3.2008, the assessee declared an additional income of ₹ 5 lacs and ₹ 30 lacs as income from unaccounted receipts for A.Ys. 2007-08 and 2008-09 respectively, 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. .....

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o 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 is .....

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toward paid for supply of set-top boxes (STBs), and which was accepted by the A.O. as yielding no income. The unaccounted expenditure, for both the years, detailed as under, was on salary, general expenses, stores and spares, conveyance and vehicle expenses, as under: (Amt. in Rs.) Head of expenses A.Y. 2007-08 A.Y. 2006-07 Salary 5,56,190/- 4,52,500/- General expenses 3,44,420/- 3,50,500/- Stores & Spares 11,47,200/- 9,17,000/- Conveyance 2,49,050/- 2,19,500/- Vehicle Expenses 1,15,000/- 6 .....

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aim was, thus, completely un-evidenced. Even otherwise, the nature of the expenditure, claimed to have been incurred out of books, was not such as would admit bifurcation between accounted and unaccounted categories. For example, it is inconceivable that the assessee would employ separate staff for collection of unaccounted (in the regular books of account) and accounted for receipts. The assessee had already claimed his business expenditure per the regular books of account, and allowing the exp .....

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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 m .....

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on record. 4.1. The unaccounted receipt of business for both the years under reference is admitted. The Revenue has disallowed the expenditure, which the assessee states to have incurred, likewise, i.e., out of books, on the ground of the same being not substantiated, further observing that the same are only regular business expenditure, i.e., of the same nature and falling under the same heads of account where-under the accounted expenditure is booked. As such, the assessee stating of some suc .....

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o evidence qua expenditure on store and spares has also been adduced. This sums up the Revenue s case in disallowing the entire expenditure. The assessee, on the other hand, claims on the basis of the note-book (for the period December, 2007 to January, 2008) to be incurring expenditure out of books, i.e., vide answer to Q. No. 18, further stating of the same being produced herewith for verification. In fact, it justifies keeping certain collection outside books only to meet such expenditure, wh .....

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liable to in the present case. This is as there is reference to a note book containing such expenditure in answer to Q. No. 18, which we reproduce as under: Q. No. 18 While 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 20 .....

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roduction (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 that no such expenditure had in fact been incurred. The existence of the note-book is not questioned, nor is, consequentialy, its realibility .....

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xpenditure while surrendering income (at ₹ 5 lacs for A.Y. 2007- 08 and ₹ 30 lacs for A.Y. 2008-09), tacitly admitting to the unaccounted expenditure being not to the same extent as the unaccounted receipt, as it seeks to project, even justifying the existence of the latter on the basis of the former. That the assessee s books of account for each of these years, are, thus, neither correct nor complete and, consequently, not reliable for the computation of its business is, thus, admit .....

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438 932414 1108743 745708 232792 Net Profit Ratio 11.95% 11.67% 11.28% 9.62% 4.61% Status Assessed u/s.143(3) Now in Appeal Now in Appeal Assessed u/s.143(3) Before CIT(A) for 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 .....

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r 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 other words, artificial disallowance, such as u/s. 40(a)(ia), which we observe for A.Y. 2007- 08 (at ₹ 1,03,242/-/PB pgs.29, 30), which do not impact the o .....

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without any margin, yielding no income, it would imply the STB sale at ₹ 18 lacs, as in fact assumed by the A.O. That leaves a balance cost of ₹ 24.12 lacs on an admitted turnover of ₹ 47.03 lacs, implying an additional profit of ₹ 22.91 lacs (Rs.47.03 lacs - ₹ 24.12 lacs), while the assessee discloses only ₹ 5 lacs. Considering the said turnover to include STB sale at ₹ 18 lacs is presumptuous on the part of the A.O., whose case is essentially of disall .....

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. 13 of its statement dated 04.4.2008/PB pgs.5-9). The Revenue has not enquired further in the matter, so that the same is to be taken as accepted as such, so that the average margin works to ₹ 250 per box. The assessee s books of accounts (including note books and other documents) would indicate the purchase or the sale price and, therefore, yield the undisclosed profit, which may be worked either on the basis of the percentage or at ₹ 250 per box. In this regard, we do note that th .....

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ption, 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 .....

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