TMI Blog2017 (11) TMI 314X X X X Extracts X X X X X X X X Extracts X X X X ..... s ₹ 1,37.602/- on total sales of ₹ 9,92,826/- which works out to 13.85% on total sales. Therefore we direct the AO to estimate the net profit on total sales of the assessee @13.85% for the A.Y-2008-09 or to adopt the profit admitted by the assessee whichever is higher. Accordingly this ground of appeal of the assessee is partly allowed. Depreciation, interest on partners’ capital and remuneration to partners - Held that:- No information is available with regard to the depreciation claimed by the assessee, Interest on partners capital and remuneration to partners from the assessment order. On verification of Form 35, it appears that the assessee has not raised this ground before the CIT (Appeals). However, unless the partnership deed permits the interest and remuneration it is not allowable deduction. The Ld.AR also did not place any evidence regarding the claim of interest and remuneration claimed by the partners in the Return of Income. Therefore, the assessee’s appeal on interest on partners capital and the remuneration is not tenable and dismissed. With regard to the depreciation, it is statutory allowance which required to be allowed by the assessing officer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... du Group on 04.12.2007. During the course of search and seizure operations, books and documents relating to the assessee were found and seized. Hence, the assessing officer issued notice u/s 153C on 15.12.2008 for the six assessment years i.e. from 2002-03 to 2007- 08 and out of which these appeals are related to the assessment year 2007-08 and 2008-09. The assessment was completed on the total income of ₹ 30,30,392/- against the admitted income of ₹ 89,968/-. 5. Appearing for the assessee, the Ld. AR argued that the notice issued u/s 153C was invalid since no books of accounts or any other documents belonging to the assessee were found by the assessing officer in the search conducted in the premises of A.T.Rayudu Group. The Ld. AR further argued that the department has filed a paper book furnishing the satisfaction note and the seized documents found in the premises of A.T.Rayudu Group. As per the satisfaction note, the seized material was marked as Ann.ATR/B/21 vide pages 27-31 which is the foundation for recording the satisfaction of the assessing officer to issue notice u/s 153C of IT Act. The Ld. AR invited our attention to the page nos.27-31 referred above whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the notice cannot be made invalid. In both the firms, the partners are the same with slight variation in the profit share ratio. The assessing officer has duly recorded the satisfaction and at the stage of issue of notice sufficiency of the reasons is not relevant. Further, the Ld DR argued that the assessee has never contested this issue either before the assessing officer or before the Ld.CIT(Appeals). Therefore, assessing officer has assumed that the documents are belonging to the assessee and has rightly issued notice u/s 153C. The Ld. DR relied on the decision of Hon ble Gujarat High Court in the case of Rajesh Sunderdas Vaswani 76 taxmann.com 311. 7. We have heard the rival submissions and perused the material placed on record. A search u/s 132 was carried out in the case of A.T.Rayudu Group and during the course of search, loose papers were found marked as Ann.ATR/B/21, page nos.27-31. The assessing officer has recorded the satisfaction and issued notice u/s 153C of Income Tax Act. The assessee contested the validity of issue of notice u/s 153C of Income Tax Act before this tribunal. In this case, the assessee s contention was that the seized material was relating to Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that the seized material does not belong to the assessee. 8.1 As per 153C of IT Act for invoking jurisdiction, there must be incriminating material found and seized during the course of search in form of money, bullion, jewellery or the evidences indicating the inflation of e expenditure or undisclosed investments or suppression of Income.etc. As per the satisfaction note, the notice u/s 153C was issued basing on the material found and seized during the search in the residential premises of A.T.Rayudu and Group bearing No.ATR/B/21 page No.27-31. On verification of the seized material it was an account copy of the State Bank of Hyderabad bank account for the period from 08.07.2006 to 16.08.2006 which was maintained by the assessee. The Ld.AR argued that the seized material does not belong to the assessee. Though the contention of the Ld.AR is not acceptable as discussed in earlier paragraphs, on going through the assessment order passed by the assessing officer, there was no reference to the seized material in the assessment order for making any addition. The assessing officer has made the following additions in the assessment order (1) Business income estimated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... com 393. Hon ble Calcutta High court in Commissioner of Income-tax, Kolkata-III v. Veerprabhu Marketing Ltd. in [2016] 73 taxmann.com 149 (Calcutta) also expressed that Existence of incriminating material which may be found during search/requisition/survey of third party is a prerequisite for assessment of a person other than person searched. Ho ble Delhi High court on the similar facts in the case of Commissioner of Income-tax v. Refam Management Services (P.) Ltd. [2017] 80 taxmann.com 251 (Delhi) held that Proceedings initiated under section 153C against assessee in respect of assessment years 2003-04 to 2008-09 are not justified where only the document seized during search in question was a cheque book pertaining to assessee which reflected the issue of cheques during August 2008 to October 2008, relevant to assessment year 2009-10. In the judicial pronouncements cited (supra) held that in the absence of incriminating material, the assessing officer cannot invoke the provisions of power u/s 153C of IT Act. In the instant case, the seized materal was the copy of the bank account and the revenue has not established that the seized material in question was incriminating evidences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... June 2007 . The complete details of purchases, sales, other expenses and the abstract of the balance sheets as on 30.06.2007 were found during the course of survey. As per the statements found, it was noticed by the assessing officer that the total liquor sales was ₹ 9,92,826/- for the month June 2007 and restaurant sales was ₹ 1,61,886/-, profit upto May was ₹ 19,74,787/-, June Profit was ₹ 1,37,602/- and profit upto June was ₹ 21,12,389/- (Average monthly profit i.e 2112389/12=1760324/-). The entries in the above document was partially tallied with the books of accounts of the assessee. Since the above income and expenditure does not tally completely with the regular books of accounts maintained by the assessee, the assessing officer rejected the books of accounts and estimated the income at Rs,1,76,032/- per month which worked out to ₹ 21,12,384/- for the whole year and brought the same to the tax. Aggrieved by the order of the assessing officer the assessee filed appeal before the CIT(A) and the Ld.CIT(A) confirmed the addition made by the assessing officer. The relevant part of the Ld. CIT(A) order is extracted which reads as under: 8.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income. Though the net profit was shown as ₹ 1,37,602/- for the month of June and total sale of ₹ 9,92,826/-, every month sales cannot be the same. There may be ups and downs in the sales. The entire expenditure cannot be accounted in loose papers every month. The net profit arrived by the assessee for the month of June is purely an estimation without including all the expenses. Therefore, the Ld.AR argued that the assessing officer has estimated the income for the entire year on the basis of one month profit which is purely a guess work. According to the Ld. AR the addition required to be deleted 13. On the other hand, the Ld.DR argued that the assessee is engaged in the liquor trade and bar restaurant. In the liquor trade, the licence is given from June to June and in the loose sheet found during the course of survey it was noted that the profit upto June was ₹ 21,12,389/- and profit for the month of June was 1,37,602/- net of all expenses. The average net profit on the total profit per month worked out to ₹ 1,76,032/- .Therefore, the assessing officer has rightly estimated the income basing on monthly profit @1,76,032/- declared by the assessee up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not proved with tangible evidences. Though the assessee has stated that certain expenses are not recorded, he did not bring it to our notice the expenses said to be not recorded. Therefore, we hold that profit worked out by the assessee for the month of June 2007 is correct. The assessing officer estimated the yearly profit by multiplying ₹ 1,76,032/- the average monthly profit with 12 months for the assessment year 2008-09. The assessee did not furnish the true and correct financials before the AO with correct amount of sales and the profit. In the circumstances of non cooperation of the assessee the AO has no option except to estimate the profit. However the sales cannot be the same amount through the year. For the month of June 2007 the net profit was ₹ 1,37.602/- on total sales of ₹ 9,92,826/- which works out to 13.85% on total sales. Therefore we direct the AO to estimate the net profit on total sales of the assessee @13.85% for the A.Y-2008-09 or to adopt the profit admitted by the assessee whichever is higher. Accordingly this ground of appeal of the assessee is partly allowed. 15. Ground No. 4 is related to the depreciation, interest on partners capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me / investment of Sri Subba Raju AC held that the same would be considered in Subba Raju's individual assessment. However regarding capital of Pushkara amounting to ₹ 231440/ - no satisfactory explanation is offered by the assessee. The second official partner as per partnership deed Sri A Jaswant did not comply to the notices I summons issued. The amount standing in the name of Sri A.Jaswant as per books is only ₹ 14,498/ -. Hence AC after giving credit to the amount of Rs,14,498 added back ₹ 22,99,542/- in the hands of the firm for A.Y.2009-10. Against this addition it is argued by the assessee that the capital under the name of Pushakara is mythical and is shown to boost up the capital of the firm and to strengthen its financial status. In fact there is no such partner in the firm. The two partners viz., Subba Raju and Jaswant had capital balance of ₹ 7,00,867/ - and ₹ 14,498/- as on 31.03.2007. Therefore it is contended that the addition made is not based on any facts and the same should be deleted. It is also argued relying on indwell Constructions, that once the net profit is estimated no further addition is warranted. I have considered the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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