TMI Blog2019 (12) TMI 319X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit as offered by the assessee in its returns of income even on the unaccounted gross receipts arrived at as directed above. - ITA No. 1891/Hyd/2017 And ITA No. 2129/Hyd/2017 - - - Dated:- 4-12-2019 - Smt. P. Madhavi Devi, Judicial Member And Shri A. Mohan Alankamony, Accountant Member For the Assessee : Shri Y. Ratnakar For the Revenue : Shri Sunku Srinivasu ORDER PER P. MADHAVI DEVI, J.M.: These are the cross appeals by the assessee as well as revenue directed against the order of CIT(A) 7, Hyderabad, dated 11/09/2017. 2. Brief facts of the case are that the assessee is a partnership concern set up with the object of carrying on business in software development, training and consultancy. The department had conducted a search and seizure operation under section 132(1) on assessee's business premises as well as the residences of the partners on 31-01-2003. Consequent thereto, the Assessing Officer completed the assessment for the block period (accounting year 1996-97 to 31-01-2003) under section 158BC(c) rws 144 on 31-3-2005 determining the income at &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the block assessment were filed within the time frame and the assessments were completed (b) The date of filing return for the year 2003-04 has not expired when the search took place. M/s Vinsri InfoTech is a partnership concern consisting of two partners viz., Smt Commuri Rajeswari and her Son Mr.Srikanth. It carried on business in software training and development, consultancy and IT enabled services. Smt. Rajeswsari, Managing partner of the firm gave a general power of Attorney to Sri C. Suresh, her husband, to look after the business of the firm, to sign all contracts and to operate the bank accounts of the firm. The assessee firm from its inception has been an Income tax assessee and' has been filing its returns of income and the assessments too have been completed till assessment year 2002-03. A search and seizure, operation was conducted by the Department ~n 30-01-03 at the business premises of the firm and the residence of the partners and some account books, documents and loose papers were seized. The authorized officers also seized cash of ₹ 2, 00,000/- found in the office premises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Assessing Officer did not approve of the expenditure declared by the appellant as he felt that the expenditure was not proved except for the purchase of books and came to a conclusion that it was fit case for estimate of undisclosed income . The assessing officer estimated the income from the business at 40% of the receipts declared by the appellant. In doing so, he has taken into account the receipts of the assessment years also in respect of which the assessments have become final before the search operations. The assessing officer treated the expenditure on books purchased as capital expenditure and allowed depreciation on the cost of books and levied a tax and interest thereon at Rs. l0,08,35,185/-. The assessing officer also initiated penalty proceedings under Section 158BFA (2) and Section 27IB of the IT Act. The appellant being aggrieved of the assessment preferred an appeal before the Honourable Commissioner (Appeals) of Income Tax. The Commissioner (Appeals) of Income. Tax, Guntur, has passed the orders setting aside the assessments made by the Assessing Officer and in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 3,46,97,688 @ 60% 2,08,18,612 5. Less depreciation on books claimed for the AAY 1999-2000 2002-03 12,03,543 Total depreciation 2,20,22,155 4,37,42,203 6. Other expenditure @ 15% on Gross Profit 1,50,69,307 1,50,69,307 7. Total undisclosed income: 2,86,72,896 S.No. Description Amt in Rs. 1 Income Tax thereon @60% 1,72,03,738 2 Add surcharge @5% 8,80,187 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re filed within the time frame, and the assessments were completed (b) The date of filing return for the year 2003-04 has not expired when the search took place. 5. As regards grounds against invocation of jurisdiction u/s 158BC, the CIT(A) dismissed the same and on the issue of determination of the undisclosed income, the CIT(A) granted partial relief by observing as under: The report published by GIAN JYOTHI JOURNAL gives about net profitability of the Software Industry for different periods. It is reported by the Author of the GIAN JYOTHI JOURNAL that the average net profit came down to 11.47% in 2001 as compared to 14.06% in 1998. It also further said that the net profit ratio continued to fall in succeeding years. The net profit ratio reported by journal is across the industry average considering both loss and profit making companies. Now coming to the net profit assessed by the Assessing Officer in the order of assessment dated 23-32015 and order u/s.154 dated 14-8-2015, the net profit assessed was ₹ 4,94,91,508/- after correcting apparent mistakes in the order dated 23-32015. The net profit ratio comes to 14.77% o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the case, there is no undisclosed income at all. 3 The appellant contends that the learned CIT(A) erred in estimating the net income of the appellant at 9% of the turnover and without allowing any other expenses. The said estimate is erroneous. 4 The appellant contends that in the facts and circumstances of the case the income computation does not warrant any estimate. 5. It is contended that the inclusion of the income for asst. year 1999-2000 , 2000-01, 2001-02 and 2002-03 is erroneous as the returns of income for these asst. years were filed in time and before the search was conducted . Hence the same cannot be included as undisclosed income in the block assessment. 6 The appellant contends that (even assuming while denying) if any estimate of profit is called for, the estimate at 9% is excessive. The assessing officer as well as the learned CIT(A) failed to consider the comparable cases cited by the appellant for making the assessment. The comparable cases shown were ignored on untenable and arbitrary grounds. 7 The appellant craves leave to add to amend or alter any of the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. He referred to the copies of the income tax returns placed at pages 139 to 141 of the paper book and submitted that these are copies of the returns which are all in the custody of the search party. 8. Ld. DR, on the other hand, supported the orders of the authorities below and submitted that the CIT(A) has been more than reasonable in estimating the profit at 9% as against 14% which is the average net profit as per the Gyan Jyothi Journal which has been referred to and relied upon by the CIT(A) for the relevant period. He, therefore, prayed for upholding the order of the A.O. 9. Having regard to the rival contentions and perusing the material on record, we find that this is the second round of litigation before the Tribunal. In the earlier proceedings, the Tribunal has directed the AO to consider and bring on record, the comparable cases to estimate the income of the assessee and to recompute the undisclosed income after such an exercise. We find that the AO has called for the comparable cases from the assessee and the assessee has submitted the financial results of six companies which are as under. S. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfotek Ltd., which too has reported net profit of less than 2%. The AO has not accepted these companies as comparable cases but on his own accord also did not bring on record any comparable cases to adopt gross profit at 30% of the gross receipts. We find that the CIT(A) also has applied the net profit ratio of 14.77% of gross receipts of ₹ 33,48,73,485/- and has adopted 30% of the said receipts as gross profit and has allowed the claim of expenditure on books and other estimated expenditure to arrive at 15% of the gross profit from the gross receipts. He has, therefore, directed the AO to adopt 9% of the gross receipts as the net profit. 9.2. In the written submissions filed by the Ld.Counsel for the assessee, he submitted that the computation of undisclosed income by the AO is erroneous. At para 16 of the written submissions, he submits that the actual amount of difference as available in the first block assessment order dated 31.5.2005 for the period from 1.4.2002 to 31.3.2005 i.e. relevant to AY 2003-04, the unaccounted cash receipts as per seized receipt books and as per special contract agreement totals to ₹ 3,33,09,500/- only and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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