TMI Blog2020 (11) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... to Section 142(2C) to suo-moto extend the period not exceeding 180 days from the date of issue of order u/s 142(2A) of the Act. Ld. A.O has acted well within his power and extended the time period and subsequently accepted the Special Audit Report dated 23.05.2014 and further completed the assessment u/s 143(3) of the Act within two months from the date of receipt of Special Audit Report. We therefore find no reason to interfere in the findings of Ld. CIT(A) and find no merit in Ground No.1 raised by the assessee. Accordingly Ground No.1 of assessee s appeal is dismissed. Estimation of net profit - Revenue has challenged the relief given by Ld. CIT(A) of having applied 1% of net profit rate as against 5% net profit rate applied by Ld. A.O on total turnover - HELD THAT:- Just because that the assessee is having 5 bank accounts and not shown in the regular books cannot be the sole basis to reject the regular books of accounts. On the undisclosed turnover the assessee has already opted and duly offered the net profit seperately but on the disclosed turnover unless the Ld. A.O points outs specific mistake or doubt about the genuineness of the purchase/sale and expenses transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent/ peak balance of undisclosed 5 bank accounts. We therefore set aside the finding of Ld. CIT(A) and delete the addition of ₹ 51,65,904/- sustained by Ld. CIT(A). Thus Ground No.3 raised by the assessee is allowed and Ground No.2 raised by the Revenue is dismissed. - ITA No.284/Ind/2018, ITA No.334/Ind/2018 - - - Dated:- 13-10-2020 - KUL BHARAT AND MANISH BORAD, JJ. Appellant by Smt. Ashima Gupta Respondent by Shri S.N. Agrawal, CA ORDER The above captioned appeals filed at the instances of the assessee and revenue pertaining to Assessment Year 2011-12 are directed against the order of Ld. Commissioner of Income Tax (Appeals)-II (in short Ld.CIT(A) ], Indore dated 15.01.2018 which is arising out of the order u/s 143(3) of the Income Tax Act 1961(In short the Act ) dated 07.07.2014 framed by ITO, Khargone. 2. Brief facts relating to this issue are that the assessee is an individual engaged in the business of cotton trading and ginning and running two proprietorship concerns namely M/s Monika Trading Co M/s White Gold Enterprises. Return of income was filed on 20.09.2011 for Assessment Year 2011-12 declaring income of ₹ 5,80,310/-. The retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee furnished copy of additional Profit Loss Account and balance sheet of both the sole proprietorship concerns and furnished revised computation of income showing income at ₹ 33,08,911/- (Original income ₹ 5,80,301 + income of ₹ 27,28,601/- offered on undisclosed turnover of ₹ 20,53,98,366/- @ 1.33%) 5. The assessing officer while passing the assessment order compued the following amount as the total income of the assessee:- S.No Particulars Amount (Rs.) 1 Net profit as estimated on total turnover @5% on ₹ 43,55,36,893/- 2,17,76,845 2 Addition on account of investment @12.50% of unrecorded turnover of ₹ 20,53,98,966/- 2,56,74,870 Gross Total Income 4,74,51,715 Less: Deduction u/s 80C 1,00,000 Total taxable income 4,73,51,715 6. The appellant assessee has preferred an appeal before the Ld. CIT(A). The Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant. (B) GROUNDS OF APPEAL AS TAKEN BY THE DEPARTMENT 1] The Ld CIT(A) has erred in directing the AO to estimate the Profit of business @1% of total turnover as against 5% of total turnover applied by the AO. In view of the Hon ble ITAT, Indore Bench decision in the case of M/s Amar Agrawal ( ITA No 611/Ind/2012 ) wherein the Hon'ble ITAT directed to apply net profit @5% of total turnover in such case. 2] The Ld. CIT(A) has erred in restricting the addition of ₹ 2,56,74,870/- made on account of profit of turnover shown in undisclosed bank accounts to ₹ 51,65,904/- being the peak unrecorded turnover, grossly ignoring the following peculiar facts:- a. Purchases made from M/s Raghu Cotton Corporation, Sutala and Anand Prasad Daliya, Warangal were itself totalling to ₹ 1.07 Cr. (Page 7 para (c) (d) of CIT(A) order. b. Cotton purchase is a seasonal activity and cannot be spread over 300 days as taken by Ld. CIT(A). c. The fact of doing unaccounted business was accepted by assessee in the inquiry proceedings. d. Set off of funds stocks in the books cannot be given while determining unaccounted investment outside books of accounts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as rejected by the assessing officer vide letter F.No ITO/ KGN/2013-14/ 4238 dt 26-02-2014 26-02-2014 4.7 The assessing officer directed the assessee to get his accounts audited from M/s Mahesh C Solanki Co, Chartered Accountants vide letter F.No ITO/ KGN/2013-14/4252 dt 26-02-2014 dt. 26-02-2014 4.8 The time allowed to the apecial auditor to submit his report by 15-04-2014 4.9 The special auditor requested to extend time for completing the special audit letter is received by the assessing officer on 23-04-2014 4.10 On the request of the special auditor, the time for completing the special audit was extended upto 15-05-2014 4.11 The speical audit report dt 15-05-2014 but the same was submitted by the special auditor on 23-05-2014 4.12 The assessment order was passed by the assessing officer on 07-07-2014 3.3] Copy of order sheet entry a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin sixty days from the date of receipt of the audit report from the special auditor. Thus, the order as passed by the assessing officer was within the time as allowed U Is 153 of the Income Tax Act. Thus, these grounds of appeal as taken by the appellant are hereby dismissed . 4.2] In ground No 4 of the appeal, the appellant has challenged the rejection of the books of account by invoking the provision of section 145[3] of the Act. It is an undisputed fact that out of 19 [Nineteen] bank accounts of the appellant, only 14 [ fourteen] bank accounts were incorporated in the books of account and five bank accounts remains to be incorporated. The appellant himself during the course of assessment proceeding produced revised books of accounts wherein all other bank accounts were duly incorporated, the books of account so produced were also referred for special audit, hence, books of account as prepared at the time of filing of the return of total income were not reliable and the books of account as produced during the course of assessment proceeding were also not reliable. The assessing officer was therefore justified in rejecting the books of account by invoking the provision of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 15.04.2014. Since the limitation for passing the order was expired on 14.06.2014 the impugned assessment order dated 07.07.2014 is barred by limitation. 12. For examining this aspect we will first go through the relevant provisions which in this case are Section 142(2A), 142(2C) and proviso to Section 142(2C) and the same are reproduced below:- Section 142(2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner or Commissioner], direct the assessee to get the accounts audited by an accountant as defined in the Explanation below sub- section (2) of section 288, nominated by the Chief Commissioner or Commissioner] in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing] Officer may require. Section 142(2C) Every report under sub- section (2A) shall be furnished by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.1 of assessee s appeal is dismissed. 14. Now we take up Ground No.2 raised by the assessee and Ground No.1 raised by the Revenue. 15. The Assessee has challenged the finding of Ld. CIT(A) who has estimated the net profit of the assessee at ₹ 43,55,368/- as against ₹ 34,08,911/- declared by the assessee. On the other hand Revenue has challenged the relief given by Ld. CIT(A) of having applied 1% of net profit rate as against 5% net profit rate applied by Ld. A.O on total turnover. With regard to this issue of application of net profit rate Ld. Counsel for the assessee referred to the following written submissions:- 1.1] The appellant had filed his original return of total income on 20-09- 2011 declaring total income at ₹ 5,80,310/-. 1.2] The net profit as declared by the appellant assessee in his both the firms are as under:- S.No Particulars Monika Trading Co [Rs] White Gold Enterprises [Rs] 1 Sales 5,77,24,480 17,24,13,447 2.1 Net Profit 1,66,660 5, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,24,381 5,13,645 20,04,225 34,08,911 2.2 % of Net Profit 0.29% 1.33% 0.79% 3.1 Consolidate Total turnover 11,21,89,3224,43 3,47,649 3.1 Consolidate Total turnover 3.2 % of Consolidated Net Profit 0.79% 3.2 % of Consolidated Net Profit 0.79% 1.6] The assessing officer applied the rate of net profit at 5% on the amount of total turnover which includes both disclosed and undisclosed turnover. However, the Ld CIT(A) while deciding the appeal restricted the rate of net profit rate at 1% as against 5% as applied by the assessing officer and 0.79% as disclosed on the amount of consolodiated total turnover by the appellant assessee. 1.7.1] The assessing officer on the basis of discrepancies as pointed out from the undisclosed bank account rejected the books of account as ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,45,282 6,05,502 2.2 % of Net Profit 1.42% 0.47% 0.57% 17. The assessee has also collected some of the audited final account of the following firms which are also regularly assessed to tax with the income tax department for the Asst Year 2011-12 and percentage of Net Profit as declared by them is as under:- S.No Particulars Mittal Industries Pawan Cotton Ind Navin Ginning Factory 1 PAN No AACFM0427D AAJFP0999G AAOPT4069Q 2 Sales 40,80,89,647 46,56,19,435 42,19,25,011 3.1 Net Profit 9,10,601 6,42,047 28,12,927 3.2 % of Net Profit 0.22% 0.14% 0.67% 18. Reliance also placed on the following decisions:- (i) Hon'ble Jurisdicitonal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porating all the bank accounts was increased from ₹ 23,01,37,927 to ₹ 43,55,36,893/-, the same is calculated as under:- S.No. Name of the Proprietorship Concern Original Additional in revised Additional in revised 1 M/s Monika Trading Co 57724480 54464764 112189244 2 M/s White Gold Enterprises 172413447 150934202 323347649 435536893 4.4.3 The appellant on the amount of total turnover as declared at the time of filing of the original return of total income and also after incorporating the revised turnover calculated as under:- S.No Particulars Monika Trading Co White Gold Enterprises Disclosed Undisclosed Disclosed Undisclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer was 0.57 . The margin of the appellant in large volume is significantly lower than the rate as provided U / s 44AF /44AD of the Act. The assessing officer while passing the assessment order applied the rate of net profit at 5 based on the decision the case of Shri Amar agrawal [ Appeal No ITA No 611/ Ind/ 2012]. The appellant deals in Agro product and the price of the product varies due to the quality of rains and soil, availability and supply of the material. Hence, net profit rate of one assessee cannot be applied in the case of other assessee. The appellant during the course of hearing also provided rate of net profit of few more concerns in the same assessment year, the same is reproduced as under:- S.No Particulars Mittal Industries Pawan Cotton Ind Naving Ginning Factory 1 PAN No AACFM0427D AAJFP0999G AAOPT4069Q 2 Sales 408089647 465619435 421925011 3.1 Net profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Net profit rate adopted by the assessee namely Shri Sitaram Agrawal (supra) was the average net profit rate accepted by the department in the earlier years and the percentage of financial expenses (Bank interest, other finance charges) already incorporated in the regular books. In these given facts the Tribunal confirmed the finding of Ld. CIT(A) and accepted the net profit rate offered by the assessee observing as follows:- 26. From perusal of the detailed finding of fact by Ld. CIT(A) and the factual aspect we observe that the Ld. A.O has only taken the basis of undisclosed bank account for rejecting the books of accounts. Nowhere in the assessment order he has pointed out any other irregularity in the regular books of accounts maintained by the assessee which are duly audited. Ld. Departmental Representative has failed to bring on record any such observation of the Ld. A.O. It is well evident that the fact of undisclosed bank account has duly been admitted by the assessee in the revised return of income and has offered the net profit @2.5% on the total transactions of the undisclosed bank account treating it as undisclosed sales at₹ 18,82,79,709/- on which net profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounts. On the undisclosed turnover the assessee has already opted and duly offered the net profit seperately but on the disclosed turnover unless the Ld. A.O points outs specific mistake or doubt about the genuineness of the purchase/sale and expenses transactions, the book results cannot be doubted. This is also a fact that the assessee has maintained quantitative details and books are duly audited. So far as the book results i.e. net profit shown in the regular books @0.29% on the disclosed turnover of ₹ 23,01,37,927/- is concerned, we are of the view that the same should be accepted and estimation of Ld. A.O applying @5% of net profit and Ld. CIT(A) @1% of net profit on the disclosed turnover is devoid of any merits. 24. Now as far as the undisclosed turnover is concerned the assessee has offered net profit of 1.33%. This net profit rate has been calculated by adding interest cost @1.03% which has been calculated by dividing the total finance charges of ₹ 23,75,168/- divided by the disclosed turnover of ₹ 23,01,37,927/-. The assessee suo-moto accepted that the bank charges have already been charged in the regular books and therefore net profit rate be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en submissions:- 2.1] The assessing officer qwhile passing the assessment order estimated the net investment at 12.5% of the Unrecorded sales as executed by the appellant assessee. 2.2] The appellant assessee having total turnover of ₹ 23,01,37,927/- in his proprietorship concerns, the amount of total turnover , cash and stock in these units are as per audited final account are as under:- S.No Name of the Firm Total Turnover [Rs] Cash Bank [ Rs] Stock [ Rs] 1 M/s Monika Trading Co 5,77,24,480 7,11,867 NIL 2 M/s White Gold Enterprises 17,24,13,447 9,61,814 2,80,89,197 23,01,37,927 16,73,681 2,80,89,197 2.3] The assessing officer while passing the assessment order estimated the amount of Investment in the unrecorded sales of ₹ 2,56,74,870/- i.e 12.5% of total unrecorded turnover of ₹ 20,53,98,966/-. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red on the basis of books of account which was before the assessing officer and also referred for Special Audit. Few dates as summarized is as under:- 2.8] That in view of the above, there was no negative balance of cash and Stock even after considering the closing bank balances of all the five bank accounts which remains to be incorporated in the regular books of account. 2.9.1] The appellant while calculating the peak has considered the following components: S.No Particulars 1 Cash as per regular books of account and as available with the assessee for his business 2 Stock of goods as per books of account and as available for sale out of book proceed of which was deposited in the bank accounts which was not incorporated in the regular books of account 2.9.2] The appellant assessee also declared additional income of ₹ 27,28,601/- on the amount of total unrecorded turnover. The said amount is also available with the appellant assessee against the peak credit if any calculated. However, in the present case, the cash balance and stock as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver. Ld. A.O took the basis of regular books of accounts and after examining the balance sheet in the case of the assessee that the assessee had employed funds to the tune of ₹ 2.88 crores and shown a turnover of ₹ 23.30 crores applied the same ratio and computed the unaccounted investment of ₹ 2.57 crores for carrying out the unaccounted turnover of ₹ 20.54 crores. Ld. CIT(A) while adjudicating this issue substained the addition to the extent of peak balance available in the 5 bank accounts on a particular date which in this case was 27.10.2010 and adopted the peak balance as ₹ 51,65,904/-. Ld. CIT(A) confirmed this addition of peak credit observing as follows:- 4.5.1] In Ground Nos 2 7 of the appeal, the appellant has challenged the addition of ₹ 2,56,74,870/- made on account of unexplained investment. The assessing officer while passing the assessment order added 1/8th of total unrecorded turnover of ₹ 20,53,98,966/- which calculated comes to ₹ 2,56,74,870/- was added to the total income of the appellant on account of unexplained investment in the business of the appellant. The appellant during the course of hearing with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble Allahabad High Court in the case of Ashok Kumar Rastogi vs CIT as reported in 100 CTR 204 has held that [ refer preamble] For recalling its finding, the Appellate Tribunal has not relied upon or referred to any document and addition of ₹ 50,000 as unexplained investment has been made merely on the basis of the sale transactions amounting to ₹ 4,24,396 estimated on the basis of documents seized in raid. Even the ITO and the CIT(A) have given the same reason for adding the aforesaid ₹ 50,000 as unexplained investment. Though the ITO is not bound the technical rules of evidence and pleadings and is entitled to consider any material which may not be technically accepted as evidence in a civil court, but he cannot make the assessment on a pure guess without reference to any evidence or material. No evidence or material has been referred to any evidence or material. No evidence or material has been referred to any relied upon for ,treating the aforesaid sum of ₹ 50,000 as unexplained investment and the only circumstance which has been referred in this connection is the estimated sale of ₹ 4,24,396. From the estimated sale it cannot necessarily be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble ITAT Indore Bench in the case of Sitaram Agrawal (supra) which was also authored by us. In this case of Sitaram Agrawal (supra) similar issue of unaccounted turnover through undisclosed bank account was there. The Ld. A.O computed the peak balance of the unaccounted bank accounts. We however confirmed the finding of Ld. CIT(A) that the addition for peak balance can be made only if it is more than the cash or stock in hand available in the regular books and profit offered as unaccounted turnover of preceeding year or years. Our relevant findings in the case of Sitaram Agrawal (supra) adjudicating this issue reads as under:- In our considered view assessee had carried out the transactions of sales and purchases with the regular parties of which some have been recorded in the regular books and some have not been recorded which are routed through the ICICI bank. This facts strongly supports the submission of the assessee that the physical stock and cash in hand in the regular books have been utilised for making unaccounted sales. It is noteworthy that the assessee is carrying out of books sales transactions in the past also and till the date of peak bank balance on 28.2.2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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