TMI Blog2021 (2) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... TMI 823 - MADRAS HIGH COURT] also held that profits of the assessee cannot be estimated without rejection of books of account. In the case of Dhakeswari Cotton Mills Ltd. Vs. CIT [ 1954 (10) TMI 12 - SUPREME COURT] held that AO is not entitled to make a pure guess work or suspicion without any reference or without any material at all. Taking into consideration of all the above aspects, in the instant case, there is no basis for estimation of income, therefore, estimation of income made without having any material is bad in law, thus, we uphold the order of the ld. CIT(A) and dismiss the appeal of the Revenue. - C.O.Nos. 16 & 17/VIZ/2020, I.T.A.Nos.181 & 182/VIZ/2020 (Asst. Years: 2016-17& 2017-18) - - - Dated:- 23-12-2020 - SHRI V. DURGA RAO, HON BLE JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, HON BLE ACCOUNTANT MEMBER Assessee by: Shri M.V. Prasad, CA. Department By: Shri D.K. Sonawal, CIT-DR ORDER PER BENCH: These appeals by the Revenue and the cross objections by the assessee are directed against the separate orders of Commissioner of Income Tax (Appeals)-3,Visakhapatnam,both dated 30/06/2020 for the Assessment Years2016-17 2017-18. Since fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compete and sustain in the market hence, he has no option except to reduce the margins in the business and incurred huge losses. The assessee also submitted that due to severe competition from big players, assessee has closed down the branches at Bangalore and Visakhapatnam. The assessee further submitted that for the A.Y. 2015-16 turnover was ₹ 121.96 crores and it has been reduced to ₹ 100.35 crores and 85.19 crores for the A.Ys. 2016-17 and 2017-18 respectively. The assessee also stated that gross profit was also reduced sharply. Apart from the above, the assessee submitted that demonetization and agitation for separate state of Andhra Pradesh and continuous protests have attributed for reduction of turnover and incurring huge losses. Fluctuation of prices also stated to be one of the reasons for lower margins. The assessee further submitted that they have purchased gold during the period of inflation which was reduced subsequently and resulted in incurring losses. The assessee further submitted that assessee maintained regular books of account which are audited and filed the returns of income with the Registrar of Companies and Income Tax well within the time. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and all the stock registers and the books of account are audited and no defects were found by the AO. Therefore, argued that the AO cannot resort for estimation of income. Ld.AR further argued that the admission given by the assessee cannot be taken as the basis for estimation of income without having any material on record. The assessee further stated that the assessee s case was covered search u/sec. 132 and no evidences were found with regard to suppression of income or any material to show that the assessee has understated the income for the impugned assessment years, therefore, argued that the addition made by the AO is bad in law, hence, requested the ld. CIT(A) to delete the addition. 5.1. With regard to admission given, ld.AR argued that there is no provision in the Act to complete the assessment on agreed basis. If a particular item or receipt or a transaction is taxable as per the provisions of the Act the same required to be taxed, whether the assessee agrees or not. The agreement or disagreement of the assessee does not come on the way of the revenue to tax the particular item which is taxable. The AO has to collect legitimate taxes, and hence, argued that legal posi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 9.81% in the A.Y. 2012-13 the net profit was decreased to (-) 8.27% in the A.Y. 2016-17 and for the A.Y. 2017-18 it was further decreased to 18.34%. Thus, the assessee declared huge losses for both the assessment years, therefore, the AO has sufficient reason to believe that the assessee has declared the losses to set off the additional income admitted by the assessee during the search to pre-empt the declarations made during the search operations. The ld.DR further argued that assessee himself has agreed for the addition to estimate the net profit @ 2.15% and admitted net profit of ₹ 2,15,27,737/- and additional income of ₹ 1,82,75,649/-for the A.Ys. 2016-17. The AO has considered the submissions of the assessee and found that there were no details of opening stock and closing stock and in absence of such details it is very difficult to ascertain whether the assessee has sold old items or new items, therefore viewed that gross profit and net profit ratio cannot be relied on. Thus, accepted the estimation of income as agreed by the assessee and completed the assessment. Ld.DR further submitted that addition was agreed by the assessee himself, therefore there is no g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 157,45,44,243 42,90,46,224 27.25 15,44,41,337 9.81 78,77,94,367 50.03 2013-14 132,91,44,299 40,32,81,324 30.34 13,16,74,716 9.91 86,89,80,246 65.38 2014-15 109,39,86,728 25,27,24,564 23.38 45,11,995 0.41 79,31,20,600 72.5 2015-16 121,96,76,057 21,89,56,440 17.95 2,61,64,539 2.15 75,62,01,248 62.00 2016-17 100,35,26,688 10,44,62,368 10.41 -8,29,97,013 -8.27 60,97,22,663 60.76 2017-18 885,19,30,587 67,21,985 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be basis for taxing the income which is not taxable. The department has to collect legitimate taxes and bring the material to support their case. In the instant case, the AO neither brought the material nor rejected the books of account to resort for estimation of income. The profit of earlier years cannot be sole indicator for estimation of income, since, there were many financial implications explained by the assessee in it s explanation. The contention of the assessee is that the admission was given on pressure and under misapprehension. If the admission is given on misapprehension or pressure, the same is invalid and assessee is free to retract and the AO has to complete the assessment on the basis of evidence collected during the assessment proceedings. In the instant case, no defect was detected and all the purchases and sales were accounted and no expenditure was found to be booked outside the books of accounts. Thus, there is no case for estimation of income. The AO simply computed the average net profit of the earlier years and issued show cause notice for estimation of income, though the assessee had explained the reasons for declining the profit. Without rejecting expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils prejudiced to estimate the income @6.26% and landed in wrong conclusion that the assessee had understated the income without any basis. On verification of the assessment order, it is also seen that the last date of hearing was 15.12.2018 which shows that all the enquiries and the assessment proceedings were completed by 15.12.2018. The assessee also placed copy of letter dated 15.12.2018 objecting for the proposed addition for estimation of income @6.26%. There was no indication of agreement for estimation of income vide letter dated 15.12.2018. It is also seen that the assessee has furnished the affidavit on 24.12.2018 before the AO, though there was no hearing. The above material placed in the paper book clearly indicate that there was undue pressure on the assessee as stated by him in the affidavit filed before the ld.CIT(A) for agreeing the addition. Thus, we are of the considered opinion that the admission was given on undue pressure and the same cannot be basis for addition. In this connection we, extract the observation of the ld.CIT(A) with regard to admission given by the assessee in page No.25 which reads as under:- 17.8) On examination of the notice U/s 142(1), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am of the opinion that the admission given by the appellant in the form of letter and affidavit is with misapprehension of law and facts. 17.11) In the case of CIT Vs. Smt. Malti Mishra (2014) 221 Taxman 25,the Hon'ble Allahabad High Court held that the legal position has been clarified as under:- Para 12 of the order:- In the instant case there is no concealment on the part of the assessee regarding the transactions. All the transactions were duly disclosed. If the income as per law is exempted, then the offer of the assessee is meaningless as the law will prevail and will supersede the offer made by the assessee. In the instant case, surrender was to buy the peace as the assessee is not an expert in income tax matter. The department cannot take the advantage of the ignorance of the assessee as per the CBDT circular No.14(XL-35)/1955 dated 01/04/1995 mentioned in PAREKH Brothers Vs. CIT 15 Taxman 539 (Ker.). In the instant case, the statement was recorded of the broker, who had confirmed the sale and purchase. No concealment was made by the assessee even then she has made an offer to treat the said income as income from other sources . The only reason for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been reflected in Form 3CD of audit report and also in the Trading account. In order to fulfill the Assessing Officer could have carried proper verification/examination of the books of account on the basis of the information furnished by the appellant. The most essential requirement for the Assessing Officer before resorting to estimation of net profit, profit, is to reject the books of account, point out the defects in the books of account u/s,145(3), irrespective of the fact that whether the appellant made case, the Assessing Officer's action in making the addition of ₹ 2,15,27,737/- by estimating the net profit @ 2.15% on the gross of ₹ 100,35,28,688/- could have gained some strength. Further, it is an tact that the appellant furnished Audit Report as required u/s.44AB enclosing thereto the details of sales and purchases, closing stock etc. Except estimating the net profit @ 2.15% on the gross turnover of ₹ 100,35,28,688/- as per the consent given by the Authorised Representative of the appellant by way of an affidavit filed during the course of assessment proceedings, the Assessing Officer has not made any worth-mentioning effort / independent verification ..... X X X X Extracts X X X X X X X X Extracts X X X X
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