TMI Blog2017 (1) TMI 1813X X X X Extracts X X X X X X X X Extracts X X X X ..... TAT AHMEDABAD] relied upon by assessee, wherein it was held that only peak of debit and credit entries of the seized papers/diaries could be assessed in the hands of the assessee and there was no justification for adding the entire receipts side of the seized papers and, accordingly, there is no merit in the grounds of appeal of the Revenue with regard to this issue and, accordingly, dismissed. In the light of these facts, all the grounds of the Revenue are treated as dismissed for all the assessment years under appeal. Net profit estimation - Taking highest of the adjusted NP ratio - HELD THAT:- CIT(A) has applied uniform net profit rate of 5% for all the assessment years under appeal, which, in our view, is not correct approach as each assessment year is a separate assessment year and net profit rate of the same can be varied for assessment year to assessment year. We note that net profit ratio @ 5% for adjusted profit and loss account for each of the assessment year cannot be applied while considering net profit rate of on unaccounted sales and expenses resulting into unaccounted transaction. Therefore, the net profit rate for the relevant assessment years under appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 011-12 : On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the addition made by AO of Rs. 3,97,87,559/- on account of unrecorded and unexplained transactions appeared in LPS-14 to LPS-21 without appreciating the facts and evidences brought into light by the AO during assessment proceedings. I.T.A.No. 674/Ind/2016 A.Y. 2012-13: On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the addition made by AO of Rs. 2,95,66,927/- on account of unrecorded and unexplained transactions appeared in LPS-14 to LPS-21 without appreciating the facts and evidences brought into light by the AO during assessment proceedings. 3. The assessee has taken following grounds of appeal :- I.T.(SS)A.Nos. 117/Ind/2016 A.Y. 2008-09: On the facts and in the circumstances of the case, the ld. CIT(A)-3, Indore, erred :- 1. in holding that highest of the adjusted NP ratio which comes to 4.76 % out of the five assessment years under consideration, rounded to 5.00 % be applied at uniform rate on the Total Receipts for each of the assessment years from assessment year 2008-09 to 2012-13, resulting into addition of Rs. 32, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case, the ld. CIT(A)-3, Indore, erred :- 1. in holding that highest of the adjusted NP ratio which comes to 4.76 % out of the five assessment years under consideration, rounded to 5.00 % be applied at uniform rate on the Total Receipts for each of the assessment years from assessment year 2008-09 to 2012-13, resulting into addition of Rs. 17,58,452/- towards net profit element for the impugned year. 2. in holding that there is no justification seen in application of NP ratio as per the audited accounts on the unaccounted Total Receipts applied by the assessee while offering additional income in the return for each of the assessment years from AY 2008-09 to 2012-13 towards net profit element, more particularly when trading in agri-products (garlic onion) is the only source of income for the assessee. I.T.(SS)A.Nos. 680/Ind/2016 A.Y. 2012-13: On the facts and in the circumstances of the case, the ld. CIT(A)-3, Indore, erred :- 1. in holding that highest of the adjusted NP ratio which comes to 4.76 % out of the five assessment years under consideration, rounded to 5.00 % be applied at uniform rate on the Total Receipts for each of the assessment years from ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members of the extended family has made an ad hoc surrender of Rs. 3 crores in the name of the assessee and out of overall ad hoc surrender of Rs. 14 crores for the group at his place of residence on behalf of his family. A search and seizure warrant u/s 132 was also issued in the name of the assessee. Therefore, notice u/s 153A of the Act was issued for the assessment year 2006-07 to 2011-12, in response to which the assessee has filed the returns of income which included additional income computed as detailed below :- Particulars A.Y. 2006-07 A.Y. 2007-08 A.Y. 2008-09 A.Y. 2009-10 A.Y. 2010-11 A.Y. 2011-12 A.Y. 2012-13 TOTAL. Total of Receipts from LPS 14 to LPS 21 - - 64,749,380 70,000 8,197,821 35,169,030 29,355,236 137,541,467 Total of payments from LPS14 to LPS 21 - - 64,905,87 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 568,500 Total amount offered in regular return u/s139 - - - - - - 225,000 225,000 Total amount offered by the assessee - - - - - 7,793,500 Income shown in regular return before search 1,28,770 3,07,130 2,98,230 3,92,190 4,60,850 9,90,210 10,30,920 6. The assessee has offered an additional income and the return for assessment year 2012-13 was filed on 31.03.2013 declaring total income of Rs. 10,30,920/-, which includes an income of Rs. 2,25,000/- as voluntarily offered by the assessee. The AO noted that during the course of search, various loose papers as LPS-14 to LPS-21 were found and seized from the residential premises of the assessee, which are writing pads containing various details of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see on the above account` 6090000 500 21000 125000 0 0 Difference to be added 58815870 69500 8176821 44868759 29566927 7. The AO further noted that during the course of search proceedings, Shri Shiv Kumar Hotwani has made a disclosure of income of Rs. 3 crores in the name of Yogesh Kumar i.e. the assessee, Shiv Kumar Hotwani and M/s. Sambodhi Foods and Dehydrates and Rs. 7 crores in the name of Kamlesh Kumar Hotwani and Rs. 4 crores in the name of Prakash Chand Hotwani aggregating to Rs. 14 crores. However, on perusal of return of income filed in response to Section 153A, it was found that the assessee has offered Rs. 77,93,500/- as additional income in his return of income for the assessment year 2008-09 to 2012-13 as against undisclosed income of Rs. 3 crores admitted by Shri Shiv Kumar Hotwani on behalf of the assessee. It was explained to the AO vide letter dated 17.02.2014 that the assessee has disclosed the sum of Rs. 77,93,500/- and retracted balance surrender of Rs. 2,22,06,500/-( 3,00,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id for diesel for the tractor which the appellant uses. Amount of 30665/ - is paid to labour, details of which are written for each individual labour on the next two pages at PB 263 264. The labour is paid for sorting, grading, cleaning, shifting of the agri-goods before the sale is made. 4.5.8 After all the payment entries, amount of 98876/- is written as 'Total' which is the total amount paid on 02/10/10. From the total of receipt side amounting to 252620/-, the balance figure of 153744/- is arrived at and written as closing cash balance for the day which is then carried forward to the next date. This carry forward balance can again be verified from the page of next date at PB 265, where on the top left side, this amount of 153744/- is written. 4.5.9 From the details of amounts paid which are self-explanatory, it is evident that expenses relating to purchase/sale of agri-goods dealt by the assessee are recorded, viz. labour, mandi, hammali, kanta, diesel etc. The nature of transactions from the entries recorded directly relate to the sale/purchase (trading) business of garlic and onion of the assessee which remained to be accounted in the regular books of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total 500 Nahru 1200 Rathi Transport 300 Bano Bee 500 Anisa 300 Aabida 500 Ruksana 600 Ruksana 400 Shakira 1780 Gulam 500 Laxman 75000 Mandi 82550 Total 112989 Cash 195539 Total 120539 is the closing balance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 58064 Cash 112989 Total 4.5.14 PB 224 contains entries for payments made to each individual labour on 16/12/10, totaling Rs. 32085/- which is reflected in the above table. The same is also reproduced in typed English version Break up of labour paid for Rs. 32085 above - Amount Labour 1010 Yasmi 830 Rabiya 920 Salma 920 Shabnam 155 Mobin 415 Jambu 905 Ramkanya 1075 Sheela 1140 Manju 980 Guddi 925 Vishnu 1110 Sugan 565 Kamla 555 Lila 70 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total 4.5.17 On the payment side, 550000/- is paid for Mandi purchase and the same is realized as sale in the name of ATC (Ambika Trading Company). Amount of 120/ - has been paid for hammali (cartage). Amount of 115/ - 595/- to labour - Shyam Nahru. Amount of 700/- paid for petrol expenses. Total of payments made in the day is written at 551535/- and the closing balance of 14030/- is arrived at after considering the brought forward balance of cash of 15565/ - and sale proceeds receipt in the name of ATC. This closing balance of 14030/- is carried forward to the next date. Both the figures of brought forward cash balance of 15565/- and carry forward balance amount of 14030/- are verifiable from the pending and the next page of the seized documents at PB 152 and PB 154. 5. Seized records on the basis of which additional income was offered by the assessee are voluminous which are inventorized as LPS 14 to LPS 21. The same are on record in the paper books filed. For the purpose of computing additional income offered in the returns, the assessee had analyzed and split the transactions and entries recorded on the seized papers on the basis of dates m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd license fee, interest and depreciation would not form part of the payment of expenses incurred in the unaccounted business of trading in onion and garlic. When these expenses are excluded from the audited profit and loss account for each of the assessment year, this adjusted net profit ratio indicates profit which the assessee could have earned on the unaccounted transaction recorded in the seized papers. Therefore, the CIT(A) concluded that the real motivation for the assessee to undertake such unaccounted transaction would be to earn profits at this adjusted rates of net profit ratio. Accordingly, the ld. CIT(A) has worked out the adjusted net profit ratio after considering the adjustment of audited and profit and loss account as nil, as per the findings which have been reproduced hereunder :- 7.2 To arrive at the adjusted NP Ratio, audited Profit Loss account figures for all the five assessment years are consolidated and adjusted for the receipts and expenses which would not form part of the unaccounted business. The various items which have been considered for adjustment from the audited P L been marked as Nil in the table below. The details are tabulated as under for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Warehouse cold storage charges, rent, etc. 550,198 474,265 310,245 318,343 205,404 Harnrnali Labour Grading Charges 3,731,721 2,508,763 2,302,546 2,128,225 1,417,146 Salary Nil Nil Nil Nil Nil Insurance Nil Nil Nil Nil Nil Commission Brokerage 1,403,594 1,140,299 1,305,923 587,706 1,320,472 Travelling expenses 14,204 100,012 12,900 57,068 53,215 Telephone expenses Nil Nil Nil Nil Nil Other Taxes(mandi professi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nil Nil Interest on late TDS, VAT, CST, Mandi tax Nil Nil Nil Nil Depreciation Nil Nil Nil Nil Nil Total Expenses 12,554,028 12,640,728 10,317,385 10,188,642 6,077,232 Adjusted Net Profit 8,960,546 7,714,292 6,154,570 4,378,113 4,821,128 Adjusted N P Ratio 3.73% 2.51% 3.27% 4.76% 2.85% 7.3 From the above table it is seen that Assessment Year 2009-10 has the highest NP Ratio of 4.76% and Assessment Year 2011-12 has the lowest at 2.51 %. The average NP Ratio for all the five years comes to 3.42 %. Considering the facts and detailed workings tabulated abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome. The claim of assessee for credit in subsequent years of additional income offered in preceding years is accepted as it has been claimed by the assessee and also allowed by the Assessing Officer on the premise that the said undisclosed income of the assessee had borne the incidence of tax and therefore, would constitute his fund, even though concealed, from which he may draw subsequently for meeting expenditure or introducing amounts in his books of accounts. Reliance is placed on the decision of jurisdictional High Court of Madhya Pradesh in the case of Dharamdas Agarwal [1983] 144 ITR 143 (MP) where in following the decision of Hon'ble Supreme Court it has been held as under:- In Anantharam Veerasinghaiah Co. v. CIT [1980J 123 ITR 457 (SC), it was held that secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even though concealed, from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books. In the instant case, the Tribunal had pointed out that the additions made in previous years represented income from business outside the account books whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Less: Peak credit for preceding years already considered for addition E - - 6,61,708 - Addition for Peak Credit F=C-D-E 5,21,921 65,78,680 - Addition for Initial payments recorded on the seized documents without any cash balance in hand or cash receipts(5th 6th June 2007) D 1,39,787 - - - - Addition for Profit element on Total Receipts per adjusted NP Ratio@5% discussed above G=5% of 32,37,469 3,500 4,09,891 17,58,452 14,67,762 Total Additions H= F+D+G 38,99,177 3,500 4,09,891 83,37,132 14,67,762 Income already offered in the relevant year unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been recorded for the dates mentioned as 05/06/2007 and 06/06/2007, totaling to Rs. 1,39,787. On the same pages, there are no entries recorded for balance of cash available or of any receipts for these two dates. Accordingly, payments of Rs. 1,39,787 made on these two dates as the initial payments without the availability of cash receipts are considered for addition as unexplained expenditure. 12.4 Further, for the relevant assessment year, on 19/10/2007, the amount of peak credit is Rs. 6,61,708 which is considered for addition as unexplained expenditure. Out of this peak credit, Rs. 1,39,787 is already considered for addition towards initial payments without the availability of cash. Accordingly, the balance of Rs. 5,21,921 (6,61,708-1,39,787) is considered for addition towards peak credit as unexplained expenditure. 12.5 In the assessment year 2007-08, assessee has offered Rs. 6,00,000 in the return u/s 153A on account of discrepancies noticed post search. The total additional income offered -by the assessee in the returns filed u/s 153A for AY 2007-08 and 2008-09 is Rs. 74,22,000 (6,00,000+59,38,000+1,52,000+7,32,000) which constitutes his fund available with him, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.3 For the relevant assessment year, on 01/04/2008, the amount of peak credit is Rs.1,56,490 which gets covered by the peak credit of Rs. 6,61,708 considered in the preceding assessment year. Accordingly, no addition is made on account of peak credit in AY 2009-10. 13.4 The assessee already has a credit balance of Rs. 35,22,823 from AY 2008-09 available for set off. For the 'impugned Assessment Year 2009-10, the addition of Rs. 3,500 is considered towards undisclosed income on account of net profit. Accordingly, total of Rs. 35,19,823 (35,22,823 + 500 - 3,500) becomes available with the assessee as his funds from which he may draw subsequently for meeting expenditure or introducing amounts in his account books in subsequent years. 13.5 Though, income of Rs. 3,500 is sustained for the purpose of addition, nothing gets added to the total returned income after giving credit from the additional income already offered by and available to the assessee. 13.6 In summary, for the assessment year 2009-10, as stated above, following amount is considered for addition to the total income of the assessee Net profit @5.00 % Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Less: Credit from income already offered Rs. Rs. 4,09,891 Addition sustained Nil Addition made by the AO Rs. 81,76,821 Addition sustained Nil Relief given to the assessee Rs. 81,76,8921 14.7 Ground Nos. 2 (a) to 2 (f) are therefore allowed. 15. Assessment Year 2011-12 15.1 The income disclosed in the regular return of income is Rs. 9,90,210. Additional income of Rs. 1,25,000/- is offered on account of profit element based on NP ratio in the return filed u/s 153A. Thus total income offered in the return u/s 153A is Rs. 11,15,210. 15.2 Total receipts for the year are Rs. 3,51,69,030 on which assessee has offered net profit of Rs. 1,25,000 considering the NP Ratio of 0.35% as per the audited P L account for the year. As discussed above, considering the adjusted NP Ratio @ 5% on total receipts of Rs. 3,51,69,030, the net profit comes to Rs. 17,58,452. The assessee has offered Rs. 1,25,000 towards net profit in the return for which credit is give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscussed above, considering the adjusted NP Ratio @ 5% on total receipts of Rs. 2,93,55,236, the net profit comes to Rs. 14,67,762. The assessee has offered Rs. 2,25,000 as additional income in the return for which credit is given and the balance is considered for addition. 16.3 For the relevant assessment year, on 20/07/2011, the amount of peak credit is Rs. 71,53,418 which gets covered by the peak credit of Rs. 72,40,388 considered in the preceding A.Y. 2011-12. Accordingly, no addition is made on account of peak credit in AY 2012-13. 16.4 In A.Y. 2011-12, addition of Rs. 50,81,200 has been sustained as addition and Rs. 2,25,000 has already been offered in the current year towards as additional income, totaling to Rs. 53,06,200 which constitutes the fund available, from which the assessee may draw for meeting expenditure or introducing amounts in. his account books. 16.5 Though, income of Rs. 14,67,762 is sustained for the purpose of addition. Nothing gets added to the total returned income after giving credit from the amount of Rs. 53,06,200 as discussed above. 16.6 In summary, for the assessment year 2012-13 following amounts are considered for additions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition which has been made on the basis of seized loose papers as per LPS-14 to LPS-21. The ld. CIT DR further submitted that the assessee s father Shri Shiv Kumar Hotwani has made a surrender of Rs. 3 crores on behalf of the assessee u/s 132(4) in his statement recorded on 20.1.2012, which was not reflected in the returns of income filed. Therefore, it was urged that the retraction from the surrender during search should not have been allowed by the ld. CIT(A). The ld. CIT DR has also cited number of case laws in support of his proposition on the point of retraction of surrender by the assessee. The ld. CIT DR also submitted that since the addition of Rs. 14 crores was made on the basis of seized material. Therefore, the AO did not make separate addition on account of surrender of Rs. 3 crores made during the course of search. The ld. CIT(A) has also cited some decisions in support of his view. 17. On the other hand, the Ld. Counsel for the assessee submitted that a detailed and exhaustive submission was made before the AO vide letter dated 23.12.2013 and replies to specific queries were submitted. During the course of assessment proceedings in para 12, the AO noted vita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee on the basis of audited accounts for each year should be accepted. In support of his proposition, the ld. Authorized Representative of the assessee has also placed reliance in the case of Dharambir Hansraj Agarwal [1987] 23 ITD 589 (BOM.) and P.D. Abraham [2014] 48 taxmann.com 352 (Kerala). Without prejudice to the above, the Ld. Counsel for the assessee further submitted that as an alternate, the adjusted net profit Ratio which has been worked out by the Ld. CIT(A) for each of the assessment year may be retained and applied for that respective year instead of applying a uniform rate of 5% for all the five years. Since each year is an independent year and ought to be considered separately, the adjusted net profit ratio for that particular year may be retained and applied for that year. The Ld. CIT(A) has worked out the adjusted NP Ratio for each of the impugned year and the same ought to have been applied for the respective year instead of taking the highest net profit ratio and applying it uniformly to all the years. The Ld. Authorized Representative of the assessee also relied on the decision of Hon ble Gujarat High Court in the case of Tirupati Construction Company, [201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act was made. We find that the AO proceeded to make addition on the basis of seized loose papers LPS-14 to LPS-21. The AO considered the higher figure either of the total receipts or total expenses/payments and, accordingly, made addition of Rs. 14,14,97,877/- for all the assessment years under appeal as undisclosed income of the assessee, without allowing the carried forward balances, set off of peak. The perusal of para 12 of the assessment order shows that as per findings of the AO LPS-14 to LPS-21 are writing pads containing various details of sale and purchase of garlic and onion and expenses. We find that the ld. CIT(A) has given a finding regarding disclosure u/s 132(4) in para 18.3 of the appellate order, wherein she has observed that disclosure made by Shri Shiv Kumar Hotwani, father of the assessee has not been linked to any incriminating documents or head of income. She further observed that after search Shri Roop Chand Hotwani, Shri Arjun Das Hotwani and Shri Shiv Kumar Hotwani on behalf of their family made various requests by letters dated 27.01.2012, 25.07.2012, 06.08.2012, 08.08.2012, 24.01.2013 and 29.08.2013 to provide the details of incriminating documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition made on the seized papers LPS-14 to LPS-21. We find from the findings of the AO as well as ld. CIT(A) that loose papers LPS-14 to LPS-21 are the writing pads on which transaction relating to sale/purchase (trading business) of garlic and onion of the assessee is recorded. We find that the assessee has worked out total receipts and total payments of each assessment year to offer additional income in returns filed u/s 153A. which has not been disputed by the AO. However, the AO did not consider the credits brought down and carried forward cash balances, peak theory and cash balance brought down and merely proceeded to make addition of higher of the total receipts or payments of each assessment year. We find that the ld. CIT(A) has elaborately analyzed the seized loose papers of each assessment year as reproduced above in this order. She also worked out adjusted net profit rate by excluding certain expenses from the audited accounts in the chart given by her in the finding as reproduced above and applied net profit rate @ 4.76 % rounding to 5% uniformally for assessment years on higher of the amount of unrecorded total receipts/payments seized and after allowing peak, set off of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the same can be varied for assessment year to assessment year. We also find that ld. CIT(A) has worked out adjusted N.P. rate by excluding audited accounts, at 2.85%, 4.76%, 3.27%, 2.51% and 3.73% for assessment years 2008-09, 2009-10, 2010-11, 2011-12 and 2012-13, respectively. We find from the alternative submission from the ld. Authorized Representative of the assessee that adjusted net profit rate for each assessment year should be adopted. We note that net profit ratio @ 5% for adjusted profit and loss account for each of the assessment year cannot be applied while considering net profit rate of on unaccounted sales and expenses resulting into unaccounted transaction. Therefore, the net profit rate for the relevant assessment years under appeal as worked out by the ld. CIT(A) after analyzing transaction from each year would be most appropriate to apply for working out net profit on account of unaccounted sales for the respective assessment years. Therefore, we are of the considered opinion that adjusted net profit rate pertaining to concerned assessment years as worked out by the ld. CIT(A) for each assessment year under appeal would be reasonable to apply while calculatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,68,069 8,82,743 10,94,950 Total Additions H= F+D+G 25,07,065 3,332 2,68,068 74,61,423 10,94,950 Income already offered in the relevant year under consideration I 68,22,000 500 21,000 1,25,000 2,25,000 Income already offered in the preceding year available as credit from preceding year J 6,00,000 49,14,935 49,12,103 46,65,035 26,71,388 Total of above K = I + J 74,22,000 49,15,435 49,33,103 47,90,035 28,96,388 Credit balance of income offered available for set off in subsequent years L=K-H 49,14,935 49,12,103 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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