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TMI Blog2025 (1) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... e Deputy Commissioner of Income Tax, Central Circle- 2,Trichy ["AO] u/s.153A r.w.s 143(3) of the Income-tax Act, 1961 [Act"] is without jurisdiction, bad in law, barred by limitation and consequently erred in upholding the assessment. 2. That the Ld. CIT(A) ought to have appreciated that the approval accorded by the Range Head u/s.153D of the Act was mechanical and consequently the impugned assessment order is invalid and void ab initio. 3. That the Ld. CIT(A) erred in not quashing the assessment order since the same lacks DIN as mandated by the CBDT Circular No.19/2019 dated 14.08.2019 w.e.f 01.10.2019. 4. That the Ld. CIT(A) is not justified in sustaining the addition to the extent of Rs. 7,98,94,213/- made by the Assessing Officer towards unaccounted business income. 5. That the Ld. CIT(A) is not justified in adopting a higher percentage of 18.75% in estimating the business income of the appellant. 6. That the Ld. CIT(A) ought to have held that excess of income returned by the appellant over the income estimated by the Ld. CIT(A) shall be eligible for carry forward and set off against the income of the subsequent assessment year. 1.3 The grounds taken by the Revenue r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of filing return of income. 3.1 The Ld.CIT(A) failed to appreciate that the assessee involved in booking of bogus expenses as payment made to contractors and then receiving back the same in cash. It was seen from "Y" server which contained accounted transactions, the assessee company is making payments through banking channel to certain contractors which are claimed as expenses in the Profit and Loss account. However, in "Z" server which contained unaccounted transactions, there were entries proving that the amount have been received back in cash. In support of the above findings, scanned vouchers for payments and receipts were found uploaded in "Z" server. 3.2 The Ld.CIT(A) failed to appreciate that in the office premises of M/s.SEBCO Property Pvt Ltd and in the residence of Smt.Deepa, Finance Manager of assessee company, various cheque books in the name of different contractors were found and seized. She admitted in her sworn statement that the amounts have been received back in cash and utilized for unaccounted cash expenses. 4. The Ld.CIT(A) erred in deleting the addition of Rs. 11,33,98,384/- made towards disallowance made u/s.37(1) and 40A(3) in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books and documents were found and seized. Subsequently, a notice u/s 153A was issued to the assessee on 08-11- 2021 and in response thereof, the assessee admitted income of Rs. 134.15 Lacs on 06-12-2021. 1.6 During search, it transpired that the assessee maintained accounts in Tally in two separate servers i.e., 'Y-server' and 'Z-server'. The 'Y-server' was used for recording and maintaining regular business transactions whereas 'Z-server' contained unaccounted transactions. Both the servers were seized and analyzed. Several scanned vouchers were also found stored in digital format which endorsed the transactions recorded in Tally. These vouchers had information which corroborated the cash transactions as recorded in 'Z-server' as maintained by the assessee. Certain documents and materials were also seized which contained sale deeds, details of payments received through banking channels as well as in cash. During search, sworn statements were recorded from MD and Smt. Deepa. On the basis of all this material, various issues were identified by Ld. AO during the course of assessment proceedings. Assessment Proceedings 2.1 The Ld. AO noted that the assessee made payments to contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,073 Sale Receipts 24,74,04,661 Purchases 12,28,02,259 Chit Receipt 1040000 Z&ED Interest Payments 2,95,16,891 Other Income 2,77,66,859 Chit Payment 6,62,525 Non business exp. 2,05,95,235 Revised Profit 50,29,97,590 As per RoI 1,32,84,429 Undisclosed income 48,97,13,161 Computation of Assessed Income For AY 2017-18 Particulars Amt Rs. (1) Total income as per Return filed u/s.139 1,34,15,910 (1a) Additional income offered as per Return filed u/s.153A Nil (2) Total income as per Return filed u/s.153A 1,34,15,910 Add: additions as discussed above (3) Undisclosed income (as per para 7.1) 48,97,13,161 (4) Disallowance of expenses u/s 37 & 40A(3) (as per para 7.29 and 7.3.8) 5,26,36,208 (5) Disallowance of expenses u/s.40A(3) (as per para 7.7.7.) 9,28,03,149 (6) (4) + (5) 14,54,39,357 (7) (3) + (6) Total additions proposed 63,51,52,518 (8) Total income assessed (2) + (7) 64,85,68,428 2.6 Similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its Balance Sheet as on 31.08.2018 to 31.03.2021 from the "Z-server' which was also made available before Ld. AO during the course of assessment proceedings. Upon perusal, it was noticed that in all the years, there was difference in opening balances as under: - No As on Difference in opening balance (Rs.) 1 31.03.2018 7,07,45,819 2 31.03.2019 16,82,66,487 3 31.03.2020 11,60,94,084 4 31.03.2021 77,72,267 The assessee failed to reconcile the above differences at any point of time. It was also noted that the 'Current Liabilities' were reflected on Assets side and 'Current Assets' were reflected on Liabilities side of the Balance Sheet. All these factors would prove that the accounts as maintained in 'Z-server' were incomplete and the same could not be relied upon to assess the income of the assessee. In view of so many defects, there exists every possibility that receipts which are not in the form of income would have been credited to the Profit & Loss Account. At the same time, receipts which are income would have been taken to 'Current Liabilities'. It was further noted that the assessee did not maintain any stock register / stock records. 3.3 In para 6.4.13, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rors in its books of account. Under these circumstances, the books were to be rejected u/s 145(3) as held by Hon'ble Allahabad High Court in Shri Venkteshwar Sugar Mills (341 ITR 588) upholding the decision of Tribunal in rejecting the books of accounts since the same were not properly maintained. Similarly, Hon'ble Punjab & Haryana High Court in Mahavir Rice Mills v. CIT (153 Taxmann.com 686) upheld the estimation made by rejecting the books of account of the assessee in the absence of details of stock. Similar was the decision of Hon'ble Calcutta High Court in Amiya Kumar Roy & Bros. vs. CIT (206 ITR 306) holding that non-maintenance of stock would have substantial effect justifying an inference that the accounts were maintained in a manner from which the true and correct profits were not deductible. On similar facts, similar was the decision of Chennai Tribunal in the case of M/s Beach Minerals Company (ITA No.366/Chny/2023 dated 09-08-2023). 3.6 By placing reliance on all these decisions, Ld. CIT(A) rejected the books of accounts and proceeded to estimate the income of the assessee in all these years. The Turnover and Net profit as reflected by the assessee as per audited fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance u/s. 40A(3) is required when income is estimated by adopting Net Profit Rate. Similar ratio was laid down by Hon'ble Punjab & Haryana High Court in the case of CIT (Central) v. Gobind Ram (229 Taxman 491) as well as by Hon'ble Rajasthan High Court in PCIT v. Jadau Jewellers & Manufacturers (P.) Ltd. (409 ITR 85). 3.9 The Hon'ble High Court of Madras in CIT v. Amman Steel & Allied Industries (377 ITR 568) held as under: - "13. On the issue relating to disallowance under Section 40A (3) of the Act, the same was considered by the CIT (Appeals) by holding that income has been arrived at an estimate of turnover and computed applying the gross profit and, therefore, no expenditure shall be allowed, since the gross profit applied would take care of the amount incurred by purchases, etc. The CIT (Appeals), to justify the said stand, drew strength from the decision of this Court in S.Mohammad Dhurabudeen's case (supra), wherein this Court has held thus :- "The question for consideration is when no deduction was sought and allowed under S. 40A (3), was there any need togointoS.40A(3)and Rule 6DD(j).We see force in the view taken by the Tribunal that when the income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee were allowed. Aggrieved, the revenue is in further appeal before us. 3.10 The Ld. AO had made addition of cash seized for Rs. 919.50 Lacs u/s 69A for AY 2021-22. It was noted that cash of Rs. 819.50 Lacs was seized from the residence of Smt. R. Deepa, Finance Manager whereas further cash of Rs. 100 Lacs was seized from the office premises of the assessee-company. The assessee explained that the source thereof was additional income offered by the assessee for AYs 2020-21 and 2021-22. The Ld. AO rejected the submissions on the ground that no evidences were furnished by the assessee in this regard and accordingly, the same was separately added u/s 69A of the act. 3.11 The Ld. CIT(A) noted that during search, it was found that the assessee made unaccounted sales and payments. There was no finding either by the Investigation Team or by Ld. AO that the assessee was having any other source of income. Therefore, the physical cash would have been sourced only from the business of the assessee-company and therefore, the same could not be subjected to tax u/s.69A r.w.s 115BBE of the Act. It is a settled principle that when there is an unaccounted income on one side and unexpla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. AO was deleted. Aggrieved, the revenue is in further appeal before us. Our findings and Adjudication 4. The basic facts are not in dispute. The assessee is engaged in real estate development and construction activities. Pursuant to search action on the assessee, it transpired that besides regular books of accounts as maintained on 'Y-server', the assessee maintained unaccounted transactions on 'Z-server'. On the basis of transactions reflected in the 'Z-server', Ld. AO proposed impugned additions. During the course of search action, incriminating material was found and sworn statements were also recorded. The cash for Rs. 919.50 Lacs was found and seized. The assessee filed return of income and offered additional income to make-up for all these shortcomings. However, Ld. AO has not accepted the computations / workings made by the assessee and proposed further additions / disallowances by invoking the provisions of Sec.37(1) and 40A(3). These disallowances include payments to contractor for development / allied work which were subsequently received back by the assessee. In other words, the assessee booked bogus expenses in its regular books of accounts. The unaccounted portion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... + (7) 64,85,68,428 It could be seen that valuation of closing stock is at huge variance and substantial addition arises out of that. The remaining addition arises out of disallowance made by Ld. AO u/s 37(1) as well as u/s 40A(3). The variation in closing stock is on the basis of few excel sheets found during the course of search. 5. At the same time, Ld. CIT(A) has noted that the assessee has not maintained any stock details / stock records. Besides carrying out own business activities, the assessee also acted as a facilitator for others. However, the assessee was unable to reconcile the same. No stock details / stock records have been maintained by the assessee and except for excel sheet, nothing in that regard has been found by the department during the course of search. The assessee rebutted the allegation of Ld. AO and submitted that valuation of closing stock was on the basis of uncorroborated excel sheet calculations found in the computer system whereas these excel sheets were prepared merely for attracting potential investors and customers. The rate adopted in the excel sheet was not at cost and therefore, this rate could not be adopted by Ld. AO. As per account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious years. If the working of Ld. AO was to be accepted, the same would yield exorbitant net profit rates ranging from 107% in AY 2017-18 to approx. 55% in AY 2020-21. The average NP rate works out to be approx. 47% which would be abnormally high in this line of business. The same would be indicative of the fact the accounts as relied upon by Ld. AO were not reflecting true state of affairs of assessee company. Further, high profit rate in one year and low profit rate in another year indicate the probability of income of one year being accounted in another year. The same is also evident from the ratio of assessed income to total turnover as follows: - No AY Ratio of Assessed Income to Total Turnover (%) 1 2017-18 138.33 2 2018-19 76.03 3 2019-20 107.61 4 2020-21 141.79 5 2021-22 88.03 Upon perusal of above tabulation, it could be seen that the profits / income has ultimately been determined at figures which are much more than even the gross sales turnover worked out by Ld. AO. It could never be possible that the assessee has earned income which is much more than its gross receipts. The assessed income for all the AY(s) put together was much more than the acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance u/s 40A(3) could still be made in the given situation. Upon study, we find the same to be contextually different. In that decision, the Hon'ble Court primarily held that the provisions of Sec. 40A(3) would apply to block assessment proceedings under Chapter XIV-B also. The same is not the case here and this case law has no application. Finally, we upheld the profit estimation as made by Ld. CIT(A) which has been extracted by us in preceding para 3.6. Since profit has been re-apportioned over impugned years, the excess returned income for AYs 2018-19 and 2020-21 shall be ignored by Ld. AO. In other words, the total estimated income of the assessee for various years would be as under: - AY 2017-18 2018-19 2019-20 2020-21 Amt. (Rs.) 2021-22 Total Income estimated 9,33,10,121 8,15,34,707 7,45,68,451 10,33,69,974 19,50,34,118 10. On the issue of cash found and seized for AY 2021-22, it is a fact that the assessee has filed return of income in response to notices issued u/s 153A and offered additional income of 26.92 Crores from AYs 2018-19 to 2020-21. The same is much more than the cash found for Rs. 919.50 Lacs. In the absence of any other source of income, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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