Kantial P. Shah v. ACIT

INCOME TAX ACT, 1961

--Accounting method--RejectionEstimation of income--A survey action under section 133A was carried out at the premises of the assessee. Subsequently, the case was reopened and assessment under section 143(3), thereby the AO made addition in respect of the profit. Against this, the assessee filed an appeal before the CIT(A), who after considering the submissions of the assessee rejected the appeal. The addition of Rs. 10,02,508 in estimating book results at 8 per cent on sale of plots and land was submitted without properly appreciating the fact. The counsel for the assessee submitted that the authoriteis below were not justified in making the addition. Held: The undisputed fact emerged from the record was that during the course of survey, the assessee himself had disclosed in a statement that he had received 'on-money' on the sale of plots which was not recorded in the books. It was also stated by the assessee that the expenditure was incurred out of books. Therefore, in view of the fact that the assessee himself had disclosed during the course of survey and recorded in the Audit Report, therefore, the AO was justified in not accepting the book result and estimating the income. It is settled position of law where the accounts of assessee are rejected, the AO is duty bound to make a fair estimation of the profit. While doing so, he is required to give reasoning for adopting a particular rate of profit. In the absence of such reasoning, the order computing profit on the basis of estimate becomes unjustified. The law does not permit AO to adopt any rate of profit on the basis of conjectures and surmises. In the present case, the AO while estimating the profit had not given any basis for arriving at the net profit @ 8%. On this count, the order of the AO was defective and, therefore, this issue was restored back to the file of AO for fresh adjudication. The AO was directed to pass a speaking order as to how it had adopted at 8% of the net profit. Thus, this ground of the assessee's appeal was allowed for statistical purposes.

Income Tax Act, 1961, Section 145(3)

REFERRED :

FAVOUR : Matter remanded.

A.Y. : 2004-05

INCOME TAX ACT, 1961

--Income from undisclosed sources--Addition under section 69CUnexplained investment--A survey action under section 133A was carried out at the premises of the assessee. Subsequently, the case was reopened and assessment under section 143(3) was framed, thereby the AO made addition in respect of unexplained investment under section 69C. Against this, the assessee filed an appeal before the CIT(A), who after considering the submissions of the assessee rejected the appeal. While disposing of the appeal, the CIT(A) made enhancement in the addition made under section 69C. The counsel for the assessee submitted that the addition had been made on the basis of the statement recorded during the course of survey. He submitted that while doing so, the AO had acted illegally as it is a settled position of law that the assessment cannot be made solely on the basis of the statement recorded during the course of survey. The counsel for the assessee submitted that admittedly the assessee was carrying out the business of development of the land and he had in its balance-sheet shown the plots as stock-in-trade, such stock-intrade could not be subjected to tax till the sale-deeds had been executed in favour of the purchaser. Held: Neither the Revenue nor the assessee could explain as to how two different statements were recorded on the same date of the same person. It was noticed that two statement had two different version of the facts. Both the authorities have based their findings on the assumption that each plot has same size, without considering the fact that in the business of real estate, sale consideration of property is dependent on size and location of such property. The authorities below had also not given any finding as to what happened to the buyers of the plots who had paid the 'on money' and what treatment they had given to such payment. Further, it was not coming out from the records that any 'on money' was paid by the assessee to the owners of land, as it had been specifically claimed in the statement. It is settled proposition of law that only profit element embedded into the business receipt is to be taxed. It is also settled proposition of law that additions cannot be made solely on the basis of survey statement. In this case, one of the submissions was that he is into the business of development of properties, the residential plots, therefore plots are stock-in-trade. It was pointed out that sale-deeds were executed in other years, therefore, the authorities below were not justified in taxing the sale consideration in the years under consideration. However, there was no finding by the authorities below and no inquiry had been made as to when such properties were transferred to the respective buyers in terms of the provisions of IT Act. Moreover, factum of number of plots sold during the year under consideration required verification at the end of the AO as the AO and the CIT(A) had taken two different figures. Therefore, after considering the totalities of the facts and judicial pronouncements as relied by the counsel for the assessee, actions of both the authorities below could not be justified, however, there was no effective representation by the assessee and relevant information was not placed but the AO did not make further enquiry on the basis of material collected during the course of survey proceedings. Under these facts, the orders of the Authorities below were set aside and these issues were restored back to the file of AO. The AO was directed to make de novo assessment in accordance with law, after affording reasonable opportunity of being heard to the assessee.

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