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| The Tax Publishers2020 TaxPub(DT) 2367 (Mum-Trib) INCOME TAX ACT, 1961
Section 132
Where AO made various item-wise additions based on the seized papers and the seized computer CDs, pursuant to search action, itemised addition was not appropriate due to lack of details for the precise quantification of the inflation of expenses entire for year and alternatively estimation was the only available alternative for determining the reasonable profits. Accordingly, 10% rate was held to be fair and reasonable for quantification of business profits of assessee.
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Search and seizure - Validity of additions made based on seized papers and seized computer CDs, pursuant to search action - Itemized addition, whether warranted due to lack of details for precise quantification of the inflation of expenses -
Pursuant to search action for the relevant assessment year, profit rate as per assessee's books of account was 7.49%. In said assessment, AO made various item-wise additions based on the seized papers and the seized computer CDs involving assessee's branch and others. CIT(A) disregarded AO's manner of making item-wise additions, and found it relevant to estimate net profits at 10% of the gross receipts, instead of the AO's itemized additions. Held: It was found that for immediately preceding assessment year (2006-07), it was evident that Tribunal already considered the revenue's manner of making itemised additions and not appreciated principle of making such additions due to problems of precise quantification of inflation of expenses. However, Tribunal appreciated the fact of inflation of expenses by assessee. However, considering revenue's failure to give precise quantification of such inflation of expenses, the Tribunal did not appreciate unusually GP rates that emanated from the seized material and found it proper to apply the estimation in line with the provisions of section 44AD, which was otherwise applied to the low turnover business cases only. In effect, Tribunal made additional profits applying the 0.51% of the gross receipts of the assessee for assessment year 2006-07. Thus, itemised addition was not appropriate due to lack of details for the precise quantification of the inflation of expenses entire for year and alternatively estimation was the only available alternative for determining the reasonable profits. Order of CIT(A) with 10% should be fair and reasonable on this issue of quantification of the business profits. Therefore, manner of quantification of business profits at the rate of 10% was confirmed. AO was directed to quantify profits of the business and delete all business linked itemised additions.
REFERRED :
FAVOUR : Partly in assessee's favour
A.Y. : 2007-08 & 2008-09
INCOME TAX ACT, 1961
Section 40(a)(ia)
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