IT: Audited books of account cannot be discarded by assessee in absence of any material or evidences to show that same were incorrect
IT: Where books of account are not rejected under section 145(3), question of application of rate of net profit does not arise
■■■
[2013] 35 taxmann.com 383 (Rajkot - Trib.)
IN THE ITAT RAJKOT BENCH
Assistant Commissioner of Income-tax, Central Circle-1, Rajkot
v.
Rushabh Vatika*
T.K. SHARMA, JUDICIAL MEMBER 
AND D.K. SRIVASTAVA, ACCOUNTANT MEMBER
IT APPEAL NO. 51 (RJT.) OF 2013
[ASSESSMENT YEAR 2010-11]
MAY  30, 2013 
Section 145 of the Income-tax Act, 1961 - Method of accounting - Estimation of income [Application of Net profit rate] - Assessment year 2010-11 - Assessee was engaged in business of real estate development - During search conducted at business and residential premises of assessee, incriminating materials were found evidencing receipt of sale consideration in cash for sale of plots (being impugned sum), which was duly accepted by assessee - Assessee credited impugned sum to its profit and loss account which was accepted by auditor - However, in its return of income, assessee first excluded impugned sum from net profit and thereafter added 20 per cent thereof - Assessing Officer taxed entire sum - Commissioner (Appeals) directed Assessing Officer to apply net profit rate of 30 per cent - Whether net profit shown by assessee in its audited profit and loss account, which was also certified by tax auditor to be true and correct, could not be discarded by assessee without bringing any material to establish that said profit and loss account and audit report were incorrect - Held, yes - Whether, therefore, net profit rate of 20% could not be taken by assessee, in absence of any detail or material to show that expenses to extent of 80 per cent were at all incurred - Held, yes - Whether, where books of account were not rejected under section 145(3), question of application of rate of net profit did not arise, and therefore, order of Commissioner (Appeals) was to be set aside - Held, yes [Paras 16,25,28 & 29] [In favour of assessee]
FACTS
 
■  The assessee was engaged in the business of real estate development. During search carried out at the business and residential premises of assessee, incriminating materials were found evidencing receipt of cash on sale of plots over and above the money received through cheques.
■  The assessee accepted the receiving of the impugned sum in cash.
■  Following search operations, return was filed by the assessee along with the computation of income. In computation of income net profit shown in the audited profit and loss account was inclusive of the impugned sum. However, for tax purposes assessee first excluded the impugned sum from the net profit and thereafter added back only 20 per cent of the impugned sum.
■  The Assessing Officer however not accepting the treatment given to the impugned sum in the computation of income brought the entire sum being collection of on-money in cash to the charge of income tax.
■  On appeal, the Commissioner (Appeals) directed the Assessing Officer to apply net profit rate of 30 per cent (as against 20 per cent offered by the assessee) of the impugned sum on ground that possibility of incurring expenditure towards development of land, maintenance and security charges etc. could not be ruled out.
■  On appeal by the revenue, before the Tribunal, it contended that the direction of Commissioner (Appeals) to exclude 70 per cent of the impugned sum from net profit without there being any material to justify such exclusion was improper.
HELD
 
■  The substance of the matter is whether the order passed by the Commissioner (Appeals), which is essentially based on facts, is sustainable on merits. The claim or controversy as made out by the assessee before the Commissioner (Appeals) is that what can be taxed is the real profit embedded in the impugned sum, which, according to the assessee, is only 20 per cent. It is quite obvious that the assessee claims remaining 80 per cent of the impugned sum as expenditure and it is on this basis that it has offered only 20 per cent thereof to tax. It is viewed that the real issue or controversy is not the one that is made out by the assessee. The real controversy on the facts of the case, is whether the net profit shown by the assessee-firm itself in its audited profit & loss account, which has also been certified by the tax auditor in terms of section 44AB to be true and correct profit of the assessee from its business, can be discarded by the assessee without bringing any material on record to establish that the said profit & loss account and audit report is incorrect. Another related issue that needs to be considered is whether net profit shown by the assessee-firm in its audited profit & loss account can be reduced by 80 per cent of the impugned sum without there being any detail or material on record to show that expenses to the extent of 80 per cent of the impugned sum were at all incurred by the assessee and allowable as such under section 37. Facts of the case are plain, simple and incontrovertible and hence a fair decision as to the sustainability of the order passed by the Commissioner (Appeals), which is essentially based on facts, can safely be reached. [Para 16]
■  Section 145(1) provides that the income chargeable under sections 28 and 56 shall, subject to the provisions of section 145(2), be computed in accordance with each or mercantile system of accounting regularly employed by the assessee. Section 145(2) empowers the central government to notify accounting standards to be followed by any class of assessees or in respect of any class of income. Section 145(3) empowers the Assessing Officer to discard the books of account if he is not satisfied about their correctness or completeness or where the method of accounting provided in section 145(1) or accounting standards as notified under section 145(2) have not been regularly followed by the assessee. It is therefore clear that, barring the cases covered by section 145(3), the books of account maintained by an assessee are binding on the Assessing Officer and will therefore, from the basis for computation of income subject, of course, to statutory allowances/disallowances. Same logic applies to the assessee. He is bound by the entries made in his books unless he can show that they are incorrect. [Para 17]
■  In CIT v. Amitbhai Gunvantbhai, [1981] 129 ITR 573 (Guj.), the Hon'ble jurisdictional High Court has held that the basic principle is the same in law relating to income-tax as well as in civil law, namely, if there is no challenge to the transaction represented by the entries, then it is not open to the revenue or other side to contend that what is shown by the entries is not the real state of affairs. [Para 18]
■  It therefore follows that when a return is furnished and accounts are put in, in support of that return, the accounts should be taken as the basis for assessment and that an assessee cannot discard his own profit & loss account and balance sheet and more particularly the audit report in form No. 3CB signed by a Chartered Accountant in terms of section 44AB. The accounts audited by Chartered Accountant have very high evidentiary value. His report cannot be lightly ignored. It is binding on the Assessing Officer expect in cases falling under section 145(3) as also on the assessee. His audit report cannot be discarded by an assessee at his convenience. In order to deprive the audit report of its high evidentiary value, the assessee must establish that the Report given by the tax auditor is incorrect. The assessee was therefore under a very heavy burden to establish that its accounts, which have been duly audited and certified by the auditors to be correct, were, in fact, incorrect and that the audit report given by the tax auditor was also incorrect. In the present case the assessee has led no evidence either before the Assessing Officer or the Commissioner (Appeals) to prove that the profit & loss account the correctness of which has been certified by the tax auditor is factually incorrect or does not correctly record the details of sales /receipts/turnover and expenses. And therefore the net profit shown in the audited profit and loss account and certified by the tax auditor to be correct cannot be ignored. [Para 19]
■  As stated, net profit from the business of the assessee was inclusive of the impugned sum in its audited profit and loss account. The aforesaid net profit has been worked out by the tax auditor after providing for all expenses. The assessee had not furnished any detail, material or evidence either before the Assessing Officer or before the Commissioner (Appeals) or otherwise placed them on record to show that the details of expenses and profit incorporated in the said profit and loss account are incorrect. In this view of the matter, the Assessing Officer was justified in taking the net profit as shown in the audited profit and loss account as profit of the business of the assessee and taxing the same accordingly. [Para 21]
■  It shall now be considered whether there is any substance in the submission of the assessee before the Commissioner (Appeals) that it is the element of real profit in sales which alone could be brought to tax and not the entire amount of sales. The assessee has invoked real income theory in support of its claim for exclusion of 80 per cent of the impugned sum from net profit as shown in the audited profit and loss account. According to the assessee, the element of real profit in the impugned sum was only 20 per cent and therefore only 20 per cent was offered by it to tax. In the present case, the assessee has indeed collected the impugned sum in cash on sale of plots. Such collections are not illusory. They are real and represent the return in money in the hands of the assessee from its own business. The Tax auditor was obliged by law to ensure correctness of accounts and also to ensure that the profit and loss account and balance sheet reflected true state of affairs and not illusory state of affairs. It is after due verification of bills, vouchers, accounts of the parties, bank accounts, cash book, etc., as maintained by the assessee and due diligence exercised by the tax auditor in the matter that the Tax auditor has certified not only the correctness of net profit but also the correctness of the impugned sum as part of the net profit. No material has been placed either before the Assessing Officer or before the Commissioner (Appeals) to establish that the expenses debited and receipts/income credited to profit and loss account are incorrect. Therefore, the amount of net profit as shown in the audited balance sheet has to be taken as real profits of the assessee from its business. It is simply a case of under-reporting of sale price, which would have gone undetected if it had not been unearthed by the revenue authorities. The tax auditor has since incorporated the correct amount of sale price and thereafter worked out net profit in the audited profit and loss account after providing for all expenses. The net profit so worked out by the tax auditor cannot, by any stretch of imagination, be said to be illusory or unreal profit of the assessee from its business. Net profit shown in the audited profit & loss account represents real profits of the assessee's business worked out after excluding all the expenses from sales/turnover/receipts. In the face of such incontrovertible facts on record, it is difficult to hold that the impugned sum is not real profit. [Para 22]
■  It shall now be examined as to whether there is any basis in the action of the assessee in offering 20 per cent of the impugned sum to tax before the Assessing Officer and resultantly in excluding remaining 80 per cent of the impugned sum from its net profit as shown in the audited profit & loss account. No plausible explanation or detail or evidence for seeking such exclusion has been given by the assessee either before the Assessing Officer or the Commissioner (Appeals). The only ground on which such exclusion could be sought would perhaps be on the ground that 20 per cent of the impugned sum represents net profit while remaining 80 per cent represents expenses. In this connection, reference may be made to the provisions of section 37 of the Income-tax Act which deals with deduction of expenses incurred wholly and exclusively for the purposes of business. Deduction on account of expenses incurred by an assessee is permissible only when it is established by him that (i) expenses have been incurred wholly and exclusively for the purposes of business and such expenses are not in the nature of personal or capital expenditure; (ii) such expenses have been incurred in the year in which deduction is clamed; and (iii) deductibility of such expenditure is not hit by Explanation to sub-section (1) of section 37. It is the assessee-firm which was claiming deduction of 80 per cent of the impugned sum from net profits and hence the burden was obviously on it to establish that the requirements of section 37 were satisfied. The assessee-firm has failed to discharge that burden. The claim of the assessee is thus inconsistent with the statutory provisions also. [Para 23]
■  The reasoning given by the Commissioner (Appeals) for excluding 70 per cent of the impugned sum from net profit are not backed by any detail or evidence and therefore do not justify his order for exclusion of 70 per cent of the impugned sum. [Para 24]
■  The issue as to whether rate of net profit could at all be applied, as done by the assessee and accepted by the Commissioner (Appeals), to assess the profits of the business of the assessee notwithstanding the fact that the assessee-firm itself has worked net profit in its profit and loss account. After careful analysis of the nature of the impugned receipts, it is convinced that the assessee has rightly recorded the amount of sale price in its books following recovery of incriminating material at the time of search and therefore the net profit shown on that basis in the audited profit & loss has rightly been certified by the tax auditor as giving a true and fair view of the profit of the assessee from its business in the year under appeal. Rate of net profit cannot be applied so as to reduce the net profit shown in the audited profit and loss account unless the expenses, sales, turnover, receipts, etc. shown in audited profit and loss account are proved to be incorrect. Application of rate of net profit is one of the methods to assess the income of an assessee where the books of account maintained by the assessee are found by the Assessing Officer to be incorrect or incomplete or not in conformity with the accounting standards notified by the central government or in the circumstances mentioned in sub-section (3) of section 145. In the present case, neither the Assessing Officer has invoked section 145(3) nor has the assessee led any evidence to prove that the items shown in the books of account or profit and loss account and balance sheet drawn on that basis are incorrect. Therefore, the question of application of rate of net profit, be it 20 per cent or 30 per cent of the impugned sum, does not arise on the facts of the case. [Para 25]
■  In the present case the revenue could detect realizations of sale proceeds in cash on sale of plots of land as a result of incriminating materials recovered during search. On being confronted, the assessee had no option except to admit collection of part of sale proceeds in cash. It is in this background that the impugned sum has been credited by the assessee to its profit and loss account. Tax auditor has also certified the correctness of the impugned sum as part of net profit of the assessee. All the expenses on the development of plot were duly recorded in the books. Placed in this fact-situation, the assessee, with a view to reduce its tax liability, returned 20 per cent of the impugned sum as income and resultantly claimed 80 per cent thereof as expenses without furnishing even the details of expenses or evidence in support thereof. The burden was obviously on the assessee to substantiate its claim for expenses to the extent of 80 per cent of the impugned sum, which the assessee failed to discharge. Perusal of the order passed by the Assessing Officer and the Commissioner (Appeals) shows that the assessee has never furnished any detail or evidence in support of such expenses either before the Assessing Officer or the Commissioner (Appeals). Such details or supporting vouchers were not given to the tax auditor also else he would have recorded them in the profit and loss account or made a comment in this behalf in his audit report. In the absence of details of such expenses and evidence in support thereof, it cannot be said that net profit as worked out by the tax auditor in profit & loss account is incorrect or does not represent the real income of the assessee. Having admitted in the profit and loss account that the impugned sum represents part of its net profit from the operations of business, the assessee cannot be allowed to plead that the said net profit should not form the basis for assessment of its income and tax thereon. There cannot be two sets of net profits:one for the general public, financial institutions, stakeholders and for distribution amongst partners and the other for income-tax authorities. [Para 26]
■  In view of the foregoing, we are unable to agree with the Commissioner (Appeals) that 30 per cent of the impugned sum alone is liable to be taxed. His order suffers from several infirmities some of which are as under:
■  He acted upon those submissions of the assessee which were neither supported by any detail or evidence. He straight away applied certain decisions referred to by the assessee without examining as to whether the case of the assessee fits in those fact-situations or not.
■  Having noted that there was no evidence to establish that the assessee-firm had incurred any expenditure to earn the impugned sum, the Commissioner (Appeals) still allowed 70 per cent of the impugned sum as expenditure ignoring the fact that the claim for such deduction was not only inconsistent with the assessee's own audited books of account but also the statutory provisions contained in the income-tax Act. He proceeded to assume without there being any evidence on record that the assessee-firm must have paid unaccounted money for purchasing the land and developing it before selling them. [Para 28]
■  Materials available on record clearly indicate that the impugned sum would have gone completely untaxed if the revenue authorities had not carried out search operations. No evidence was found even at the time of search that the assessee had incurred any expenditure over and above those reflected in the books. In the face of recovery of such materials during search operations, the assessee had no option except to credit the impugned sum as a whole to its profit and loss account. After crediting the impugned sum to the profit and loss account as a result of detection by the revenue, the assessee made yet another attempt to evade payment of legitimate taxes due to the State by excluding 80 per cent of the impugned sum from net profit worked out by the tax auditor in the audited profit and loss account, which the assessee failed to substantiate. The assessee has deliberately suppressed and thereby concealed the particulars and/or furnished inaccurate particulars of its true income in the return of income by claiming deduction to the extent of 80 per cent with full knowledge that claim for such deduction was inconsistent with its own audited books of account and statutory provisions of the Income-tax Act and therefore completely untenable on facts and in law. It is an open and shut case of bogus claim for deduction to the extent of 80 per cent of the impugned sum so as to evade payment of legitimate taxes due to the State. [Para 29]
■  In view of the foregoing, we are unable to sustain the impugned order passed by the Commissioner (Appeals). His order is therefore reversed and that of the Assessing Officer restored. Resultantly, the appeal filed by the revenue is allowed. [Para 30]
CASE REVIEW
 
CIT v. Gurubachhan Singh J. Juneja [2008] 302 ITR 63/171 Taxman 406 (Guj.); CIT v. President Industries [2002] 258 ITR 654/124 Taxman 654 (Guj) and CIT v. Samir Synthetics Mill [2010] 326 ITR 410 (Guj.) (para 27) distinguished.
CASES REFERRED TO
 
Shiv Cotex v. Tirgun Auto Plast (P.) Ltd. [2011] 9 SCC 678 (para 12), Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC) (para 17), CIT v. Amitbhai Gunvantbhai, [1981] 129 ITR 573 (Guj.) (para 18), Regina v. Inland revenue Commissioner, Ex Parte Matrix-Securities Ltd. [1994] 1 WLR 334 (HL) (para 26), CIT v. Gurubachhan Singh J. Juneja [2008] 302 ITR 63/171 Taxman 406 (Guj.) (para 27), CIT v. President Industries [2002] 258 ITR 654/124 Taxman 654 (Guj.) (para 27) and CIT v. Samir Synthetics Mill [2010] 326 ITR 410 (Guj.) (para 27).
D.R. Soni for the Appellant.
ORDER
 
D. K. Srivastava, Accountant Member - The appeal filed by the Revenue is directed against the order passed by the learned Commissioner (Appeals) {"CIT(A)" in short} on 19-12-2012, on the following grounds:-
"1.  The Ld. CIT(A) has erred in law and on facts in restricting the addition to Rs.51,98,616/- out of total addition of Rs.4,15,88,930/- made on account of suppression of profit on sale of plots and accordingly given relief of Rs.3,63,90,314/-."
"2.  On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer on the above point."
2. Relevant facts of the case as culled out from the records are as under:
(i)  The assessee is a partnership firm. It is engaged in the business of real estate development. Search and seizure operations u/s 132 of the Income-tax Act were carried out at the business and residential premises of Seth Group including the partners of the assessee-firm on 15-09-2009. The assessee-firm is one of the business concerns of the said Group.
(ii)  It was found that the assessee-firm had developed a project known as "Rushav Vatika" at Ahmedabad. During the course of search, incriminating materials were found evidencing receipt of on-money (being cash component of the transactions) on sale of plots over and above the money received through cheques. On being confronted, the assessee-firm admitted to have realized on-money (being cash component of the transactions) on sale of plots, which has since been quantified at Rs.5,19,86,163/- as "Additional cash sales disclosed during search" and credited as such to the audited profit & loss account over and above the amount received through cheques. The said sum of on-money (Rs.5,19,86,163/-) shall here-in-after be referred to as the impugned sum. It is admitted by the assessee and accepted by both the AO and the ld. CIT(A) that the impugned sum has been collected in cash on sale of plots of land over and above the amount collected through cheques.
(iii)  Following search operations u/s 132, proceedings were initiated by the AO u/s 153C of the Income-tax Act pursuant to which return was filed by the assessee-firm on 29-09-2010 returning total income at Rs.1,67,36,540/-. The said return of income was accompanied by "Computation of income" the details of which are given in Para 4.0 of the assessment order as under:

 "4.0 As per the computation of income accompanying the audit report, the assessee had worked out income for the purpose of tax, as under:-
 Net profit as per P&L account
5,31,03,690
 Less: Additional cash sales disclosed during search credited to P&L account, separately treated
5,19,86,163
 

11,17,527
  Add: TDS interest11,776
  Add: Provision for Income-tax 52,00,000 
 Add: Donation u/s 80G treated separately 20,000  
  Add: GP @ 20% on account of additional sales disclosed during search (Rs.5,19,86,163 x 20%) 1,03,97,2331,5629,009
  Less: Ded. u/s 80G  10,000
  Taxable profit  1,67,36,536"
(iv)   Net profit shown at Rs.5,31,03,690/- in the audited profit & loss account is inclusive of the impugned sum. For tax purposes, the assessee proceeded to work out its taxable income in the said Computation of Income in which the assessee first excluded the impugned sum from the net profit shown in the audited profit & loss account and thereafter added back only 20% of the impugned sum with the result that the amount of net profit as shown in the audited profit & loss account stood reduced by 80% of the impugned sum in the Computation of Income for income-tax purposes.
(v)  In the Computation of Income filed with the return of income on the basis of which total income has been returned, the assessee has thus excluded 80% of the impugned sum (Rs.5,19,86,163/-) and resultantly reduced its net profit to Rs.1,67,36,536/- for tax purposes as against Rs.5,31,03,690/- shown in the audited profit & loss account and accordingly offered such reduced amount of net profit to tax.
3. The Assessing Officer ("AO" in short) however did not accept the aforesaid treatment given to the impugned sum in the Computation of Income and therefore brought the impugned sum being entire collection of on-money in cash to the charge of income tax. Since the assessee had already offered a sum of Rs.1,03,97,233/- being 20% of the on-money for tax, the AO brought the remaining sum, i.e., Rs.4,15,88,930/-, to the charge of income-tax, with the following observations:
"6. The reply of the assessee has been considered, but the same is not acceptable. Vide para (2) of the above submission, the assessee had taken the plea that, the entire undisclosed sales should not be treated as income since sales do not constitute income, particularly when no evidence of undisclosed income is found. However, this is false, in light of the detailed discussion of incriminating evidence made in the first part of this order. Further the assessee had not furnished any details of expenses to justify his offering of only 20% profit from sale of plots. In fact, all the expenses have already been booked in the regular books of accounts. The sale price was suppressed, but for the seized materials, which threw light to the extent of suppression of sale price and quantified the sale price. The difference between the purchase price/documented price plus the expenses and the sale price is the profit margin of the assessee, which has to be brought to tax. Therefore, the assessee has failed to justify its claim of having earned only 20% from sale of plots.
6.1 Again, vide para (1) of the above submission, the assessee had relied upon the decision of the Hon. Gujarat High Court in the case of CIT Vs Gurbachan Singh Juneja (215 CTR 509) in order to justify that, there are costs always associated with any kind of real estate development, be it plotted development or otherwise and that the matching principles of revenue and cost is universally recognized in accounting theory and hence whenever revenue is shown to have been earned and is recognized for the purpose of taxing the same, the associated and matching cost would also have to be allowed as a deduction therefrom and such costs are deemed to have been incurred irrespective of the material found during search. However, all the above relied judgment is distinguishable from the facts and circumstances of the case because, the assessee is not in any manufacturing activity where the argument of considering only the gross profit as income could be taken. In the business of purchasing and selling of land, question of any other unaccounted expenditure does not arise. Moreover, no such details could be furnished by the assessee. Further, as discussed supra, the onus is on the assessee to justify the claim of expenses (with supporting evidences) in which he has failed. Hence, there is no alternative presumption but to conclude that the entire suppressed sale is the neat profit from such venture.
6.2 Again para (1) supra, it is the contention of the assessee that, in a scheme of plotted development, costs were incurred for various purposes such as internal roads, land improvement, land leveling, marketing charges, administrative charges, maintenance of fencing, security charges, borrowing charges, etc and if the corresponding expenditure is also unaccounted but not found, it cannot be presumed, in the light of aforesaid theory, that such expenditure would not have been incurred at all, because, there could be no supporting evidence required in respect of unaccounted expenditure. However, this contention is also not acceptable because, the entire cost of development has already been accounted for by the assessee in its books.
Hence, there is no reason to believe that the assessee has actually incurred expenditure out of case sales.
6.3 Vide para (3) supra, the assessee had contended that, percentage of profit on sales is around 10% in respect of builders and developers and under the presumptive scheme of taxation for construction business, the rate of profit provided for in the Act is 8% and that, the department itself, in the assessee's own group cases in earlier years, had adopted such percentage profit at 10% and therefore, the profit margin of 20% is justified. However, this argument is not acceptable because, no real estate development activity was carried out on these plots. These plots were purchased and basic amenities developed thereon, and sold thereafter. Hence, the resemblance of assessee's activities to a builder, for this particular venture, is not correct. So far as the assessee's contention that the department had accepted 10% profit in earlier search relevant assessment proceedings u/s 158BC are concerned, it is pertinent to bring on record that, the evidences gathered during search clearly indicated the extent of suppression of receipt and hence, adopting an ad-hoc percentage of profit is quite illogical. Therefore, the assessee's plea to take cue from department's own findings in various group cases, of the orders passed u/s 158BC is also not acceptable. Further, the profit margin of 10% so cited by the assessee to have been accepted by the department, was not during assessment stage, but at a later appellate stage, wherein, it may be possible that, due to smaller tax effect or absence of substantial question of law, the matter may not have been contended further. This in no way makes the profit margin of 10% or 20% sacrosanct. In light of the above, the approach of the assessee to offer only 20% as profit earned from sale of plot is not acceptable because, the assessee has failed to justify such margin and that, the balance of alleged cost is not supported by any evidence and further, whatever legal and allowable expenses would have been there, the same has already been debited. It would be pertinent to mention here that, statement of Shri Mukesh M Sheth, a key member of the Sheth group, was recorded u/s 132(4) on 23.10.2009. During the course of search and in the statement recorded u/s 132(4), he had categorically stated that, income from this sale, not taken in the books, is offered for taxation. However, it was never stated that the income would only be 20% of the unaccounted receipts. In light of the above discussion, the whole of the unaccounted receipt, determined at Rs.5,19,86,163/- is taken as income of the assessee, not fully disclosed in the books of accounts. Since the assessee has offered in the return of income, only 20% i.e. Rs.1,03,97,233/-, out of the total unaccounted receipts of Rs.5,19,86,163/-, accordingly the difference of Rs.4,15,88,930/- is added to its total income. Since the assessee had furnished inaccurate particulars of income, penalty proceedings u/s 271(1)(c) is initiated."
4. On appeal, the learned CIT(A) however directed the AO to apply net profit rate of 30% (as against 20% offered by the assessee) of the impugned sum being on-money collected by the assessee with the following observations:-
"6. I have carefully considered the submissions made by the appellant and have gone through the assessment order passed by the Assessing Officer.
6.1 The AO has determined the on-money receipts arising from sale of plots in Rushabh Vatika project at Rs.5,19,86,163/-. The quantum of on-money receipts is not disputed by the appellant. The appellant has disclosed net income @ 20% on the unaccounted receipts in the return of income. However, the AO has taxed the entire unaccounted receipts of Rs.5,19,86,163/- as income of the assessee, not disclosed in the books of account. The appellant having already disclosed profit of Rs.1,03,97,233/- @ 20% on unaccounted receipts, the balance amount of Rs.4,15,88,930/- is added by the AO to the total income.
6.2 The germane issue that needs to be decided is as to whether the entire unaccounted receipts can be taxed as income or only the profit element on such unaccounted sales/unaccounted receipt/on-money receipts can be brought to tax. This is a fact that the details relating to unaccounted expenditure have not been found during the course of search proceedings. However, that does not mean that there would be no associated expenditure at all for the purpose of making unaccounted sales. The definite possibility of having expenditure towards development of land, maintenance and security charges, administrative and marketing costs etc. cannot be ruled out even if no such expenditure has been debited in the books of accounts even partially. It is also an undisputed reality that even purchase of land requires unaccounted consideration to be paid in addition to the amount of such consideration recorded in the books. The entire unaccounted sales/unaccounted receipts/on-money receipts cannot be subjected to tax as income of the assessee. Only the estimated profits on such unaccounted sales can be assessed to tax with a macro-perspective view of the issue under consideration. Further, I do not agree with the AO that only in respect of manufacturing concerns, the gross profits can be taxed in respect of unaccounted sales. The concept and principle of taxing only the estimated profits in respect of unaccounted sales applies to all concerns/entities including trading concerns, developers, builders etc. There is a consistent view of the Courts that the entire amount of unaccounted receipts / unaccounted sales/on-money receipts cannot be brought to tax in the cases of builders and developers. Only the net profit embedded in the gross unaccounted receipts can be taxed. In the case of CIT vs Gurubachhan Singh J. Juneja [2008] 302 ITR 63 (GUJ.) it has been held by the Hon'ble High Court of Gujarat that:-
'In absence of any material on record to show that there was any unexplained investment made by the assessee which was reflected by the alleged unaccounted sales the finding of the Tribunal that only the gross profit on the said amount can be brought to tax does not call for any interference'.
6.3 Similarly the facts of the case of CIT vs. Samir Synthetics Mill [2010] 326 ITR 410 (GUJ.) are that as a result of search by the Excise Department in the business premises of the assessee, various discrepancies were noted in the production of the assessee. The assessee could not even be able to reconcile the production, sales and the closing stock although the specific opportunity was provided by the Assessing Officer. Accordingly addition to the assessee's income was made on account of suppression of sale consideration. It was held by the Tribunal as under:
'Under these circumstances, we agree with the Commissioner of Income-tax (Appeals) that the assessee failed to explain the suppression of production of 18,80,500 meters of cloth. We also fully agree that any addition that is to be made is not in respect of the sale consideration but only in respect of the profit. As in this case no evidence has been brought out on record which may prove that the assessee has claimed all the expenses in the profit and loss account it is a case only of suppression of the sale consideration. In our opinion, in this regard, the judgment of the jurisdictional High Court in the case of CIT v. President Industries [2002] 258 ITR 654 (Guj.) is fully applicable.'
Considering the concurrent findings of CIT(A) as well as Tribunal regarding the amount of addition on account of papers found during the search, it has been held by the Hon'ble High Court of Gujarat that there is no merit in the Department's appeal since whether there was any suppression of sale or not is basically a question of fact. Thus, in the above case the addition was justified on account of suppression of the sale consideration but only to the extent of profit.
6.4 So far as the contention of the AO, that in the present case complete evidence of on-money receipts in respect of all the cases was found and, therefore, there was no requirement of any extrapolation as well as estimation of income unlike other cases/projects of the same group like Silver Springs, is concerned, it makes no difference at all as to whether the entire unaccounted receipts is determined by way of extrapolation based on the single instance of on-money receipts or on the basis of complete evidence of on-money receipts. The moot issue is that the entire quantum of unaccounted receipts is not disputed by the appellant at all in both the projects. Once the quantum of entire unaccounted receipts /sales is undisputed, the manner of arriving at the same by way of extrapolation or on the basis of complete evidence is hardly a relevant factor for the purpose of estimation of profits on such unaccounted sales.
6.5 In view of the above, I am of the considered opinion that the entire unaccounted sales/on-money receipts cannot be taxed in the hands of the appellant and only estimated profits on such unaccounted receipts can be taxed in the hands of the appellant.
6.6 So far as the estimation of profit which should be taxed in the hands of the appellant is concerned, it is pointed out by the appellant that the Hon'ble Commission has determined the net profit which should be charged in respect of the projects Kothariya 172, Silver Stone and Silver Springs @ 30% in place of 20% disclosed in the returns of income as well as in the application submitted before the Settlement Commission. This is also a fact that both Silver Springs and Rushabh Vatika are nearby projects situated in Chekhla Village having identical business of selling of plots of land. The Hon'ble Commission while estimating the profits of silver springs @ 30% has duly considered the business activities of nearby Rushabh Vatika Project for the purpose. Therefore, it cannot be disputed that the estimation of profits of the appellant in respect of Rushabh Vatika Project has to be in tune with the estimation of profits in the cases of Silver Springs as settled by the Commission unless any differentiating evidence in respect of Rushabh Vatika Project is brought on record. It is further noted that Shri Mukesh M. Sheth, a key person of the group in the statement recorded u/s 132(4) of the Act has clearly admitted the fact of unaccounted sales and offered to tax the income or profit arising out of the said unaccounted sales. The entire unaccounted sales has not been offered/disclosed as income as is evident from the perusal of the statement recorded.
6.7 It is further noted that the appellant has shown the gross profit of Rs.67,34,398/- on its accounted sales of Rs.3,69,66,577/- in respect of Rushabh Vatika Project. Thus, the gross profit shown on the accounted sales is 18.22%. Therefore, the contention of the appellant, that for the same scheme of land plots, the Department has taxed the income @ 12% for block period ending on 12.09.2002 which has become final, is not justified so far as the present year is concerned wherein disclosed gross profit on accounted sales is 18.22%. It is also an admitted fact that in respect of unaccounted sales, the margin of profit is always higher.
6.8 In view of the above and considering the order of the Settlement Commission in respect of Silver Springs wherein profit has been estimated @ 30% instead of 20% offered in the return of income, it would be fair and reasonable to adopt the same rate of estimated profit even in the case of Rushabh Vatika Project of the appellant. The total unaccounted sales in the present case is Rs.5,19,86,163/-. The estimated profits on such unaccounted sales @ 30% amounting to Rs.1,55,95,849/- is accordingly taxed in the case of the appellant. Since the appellant has already disclosed profit of Rs.1,03,97,233/- @ 20% on the quantum of unaccounted sale, the balance amount of Rs.51,98,616/- is, therefore, sustained out of total addition made by the AO at Rs.4,15,88,930/-"
5. Aggrieved by the order passed by the learned CIT(A), the Revenue is now in appeal before this Tribunal. In support of appeal, the learned Departmental Representative relied upon the assessment order passed by the AO. He reiterated the facts admitted by the assessee before the Revenue authorities and also brought on record by the AO. According to him, there is no dispute that the assessee has received the impugned sum representing cash received on sale of plots (termed as on-money), which has since been credited to its profit & loss account and therefore it was not open to the assessee to artificially reduce the same by 80% in its Computation of Income filed along with the return. He further submitted that the assessee gave no detail or basis for excluding 80% of the impugned sum from net profit shown in the profit & loss account. And yet the CIT(A) directed the AO to exclude 70% of the impugned sum from net profit without there being any material on record to justify such exclusion. According to him, the order of the CIT(A) should therefore be vacated and entire net profit as shown in the profit & loss account be brought to the charge of income-tax as done by the AO.
6. The appeal was listed for hearing on 11-04-2013. Notice of hearing was sent by RPAD, vide RPAD No.1022 dated 28.2.2013 from Rajkot HO 360 001, to the respondent-assessee, as per records available with the Registry and verified by us. Acknowledgement slip has been received back from the postal authorities evidencing service of the said notice on the assessee. On the aforesaid date of hearing, i.e., 11.4.2013, application for adjournment was received on the letter head of a firm of chartered accountants, namely, M/s M. J. Rindani & Associates, seeking adjournment, which reads as under:
"In the matter of
 M/s. Rushbh Vatika … … … Respondent
 Appeal No. … … … 51/Rjt/13
 Date of hearing … … … 11.04.2013
The above matter is fixed for hearing before Your Honours on 11.04.2013. We most respectfully request that above matter kindly be adjourned to a date convenient to the Bench.
Yours Sincerely,
Sd./- Illegible
For M.J. Rindani & Associates
CC to Sr. D.R."
7. The said firm of chartered accountants could however neither produce a duly executed power of attorney by which it was authorized by the assessee-firm to represent it before this Tribunal nor could give any cause for seeking adjournment.
8. Section 288 of the Income-tax Act contains provisions relating to "Appearance by authorized representative" before the Income-tax authorities as well as before this Tribunal. According to sub-section (1) of section 288, any assessee who is "entitled or required to attend" before any income-tax authority or this Tribunal in connection with any proceeding under the Income-tax Act otherwise than when required under section 131 to attend personally for examination on oath or affirmation may, subject to the other provisions of section 288, attend by an authorized representative. Sub-section (2) of section 288 defines "authorized representative" as a person authorized by the assessee in writing to appear on his behalf, being a person specified in seven clauses of section 288(2). A chartered accountant is one of the persons who can be authorized by the assessee in writing to appear on his behalf before this Tribunal. Rule 17 of the Income-tax (Appellate Tribunal) Rules also requires such an authorization in writing to be filed by the authorised representative for the assessee before the commencement of the hearing. Papers/documents filed or submissions made by a chartered accountant on behalf of an assessee cannot be acted upon unless he files a valid authority in writing duly executed by the assessee authorizing him to appear on his behalf, as required by section 288(2), before commencement of hearing. In the present case, date of hearing was set more than a month in advance and therefore the chartered accountants, if they were really engaged by the assessee-firm to represent it before this Tribunal, had ample time after service of notice of hearing to get the requisite authority in writing from the assessee and file the same before this Tribunal either before or at least at the time of seeking adjournment. Apparently, they did not file any such authority in terms of section 288(2) and yet purported to file application for adjournment in the matter. The representative (office staff) from the said firm of chartered accountants, who had placed the adjournment application for consideration, was specifically called upon to produce the authority from the assessee in terms of section 288(2). He could not do so.
9. Perusal of the application for adjournment shows that it has been filed "For M.J. Rindani & Associates" and not on behalf of the assessee. In Circular No. F.161-Ad.(AT)/70 dated 30th December 1971 issued by this Tribunal, it has been clarified that an authorized representative can only be an individual and not a firm or legal body. Therefore, the said firm of Chartered Accountants can neither act on behalf of the assessee nor be authorized by the assessee as authorised representative and therefore the application for adjournment filed by the said firm of chartered accountants cannot be considered for this reason also as valid application for adjournment.
10. Parties are expected to prepare for the hearing and be ready to attend once the date of hearing is set. However, in some unavoidable circumstances, it may not be possible for the parties to the proceeding to proceed on the scheduled date in which case they can request for adjournment. It is a fairly settled proposition of law of adjournments that adjournments cannot be sought at leisure or pleasure of a party to proceeding and that adjournment can be granted only if sufficient cause is shown for seeking adjournment. The aforesaid principle is now statutorily recognised by Rule 1 of Order XVII of the Code of Civil Procedure which provides that the Court may, if sufficient cause is shown, at any stage of the suit grant time to the parties or to any of them, and may from time to time adjourn the hearing of the suit for reasons to be recorded in writing. The adjournment application filed by the said firm of chartered accountants does not contain any cause for seeking adjournment. In the absence of "sufficient cause" being shown in the application for adjournment, the application for adjournment cannot be entertained.
11. A court or tribunal has general power to postpone or adjourn a hearing to such time and place, and on such terms, as are just. An adjournment is, for the most part, a matter of discretion for the court. This means that the court does not have to grant an adjournment but must consider what the parties say are the reasons for seeking adjournment. Adjournments are not given automatically or at the leisure or pleasure of parties. Support for this proposition can be drawn from Proviso (b) to Rule 1 of Order XVII of the Code of Civil Procedure which provides that no adjournment shall be granted at the request of a party, except where the circumstances are beyond the control of that party. In deciding an adjournment request, the court/tribunal will consider whether an adjournment is necessary in order to provide an opportunity for a fair hearing. In making its decision, the court will balance the interests of the parties and the interests of the administration of justice in the orderly disposal of matters before it on their merits. The party seeking adjournment is obliged by law to apprise the court/tribunal of all the reasons on the basis of which adjournment is sought. In a case where sufficient cause is shown for seeking adjournment, the court/tribunal may, at its discretion, grant adjournment if it is satisfied that the party seeking adjournment has made all reasonable efforts to avoid the need for an adjournment. Adjournment requests not supported by any cause or reason are liable to be rejected.
12. In Shiv Cotex v. Tirgun Auto Plast (P.) Ltd. [2011] 9 SCC 678, the Hon'ble Supreme Court has held that a party to the suit is not at liberty to proceed with the trial at its leisure and pleasure and has no right to determine when the evidence would be let in by it or the matter should be heard. The Hon'ble Supreme Court has expressed its displeasure and disapproval in the practice of litigants seeking unnecessary adjournments and courts granting them. It has also been held that the parties to a suit, whether plaintiff or defendant, must co-operate with the court in ensuring the effective work on the date of hearing for which the matter has been fixed. If they don't, they do so at their own peril.
13. In cases where date of hearing is set quite well in advance giving parties sufficient time to prepare their cases, as in the present case, requests for adjournments can be rejected if such requests are made (i) by persons not authorized in terms of section 288 of the Income-tax Act; (ii) without giving sufficient cause for seeking adjournment; (iii) to prolong the disposal of a case; (iv) without satisfying the court that party seeking adjournment has genuinely made all reasonable efforts to avoid the need for adjournment; or (v) in matters where relevant details including legal position governing the issue are on record and the matter can be disposed of on merits even without the presence of the parties. The adjournment request received from M/s M.J. Rindani & Associates deserves to be rejected on each of the aforesaid grounds.
14. It is relevant to mention that the tax implication in the matter under appeal is well above 10 millions of rupees. The assessee-firm has already got substantial relief from the first appellate authority {i.e., CIT(A)} on the basis of elaborate submissions, both on facts and in law, made before him. It is no longer under pressure to get the appeal filed by the Revenue disposed off at an early date as the appeal filed by the Revenue may go against the assessee in which case the assessee would be liable to discharge entire tax liability including the one which has been knocked down by the ld. CIT(A). It is now the Revenue which is aggrieved by the order of the first appellate authority. The assessee had more than one month after service of notice of hearing to prepare for the hearing and be ready to attend on the date of hearing. It is in the interest of both the parties if the appeal is disposed of at the earliest as all the relevant facts/details including legal position governing the issue are on record.
15. In view of the aforesaid, the application for adjournment was rejected and the factum of rejection was announced in the open court. Nobody entered appearance on behalf of the assessee. On the facts found by the AO/CIT(A) and the law applicable to those facts, it was felt that the appeal could be disposed of on merits after rejecting the application for adjournment. In this view of the matter, the appeal was heard ex-parte qua the assessee.
16. We have heard the ld. Departmental Representative and also perused the materials available on record including the submissions made on behalf of the assessee before the AO/CIT(A). Leaving aside the issue of adjournment, the substance of the matter is whether the order passed by the ld. CIT(A), which is essentially based on facts, is sustainable on merits. The claim or controversy as made out by the assessee before the CIT(A) is that what can be taxed is the real profit embedded in the impugned sum, which, according to the assessee, is only 20%. It is quite obvious that the assessee claims remaining 80% of the impugned sum as expenditure and it is on this basis that it has offered only 20% thereof to tax. In our view, the real issue or controversy is not the one that is made out by the assessee. The real controversy on the facts of the case, in our considered view, is whether the net profit shown by the assessee-firm itself in its audited profit & loss account, which has also been certified by the Tax Auditor in terms of section 44AB to be true and correct profit of the assessee from its business, can be discarded by the assessee without bringing any material on record to establish that the said profit & loss account and audit report is incorrect. Another related issue that needs to be considered is whether net profit shown by the assessee-firm in its audited profit & loss account can be reduced by 80% of the impugned sum without there being any detail or material on record to show that expenses to the extent of 80% of the impugned sum were at all incurred by the assessee and allowable as such u/s 37 of the Income-tax Act. Facts of the case are plain, simple and incontrovertible and hence a fair decision as to the sustainability of the order passed by the CIT(A), which is essentially based on facts, can safely be reached. They are as under:
(i)  Incriminating materials were found at the time of search evidencing receipt of a part of sale consideration in cash on sale of plots (being the impugned sum), which has been duly accepted by the assessee.
(ii)  No material was found at the time of search or even thereafter to show that any extra expenditure was incurred over and above those shown in the books of account and profit & loss account prepared on that basis on development of plots sold.
(iii)  The assessee also could not furnish any detail or evidence either before the AO or before the ld. CIT(A) to show that any expenditure other than that shown in the audited profit & loss account was incurred or that the cost of sales was higher than the one shown in the profit & loss account.
(iv)  The impugned sum has been credited to profit & loss account and therefore stands treated by the assessee-firm itself as part of its net profit.
(v)  Net profit inclusive of the impugned sum as credited to audited profit & loss account stands not only incorporated as sources of funds in the books but also applied as per books otherwise the balance sheet would not tally.
(vi)  The assessee-firm has first excluded the impugned sum from the net profit as per audited profit & loss account and thereafter added 20% thereof to such net profit, in its Computation of Income filed along with the return of income without furnishing any detail or evidence at any stage of the proceedings to substantiate its claim for exclusion of 80% of the impugned sum from net profit as shown in the audited profit & loss account.
17. Section 145(1) provides that the income chargeable under sections 28 and 56 of the I-T Act shall, subject to the provisions of Section 145(2), be computed in accordance with cash or mercantile system of accounting regularly employed by the assessee. Section 145(2) empowers the Central Government to notify accounting standards to be followed by any class of assessees or in respect of any class of income. Section 145(3) empowers the AO to discard the books of account if he is not satisfied about their correctness or completeness or where the method of accounting provided in section 145(1) or accounting standards as notified under section 145(2) have not been regularly followed by the assessee. It is therefore clear that, barring the cases covered by section 145(3), the books of account maintained by an assessee are binding on the AO and will therefore form the basis for computation of income subject, of course, to statutory allowances/disallowances. Same logic applies to the assessee. He is bound by the entries made in his books unless he can show that they are incorrect. The aforesaid view is duly supported by the judgment of the Hon'ble Supreme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18, in which a Bench of three Judges of the Hon'ble Supreme Court has held as under:
"It is no doubt true that the entries in the account books of the assessee amount to an admission that the amount in question was laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income was derived during the previous year. An admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect."
18. In CIT v. Amitbhai Gunvantbhai [1981] 129 ITR 573 (Guj.), the Hon'ble jurisdictional High Court has held that the basic principle is the same in law relating to income-tax as well as in civil law, namely, if there is no challenge to the transaction represented by the entries, then it is not open to the Revenue or other side to contend that what is shown by the entries is not the real state of affairs.
19. It therefore follows that when a return is furnished and accounts are put in, in support of that return, the accounts should be taken as the basis for assessment and that an assessee cannot discard his own profit & loss account and balance sheet and more particularly the Audit Report in Form No.3CB signed by a Chartered Accountant in terms of section 44AB of the Income-tax Act. Section 44AB has been inserted in the Income-tax Act with effect from 1.4.1985 to provide for audit of accounts in cases specified therein. Rule 6G(1)(b) and (2) of the Income-tax Rules provides that the report of audit of the accounts of a person required to be furnished u/s 44AB shall be in Form No.3CB and the particulars which are required to be furnished u/s 44AB shall be in Form No.3CD. Perusal of Report of Audit in Form No.3CB shows that the Tax Auditor is required to certify that the balance sheet and the profit & loss account/income & expenditure account are in agreement with the books of account maintained by the assessee and also that the profit & loss account/income & expenditure account give a true and fair view of the profit/loss or surplus/deficit of the assessee for the relevant year. In pursuance of the aforesaid statutory requirements, the assessee-firm filed Audit Report in Form No.3CB accompanied by "Statement of particulars required to be furnished u/s 44AB" in Form No.3CD, before the AO. A Tax Auditor is required not only by professional ethics but also by law (i.e., the legislative scheme of section 44AB) to be impartial and objective in his reporting. Apart from being an expert in accounting, audit, tax and financial matters, a Chartered Accountant in his role as Tax Auditor is also trusted by the Legislature and that is why he has been assigned the role of a Tax Auditor under several provisions of the I-T Act. The accounts audited by him have very high evidentiary value. His report cannot be lightly ignored. It is binding on the AO except in cases falling u/s 145(3) as also on the assessee. His Audit Report cannot be discarded by an assessee at his convenience. In order to deprive the Audit Report of its high evidentiary value, the assessee must establish that the Report given by the Tax Auditor is incorrect. Unless an assessee proves that the Audit Report given by a Tax Auditor u/s 44AB is incorrect, he cannot discard it. The assessee was therefore under a very heavy burden to establish that its accounts, which have been duly audited and certified by the auditors to be correct, were, in fact, incorrect and that the audit report given by the Tax Auditor was also incorrect. In the case before us, the assessee has led no evidence either before the AO or the ld. CIT(A) to prove that the profit & loss account the correctness of which has been certified by the Tax Auditor is factually incorrect or does not correctly record the details of sales/receipts/turnover and expenses. And therefore the net profit shown in the audited profit & loss account and certified by the Tax Auditor to be correct cannot be ignored.
20. Apparent state of affairs shown in the profit & loss account would have to be treated as real unless the contrary is proved. It is reiterated too often by the courts/tribunals that the onus to prove that the apparent is not real is on the party who claims it to be so. The assessee has not discharged the aforesaid burden. Resultantly, it has to be held that the net profit of the assessee as shown at Rs.5,31,03,690/- in its audited profit & loss account is the amount of net profit on which tax has to be levied subject to the adjustments carried out in the assessment order. And we hold accordingly.
21. As stated earlier, net profit from the business of the assessee has been shown at Rs.5,31,03,690/- inclusive of the impugned sum in its audited profit & loss account. The aforesaid net profit has been worked out by the Tax Auditor after providing for all expenses. The assessee has not furnished any detail, material or evidence either before the AO or before the ld. CIT(A) or otherwise placed them on record to show that the details of expenses and profit incorporated in the said profit & loss account are incorrect. In this view of the matter, the AO was justified in taking the net profit as shown in the audited profit & loss account as profit of the business of the assessee and taxing the same accordingly.
22. We shall now consider whether there is any substance in the submission of the assessee before the CIT(A) that it is the element of real profit in sales which alone could be brought to tax and not the entire amount of sales. The assessee has invoked real income theory in support of its claim for exclusion of 80% of the impugned sum from net profit as shown in the audited profit & loss account. According to the assessee, the element of real profit in the impugned sum was only 20% and therefore only 20% was offered by it to tax. Let us therefore examine as to whether net profit as shown in the audited profit & loss account is real profit or illusory profit. Real profits are those which are not illusory. In the case before us, the assessee has indeed collected the impugned sum in cash on sale of plots. Such collections are not illusory. They are real and represent the return in money in the hands of the assessee from its own business. Income, according to Black's Law Dictionary (Sixth Edition), is the return in money from one's business, labour or capital invested; gains, profits, salary, wages, etc. Tax Auditor was well aware of the entire position. The Tax Auditor was obliged by law to ensure correctness of accounts and also to ensure that the profit & loss account and balance sheet reflected true state of affairs and not illusory state of affairs. It is after due verification of bills, vouchers, accounts of the parties, bank accounts, cash book, etc., as maintained by the assessee and due diligence exercised by the Tax Auditor in the matter that the Tax Auditor has certified not only the correctness of net profit at Rs.5,31,03,690/- but also the correctness of the impugned sum as part of the aforesaid net profit. No material has been placed either before the AO or before the CIT(A) to establish that the expenses debited and receipts/income credited to profit & loss account are incorrect. Therefore, the amount of net profit as shown in the audited balance sheet has to be taken as real profits of the assessee from its business. It is simply a case of under-reporting of sale price, which would have gone undetected if it had not been unearthed by the Revenue authorities. The Tax Auditor has since incorporated the correct amount of sale price and thereafter worked out net profit in the audited profit & loss account after providing for all expenses. The net profit so worked out by the Tax Auditor cannot, by any stretch of imagination, be said to be illusory or unreal profit of the assessee from its business. Net profit shown in the audited profit & loss account represents real profits of the assessee's business worked out after excluding all the expenses from sales/turnover/receipts. In the face of such incontrovertible facts on record, it is difficult for us to hold that the impugned sum is not real profit
23. We shall now examine as to whether there is any basis in the action of the assessee in offering 20% of the impugned sum to tax before the AO and resultantly in excluding remaining 80% of the impugned sum from its net profit as shown in the audited profit & loss account. No plausible explanation or detail or evidence for seeking such exclusion has been given by the assessee either before the AO or the ld. CIT(A). The only ground on which such exclusion could be sought would perhaps be on the ground that 20% of the impugned sum represents net profit while remaining 80% represents expenses. In this connection, reference may be made to the provisions of section 37 of the Income-tax Act which deals with deduction of expenses incurred wholly and exclusively for the purposes of business. Deduction on account of expenses incurred by an assessee is permissible only when it is established by him that (i) expenses have been incurred wholly and exclusively for the purposes of business and such expenses are not in the nature of personal or capital expenditure; (ii) such expenses have been incurred in the year in which deduction is claimed; and (iii deductibility of such expenditure is not hit by Explanation to sub-section (1) of section 37. It is the assessee-firm which was claiming deduction of 80% of the impugned sum from net profits and hence the burden was obviously on it to establish that the requirements of section 37 were satisfied. The assessee-firm has failed to discharge that burden. The claim of the assessee is thus inconsistent with the statutory provisions also. There are three principal reasons as to why 80% of the impugned sum {or 70% as determined by the ld. CIT(A)} cannot be allowed as deduction towards expenditure. One, such expenditure has not been shown in the books of account and therefore claim for such expenditure is completely inconsistent with the books of account maintained by the assessee and audited by the Tax Auditor. Two, the assessee has never furnished any detail of expenditure incurred over and above those recorded in its books of accounts or evidence in support thereof either before the AO or the ld. CIT(A) and therefore they cannot be allowed as expenditure for this reason also. Three, the claim for exclusion of 80% towards expenses is also inconsistent, in the absence of relevant details, with the provisions of section 37. In this view of the matter, we hold that the assessee has completely failed to substantiate its claim for exclusion of 80% of the impugned receipts from net profit shown the audited profit & loss account.
24. We shall now take up the reasoning given by the ld. CIT(A) for excluding 70% of the impugned sum from net profit. In Para 6.2 of the appellate order passed by him, it is stated that the possibility of incurring expenditure towards development of land, maintenance & security charges, administrative and marketing costs cannot be ruled out. According to him, it is also an undisputed reality that purchase of land requires unaccounted money to be paid in addition to consideration recorded in the books. The aforesaid observations, on the facts of the case, are not backed by any detail or evidence and therefore do not justify his order for exclusion of 70% of the impugned sum, for several reasons some of which are as under:
(i)  It is true that such expenses are inevitable but it is equally true that the assessee has maintained books of account in which such expenses, as rightly observed by the AO, have been recorded. It is not even the case of the ld. CIT(A) that such expenses have not been recorded in the books maintained by the assessee. Neither the ld. CIT(A) has given any basis to show that the assessee has incurred any expenditure over and above those recorded in the books nor has the assessee furnished any detail or evidence in support thereof. It was therefore not open to the ld. CIT(A) to imagine certain state of affairs, which are completely inconsistent with the audited books and the materials on record as also statutory provisions, and then allow relief to the assessee as he has done in the matter under appeal.
(ii)  If the ld. CIT(A) had any material outside the audited books of account to support his aforesaid findings, it was incumbent upon him to bring them on record to support his finding and thereafter inquire into the nature and source of such unaccounted money if it was paid by the assessee for purchasing the land and for meeting other expenses and to tax the same in accordance with the provisions of section 69C. It is well established that the powers of the CIT(A) in this behalf are co-terminus with those of the AO. The fact that the ld. CIT(A) has not done so itself shows that he had no material in his possession to establish that the assessee had incurred any expenditure over and above those recorded in the audited books.
(iii)  The impugned sum was collected by the assessee in the year under appeal as evident from the audited profit & loss account and incorporated in the books accordingly and hence it was obviously not available for payment at the time of purchase of land or at the stage of development of land. Besides, the impugned sum has been credited by the assessee to its audited profit & loss account and thus it stands not only incorporated as sources of funds in the books but also stands applied as per books. In this view of the matter, the impugned sum would not be available with the assessee-firm for meeting unaccounted expenditure or expenditure outside the books.
(iv)  Use of unaccounted money in purchase of land is illegal in that it seeks to avoid payment of stamp duty and other dues to the State and therefore cannot be allowed as expenditure in view of Explanation to section 37(1).
(v)  Such expenses, if they were incurred at all outside the books, would, apart from being liable to be taxed as unexplained expenditure u/s 69C, also not be available for adjustment against the impugned sum as such expenses were incurred out of unexplained sources and not out of the impugned sum as it was not available at that time for meeting such expenses.
(vi)  All the aforesaid observations made by the CIT(A) in para 6.2 of his appellate order are not supported by any detail or evidence or entries in the books and therefore have no legs to stand.
25. We shall now turn to the issue as to whether rate of net profit could at all be applied, as done by the assessee and accepted by the CIT(A), to assess the profits of the business of the assessee notwithstanding the fact that the assessee-firm itself has worked net profit in its profit & loss account. After careful analysis of the nature of the impugned receipts, we are convinced that the assessee has rightly recorded the amount of sale price in its books following recovery of incriminating materials at the time of search and therefore the net profit shown on that basis in the audited profit & loss has rightly been certified by the Tax Auditor as giving a true and fair view of the profit of the assessee from its business in the year under appeal. Rate of net profit cannot be applied so as to reduce the net profit shown in the audited profit & loss account unless the expenses, sales, turnover, receipts, etc. shown in audited profit & loss account are proved to be incorrect. Application of rate of net profit is one of the methods to assess the income of an assessee where the books of account maintained by the assessee are found by the AO to be incorrect or incomplete or not in conformity with the accounting standards notified by the Central Government or in the circumstances mentioned in sub-section (3) of section 145. In the case before us, neither the AO has invoked section 145(3) nor has the assessee led any evidence to prove that the items shown in the books of account or profit & loss account and balance sheet drawn on that basis are incorrect. Therefore, the question of application of rate of net profit, be it 20% or 30% of the impugned sum, does not arise on the facts of the case before us.
26. In Regina v. Inland revenue Commissioners Ex Parte Matrix-Securities Ltd. [1994] 1 WLR 334 (HL), Lord Templeman has observed: "Every tax avoidance scheme involves a trick and a pretence. It is the task of the revenue to unravel the trick and the duty of the court to ignore the pretence." In the case before us, the Revenue could detect realizations of sale proceeds in cash on sale of plots of land as a result of incriminating materials recovered during search. On being confronted, the assessee had no option except to admit collection of part of sale proceeds in cash. It is in this background that the impugned sum has been credited by the assessee to its profit & loss account. Tax Auditor has also certified the correctness of the impugned sum as part of net profit of the assessee. All the expenses on the development of plot were duly recorded in the books. Placed in this fact-situation, the assessee, with a view to reduce its tax liability, returned 20% of the impugned sum as income and resultantly claimed 80% thereof as expenses without furnishing even the details of expenses or evidence in support thereof. The burden was obviously on the assessee to substantiate its claim for expenses to the extent of 80% of the impugned sum, which the assessee failed to discharge. Perusal of the order passed by the AO and the CIT(A) shows that the assessee has never furnished any detail or evidence in support of such expenses either before the AO or the CIT(A). Such details or supporting vouchers were not given to the Tax Auditor also else he would have recorded them in the profit & loss account or made a comment in this behalf in his Audit Report. In the absence of details of such expenses and evidence in support thereof, it cannot be said that net profit as worked out by the Tax Auditor in profit & loss account is incorrect or does not represent the real income of the assessee. Having admitted in the profit & loss account that the impugned sum represents part of its net profit from the operations of business, the assessee cannot be allowed to plead that the said net profit should not form the basis for assessment of its income and tax thereon. There cannot be two sets of net profits: one for the general public, financial institutions, stakeholders and for distribution amongst partners and the other for income-tax authorities.
27. Perusal of the appellate order (Para 5) passed by the ld. CIT(A) shows that three judgments were cited by the assessee before the ld. CIT(A) in support of its submission that only net profit rate could be applied on the impugned sum. These judgments are: (i) CIT v. Gurubachhan Singh J. Juneja[2008] 302 ITR 63/171 Taxman 406 (Guj.); (ii) CIT v. President Industries [2002] 258 ITR 654/124 Taxman 654 (Guj.); and (iii) 201 ITR 008 (sic). First two judgments deal with assessment of profit on unaccounted sales outside the books of account. In the case before us, we are not concerned either with quantification of sales outside the profit & loss account or with application of net profit on sales detected outside the profit & loss account. In the case before us, both the sales, expenses and resultant net profit are duly reflected in the audited profit & loss account and therefore the fact-situation in the case of the assessee before us is altogether different from those in the aforesaid first two judgments. As regards third judgment, the assessee has not given full citation. However, we have perused the judgment available at page 8 of volume 201 of the Income Tax Reports, namely, the judgment in CIT v. Griffon Laboratories. The said judgment does not deal with the issue under appeal. The ld. CIT(A) has also relied upon the judgment in CIT v. Samir Synthetics Mill [2010] 326 ITR 410 (Guj.) which deals with application of net profit rate on sales not recorded in the books. For reasons similar to those given earlier, this judgment is also not applicable. Even at the cost of repetition, it deserves to be mentioned once again that the real controversy before us is not the one made out by the assessee but as to whether (i) net profit shown by the assessee-firm itself in its audited profit & loss account can at all be discarded by the assessee without bringing any material on record to show that the items together with figures incorporated in the profit & loss account are incorrect; and (ii) 80% of the impugned sum can be treated as expenditure, as claimed by the assessee, in the absence of any even basic details, material or evidence in support thereof. None of the judgments cited by the assessee before the CIT(A) or relied upon by the CIT(A) says that the assessee can discard its own audited profit & loss account without bringing any detail or evidence on record to establish that the items and figures mentioned in the audited profit & loss account are incorrect. The assessee-firm has not proved that its own profit & loss account the correctness of which has been duly certified by the assessee as well as its auditor is incorrect. In this fact-situation, none of the judgments relied upon by the assessee or by the ld. CIT(A) would help the assessee.
28. In view of the foregoing, we are unable to agree with the ld. CIT(A) that 30% of the impugned sum alone is liable to be taxed. His order suffers from several infirmities some of which are as under:
(i)  Ld. CIT(A) ought to have appreciated the fact that even the AO was not authorized by law to discard the net profit shown in audited profit & loss account without invoking section 145(3). It was not open to the ld. CIT(A) to discard audited profit & loss account without bringing any material on record to establish that the said profit & loss account was incorrect. He ought to have further appreciated that the net profit on the basis of which the AO has assessed the profits of the assessee's business was based on Audit Report and that the assessee gave no material to establish that the said audit report was incorrect.
(ii)  He also failed to notice that the assessee-firm itself has shown the impugned sum as part of its net profit in the audited profit & loss account and therefore it was liable to be included in its entirety for tax purposes subject to statutory allowances/disallowances and not 70% thereof. There is no reference to the audited profit & loss account and audit report in the entire operative portion of his order, i.e., Para 6 of the order of CIT(A). He thus failed to consider the most relevant evidence, i.e., audited profit & loss a/c.
(iii)  He acted upon those submissions of the assessee which were neither supported by any detail nor evidence. He straightaway applied certain decisions referred to by the assessee without examining as to whether the case of the assessee fits in those fact-situations or not.
(iv)  Having noted that there was no evidence to establish that the assessee-firm had incurred any expenditure to earn the impugned sum, the ld. CIT(A) still allowed 70% of the impugned sum as expenditure ignoring the fact that the claim for such deduction was not only inconsistent with the assessee's own audited books of account but also the statutory provisions contained in the Income-tax Act. He proceeded to assume without there being any evidence on record that the assessee-firm must have paid unaccounted money for purchasing the land and developing it before selling them.
29. Materials available on record clearly indicate that the impugned sum would have gone completely untaxed if the Revenue authorities had not carried out search operations. No evidence was found even at the time of search that the assessee had incurred any expenditure over and above those reflected in the books. In the face of recovery of such materials during search operations, the assessee had no option except to credit the impugned sum as a whole to its profit & loss account. After crediting the impugned sum to the profit & loss account as a result of detection by the Revenue, the assessee made yet another attempt to evade payment of legitimate taxes due to the State by excluding 80% of the impugned sum from net profit worked out by the Tax Auditor in the audited profit & loss account, which the assessee failed to substantiate. The assessee has deliberately suppressed and thereby concealed the particulars and/or furnished inaccurate particulars of its true income in the return of income by claiming deduction to the extent of 80% with full knowledge that claim for such deduction was inconsistent with its own audited books of account and statutory provisions of the Income-tax Act and therefore completely untenable on facts and in law. It is an open and shut case of bogus claim for deduction to the extent of 80% of the impugned sum so as to evade payment of legitimate taxes due to the State.
30. In view of the foregoing, we are unable to sustain the impugned order passed by the ld. CIT(A). His order is therefore reversed and that of the AO restored. Resultantly, the appeal filed by the Revenue is allowed.

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Regards,