My freind Pratik is under going an scrutiny from Income Tax. The case is as follows:
His uncle started a business on his name of Diamond Trading in Surat. For the Business his uncle opened a Bank account in Axis Bank for the Financial Year 2011-12. He was just adviced to sign blank cheques and other activity of business was carried out by his uncle. He nither knew about what was happening about that business. When he received his Income Tax return the turnover was 100cr. in which the profits was only 4 Lakhs shown. Now, from last 1 and half years he was receiving notice from Income Tax to present the Sales and Purchase Register and Bank Statement. He contacted the uncle but uncle was not available at that moment. Uncle adviced directly to visit the CA who had audited his accounts but CA refused to attend the notice on behalf of him. He contacted the orginal party who did all the transactions on his name. They also did not entertained him. At last he appointed a new CA to attend the Case. They both went to the Assesing Officer and informed him orally about the whole story. The AO issued 133(6) summon to the orginal party and the Bank to provide the details of my freind. As soon as the notice was received by the original party and the CA both became active and CA summited all Purchase and Sales register and Bank statements but that my friend had given him for submission. The AO asked for Letter of Authority from the CA but he didn't had the same and left. AO called my friend and told to give statement in written for the whole story but my friend did not submitted and left from his office as his new CA adviced not to submit because if the orginal party did not accept the case then all the liabilty would be transfered to pratik. AO wanted to close the case by 31st Mar 2015 but was unable to do. In this Case the AO is not agreeing with the calculation of Profit Margin which is shown as 0.04% on the total turnover. AO says the profit should be atleat 4% on the total turnover rather than 0.04%
Please advise now what action should pratik take as he is innocent on the case and do not want any further liability.
02 April 2015
As per my understanding, your friend has less chances to win the case. It is adviced from my side, agree 4% net profit on the turnover and pay the tax and finish the matter.
Because, in the legal sense, Your friend is the owner of the business though his uncle done all the business in his name.
In case, your friend gave written statement of the whole story also, it not very easy to prove that, his uncle fraudulently done all the activities.
In the other side: Your friend first file a police complaint regarding cheating and fraud against his uncle, then file suit in the civil court. If the court decide the case in the favour of your friend, then he can escape from scrutiny case of income tax.
It better to consult the good lawyer in your city.
Querist :
Anonymous
Querist :
Anonymous
(Querist)
02 April 2015
Hello Shiva,
Thanks for the suggestion. There is no way to win the case in the Tribunal Appeal. If we provide with the standards of the similar firm. If you have any standards of Profit Margin with you of Diamond Trading. Can you send
02 April 2015
The department normally, consider the average rate of profit in the similar industry. however, there is no rule that, every firm should book profit only.
In case, your company shown the loss in the books or below average rate of profit of similar industry, you should clarify the doubts of the AO during the assessment.
Normally, AO will ask for proofs. However, it is always differs on case to case. Each case is unique. The CA should present your case effectively. That depends on your CA only.
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