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Income Tax Appellate Tribunal, AHMEDABAD – BENCH ‘D’
Before: SHRI RAJPAL YADAV & SHRI PRADIP KUMAR KEDIA
PER RAJPAL YADAV, JUDICIAL MEMBER : Present two appeals are directed at the instance of the assessee against common orders of the ld.CIT(A)-9, Ahmedabad dated 5.4.2016 passed for the Asstt.Years 2007- 08 and 2008-09.
Registry has pointed out that both the appeals filed by the assessee are time barred by 33 days each. In order to explain the delay, the assessee has filed common delay condonation application supported by the affidavit of Shri Mustakahmed M. Maniar being administrative head of the company. It is pleaded in the application that due to Holy month
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of Ramadan, the common order passed by the ld.CIT(A) 5.4.2016 could not be brought to the notice of Board of Directors by the concerned staff for taking decision to file appeal before the Tribunal, and therefore, delay being minimal and that too caused due to bona fide mistake, the delay in filing both the appeals be condoned and the appeals of the assessee may be admitted for adjudication on merit.
After hearing both the sides, we find that the assessee is prevented by bona fide reasonable cause and due to which delay was caused in filing appeals before the Tribunal in time. Therefore, in the interest of justice, delay in filing both the appeals of the assessee is condoned, and both the appeals are taken up for hearing on merit.
Now we proceed to decide both the appeals of the assessee on merit. In the first ground of appeal, the assessee has pleaded that the ld.CIT(A) has erred in upholding reassessment order under section 143(3) r.w.s. 147 of the Act.
Brief facts of the case are that the assessee-company had filed its return of income on 29.10.2007 and 28.9.2008 declaring total income at Rs.72,700/- and Rs.5,81,456/- in the Asstt.Year 2007-08 and 2008-09. The assessee company at the relevant time was engaged in the business of manufacturing of iron, iron bars etc. Central Excise department conducted a search at the factory premises of the assessee-company on 22/23.11.2007 and it came out in the search that the assessee had made unaccounted sales of hot rolled twisted bars of 2,21,190 kgs. amounting to Rs.50,50,390/- for the financial year 2006-07 and 2007-08. Since the assessee did not dispute about the sales outside the book, paid excise
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duty, interest and penalty etc. on those unaccounted sales. On the basis of that information notice under section 148 was issued and assessments were reopened. Reopening has been upheld by the ld.CIT(A).
Before us, arguments have not been advanced emphatically, and therefore, we do not find any error in the order of the ld.CIT(A) for upholding reopening of the assessment.
In the second ground of appeal, grievance of the assessee is that the ld.CIT(A) has erred in confirming the addition of Rs.74,931/- and Rs.11,87,667/- being 25% of alleged unaccounted sales in the Asstt.Year 2007-08 and 2008-09 respectively. As stated above, Excise Department has able to lay its hand on unaccounted sales on which the assessee avoided payment of excise duty. On the basis of evidence transmitted by Central Excise Department, the AO has worked out unaccounted sales of Rs.47,50,666/- in the Asstt.Year 2007-08 and Rs.2,99,724/- in the Asstt.Year 2008-09. He estimated the profit on such sales at 25% and made addition of Rs.11,87,667/- in the Asstt.Year 2007-08 and Rs.74,931/- in the Asstt.Year 2008-09. On appeal, the ld.CIT(A) has confirmed this addition. The relevant finding in paragraph 5.4 is worth to note in this connection. It reads as under:
“5.4 In the light of above referred facts and circumstances, I am of the considered; opinion that A.O. has rightly considered the amount of Rs.47,50,666/- as sales outside of the books of account, at the same time considering 25% of the same amounting to Rs 11,87,667/- for A:Y. 2007- 08 as the Income of the appellant. As the appellant had already claimed the cost of raw material as well as indirect expenses in production, I am of the considered opinion that A.O has rightly applied the rate of 25% for calculating the income earned by the appellant on n sale of goods amounting toRs.47,50,666/- for A.Y 2007-08, Similarly, for A.Y.2008-09 I agree with the AO for applying the rate of 25% for arriving the income
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of the appellant on sale of illegally removed excisable goods which were not reflected in the books of account as discussed above. For A.Y, 2008-09 the A.O. has assessed the income at Rs.74,931/- on sales outside the books of account for Rs.2,99,724/-. Accordingly, ground Nos.2,3 & 6 are hereby dismissed for both A.Y.2007-08 & 2008-09.”
While impugning order of the ld.CIT(A),the ld.counsel for the assessee has submitted that gross sales cannot be added. Only GP involved in this sale is only to be added. He pointed out that GP during this year was 5.4% and therefore, the ld.CIT(A) ought to have upheld the addition to the extent of 5.4% of the unaccounted sales determined by the AO in both the years. For buttressing his contentions, he relied upon the judgment of Hon’ble Gujarat High Court in the case of CIT Vs. President Industries, 258 ITR 654 (Guj) and in the case of CIT Vs. Gurubachhan Singh J. Juneja, 302 ITR 63 (Guj). He took us through both these decisions. On the other hand, the ld.DR relied upon the finding of the ld.CIT(A) recorded in para 5.4 extracted (supra).
We have duly considered rival contentions and gone through the record carefully. The contention of the ld.counsel for the assessee was that whenever any income has to be determined in this type of situation, then instead of adding gross sales, only profit element involved in this sale is to be identified and admitted. He brought to our notice judgment of Hon’ble Gujarat High Court and emphasised that Hon’ble High Court in both the occasions were unanimous in their conclusions that gross sales cannot be added. From the judgments in the case of President Industries (supra) emphasis was supplied on the following finding: “…Having perused the assessment order made by the Assessing Officer, the order made by the Commissioner of Income-tax (Appeals) and the
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Income-tax Appellate Tribunal, we are satisfied that the Tribunal was justified in rejecting the application under section 256(1). It cannot be matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represented the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that investment by way of incurring the cost in acquiring the goods which have been sold has been made by the assessee and that has also not been disclosed. In the absence of such finding of fact the question whether the entire sum of undisclosed sale proceeds can be treated as income of the relevant assessment year answers by itself in the negative. The record goes to show that there is no finding nor any material has been referred about the suppression of investment in acquiring the goods which have been found subject of undisclosed sales.”
We have duly considered this submission of the assessee; but in the present case to our mind this decision goes against the assessee. If the above finding of the Hon’ble High Court is read, then it would reveal that Hon’ble High Court has specifically observed that sales is the realization of the excess over the cost incurred and that only form part of the profit included in the consideration for the sales. Let us explain this concept with an example. Say, an assessee is engaged in manufacturing of a product; for example, iron bar. It had incurred cost of Rs.100/- on material and other indirect cost which has resulted in finished products of having value of Rs.130/-. The assessee has recognized the sales at Rs.110/- in its books of accounts and kept remaining Rs.20/- out of books as unrecorded sales. Now the cost representing the value of finished goods has already been debited by the assessee in the books and claimed under inflated expenditure. In this situation, the excess realization by the assessee at Rs.20/- under the head “unrecorded sales” than that total has to be added. This judgment does not say that in every
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situation an estimated profit is to be calculated. In the present case, we have extracted the finding of the ld.CIT(A) which was not challenged before us by inviting our attention to any aspect. The ld.CIT(A) has observed that “as the appellant had already claimed the cost of raw material as well as indirect expenses in production, I am of the considered opinion that AO has rightly applied the rate of 25%...” The ld.CIT(A) has specifically recorded a finding that cost has been debited by the assessee in the regular books and only sale consideration kept outside the books. In this situation higher rate of profit deserves to be applied upon the assessee. Both these judgments of the Hon’ble jurisdictional High Court are not applicable on the given facts. Hence, we do not find any merit in these appeals. They are dismissed.
In the result, both appeals of the assessee are dismissed. Pronounced in the Open Court on 6th March, 2019.
Sd/- Sd/- (PRADIP KUMAR KEDIA) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER