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Facts
The assessee, engaged in retail jewellery trading, faced a search and seizure action at a shareholder's premises which led to the admission of undisclosed income for multiple assessment years (AYs 2011-12, 2012-13, 2015-16, 2016-17). The Assessing Officer made additions based on this admission and revised Profit & Loss statements provided by the shareholder, which were confirmed by the CIT(A). The assessee contended that the revised statements failed to properly account for opening and closing stock of inventory and showed conflicting gross profit ratios.
Held
The Tribunal found inconsistencies in the computation of net profit, noting that opening and closing stock were not properly considered in the revised Profit & Loss accounts. Specifically, the closing stock of AY 2011-12 was not treated as opening stock for AY 2012-13. Given these discrepancies, the Tribunal condoned the minor delay in filing appeals and remanded the cases back to the Assessing Officer for fresh consideration, with directions for the assessee to cooperate in verifying the workings.
Key Issues
Whether the CIT(A) was justified in confirming the addition of undisclosed income based on the Assessing Officer's findings from a search action, specifically regarding the proper computation of net profit considering opening and closing stock of inventory.
Sections Cited
139, 143(1), 132, 132(4), 153C, 143(3), 143(2), 142(1)
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Before: Shri S.S. Viswanethra Ravi & Shri Jagadish
O R D E R
PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER:
These appeals filed by the assessee are directed against different orders all dated 17.10.2024 passed by the ld. Commissioner of Income Tax (Appeals) – 20, Chennai for the assessment years 2011-12, 2012-13, 2015-16 and 2016-17.
Since issues raised in these appeals are similar based on the same identical facts, with the consent of the both the parties, we proceed to hear the appeals together and pass consolidated order for the sake of convenience.
First, we shall take-up appeal in for AY 2011-12 for adjudication.
We find that this appeal is filed with a delay of 2 days. The assessee filed an affidavit for condonation of delay stating the reasons. Upon hearing both the parties and on examination of the said affidavit, we find the reasons stated by the assessee are bonafide, which really prevented in filing the appeal in time. Thus, the delay is condoned and admitted the appeal for adjudication.
The assessee raised 12 grounds of appeal amongst which, the only issue emanates for our consideration as to whether the ld. CIT(A) is justified in confirming the addition made by the Assessing Officer towards undisclosed income by concluding the assessment under section 143(3) r.w.s. 153C of the Income Tax Act, 1961 [“Act” in short] in the facts and circumstances of the case.
Brief facts of the case are that the assessee is engaged in the activities of retail trading of jewellery and filed original return of income under section 139 of the Act admitting total income at ₹.17,77,070/-. The return was processed under section 143(1) of the Act accepting the returned income as total income for the year under consideration. A search and seizure action under section 132 of the Act was conducted on 23.11.2016 at the business and residential premises of Shri B. Ayyappan (one of the shareholders of assessee-company). During the course of search, electronic device and incriminating documents indicating unaccounted income were seized. A sworn statement under section 132(4) of the Act was recorded from Shri B. Ayyappan on 20.01.2017, wherein, he accepted that the assessee had unaccounted income and admitted undisclosed income of ₹.11,51,18,827/- in the hands of assessee for the AY 2011-12, AY 2012-13, AY 2015-16 and AY 2016-17. Considering the satisfaction note recorded by the Assessing Officer of Shri B. Ayyappan, based on the seized material, the Jurisdictional Assessing Officer of the assessee issued notice under section 153C of the Act dated 04.10.2018 to the assessee. In response to the said notice, the assessee filed its return of income on 15.11.2018 declaring the total income of ₹.17,11,070/-, as was declared in the original return. Further, the Assessing Officer issued notice under section 143(2) of the Act was issued on 30.11.2018 and duly served upon the assessee on 05.12.2018. Subsequently, notice under section 142(1) of the Act dated 03.12.2018 was issued calling for information various points declared in the return filed. In response to the above notice, the assessee failed to furnish any details, documents or explanation. Thereafter, the Assessing Officer issued a show-cause notice on 17.12.2018, which is reproduced at page 2 to 6 of the assessment order. In reply the assessee submitted part details and documents on 21.12.2018 as asked for vide notice under section 142(1) of the Act. According to the Assessing Officer, the assessee failed to furnish any details, documents and explanation in respect of the seized documents which contains the details of unaccounted sales and purchases as determined by the search team during the course of search and seizure operation conducted in the case of Shri Ayyappan. From the seized materials, after extracting data from the hard disk, the Assessing Officer noted unaccounted data of old gold purchases and sales which were maintained by the assessee-company in three databases. The Assessing Officer reproduced the sworn statement recorded under section 132(4) of the Act dated 20.01.2017 from Shri B. Ayyappan at page 8 to 12 of the assessment order. According to the Assessing Officer, in reply to question No. 4, Shri B. Ayyappan, husband of Smt. A. Premlatha, director of the assessee M/s. Kathir Kaman Jewels Pvt. Ltd. admitted net profit at ₹.11,51,18,827/- as undisclosed income in the hands of M/s. Kathir Kaman Jewels Pvt. Ltd. for AY 2011-12 [₹.4,97,89,178/-], AY 2012-13 [₹.5,41,26,315/-], AY 2015-16 [₹.83,45,836/-] & AY 2016-17 [₹.28,57,498/-]. Since the assessee could not furnish any details, documentary evidence and explanation to the final show-cause notice issued on 17.12.2018, the Assessing Officer treated the net profit as admitted by the assessee at ₹.4,97,89,178/- for AY 2011- 12 as undisclosed income of the assessee and added to the income of the assessee and determined the total assessed income at ₹.5,15,66,249/-.
Aggrieved by the assessment order, the assessee preferred an appeal before the ld. CIT(A). In response to various hearing notices issued by the ld. CIT(A) and since the AR of the assessee could not furnish any explanation, documentary evidences in support of grounds raised by the assessee, based on the materials available on record, the ld. CIT(A) confirmed the addition made by the Assessing Officer and dismissed the appeal filed by the assessee. On being aggrieved, the assessee is in appeal before the Tribunal.
The ld. AR Shri T. Banusekar, Advocate submits that non- compliance to the hearing notices issued by the ld. CIT(A) is neither wilful nor deliberate but due to circumstances beyond assessee’s control. He further submits that the Assessing Officer has simply referred to the working of net profit furnished in the sworn statement recorded under section 132(4) of the Act on 20.01.2017, wherein, Shri B. Ayyappan has failed to compute the net profit/loss statement without considering the opening stock and closing stock of inventory i.e., accounted sales and unaccounted purchases. The ld. AR brought on record various details such as balance sheet, profit & loss account, financial statements as well as an affidavit of the Director of the assessee-company, wherein, the assessee undertakes to provide full cooperation before the Assessing Officer and prayed that, one more opportunity may be afforded to the assessee to substantiate its claim before the Assessing Officer.
The ld. DR Shri C.N. Bipin, CIT opposed the same and drew our attention to para 4.1 of the impugned order and argued that the ld. CIT(A) afforded ample opportunities to the assessee, but, it was not availed.
Heard both the parties and perused the material available on record. The assessee company is engaged in the activities of retail trading of jewellery. A search and seizure action under section 132 of the Act was conducted on 23.11.2016 at the business and residential premises of Shri B. Ayyappan (One of the shareholders of assessee- company). A sworn statement under section 132(4) of the Act was recorded from Shri B. Ayyappan on 23.11.2016 and 20.01.2017. In the sworn statement dated 23.11.2016, the submissions recorded by Shri B.Ayyappan in response to Q. No. 21 which was extracted at page 19 of the impugned order is reproduced herein below for better understanding:
I do not have any prima facie objections to the data. I admit that there has been unaccounted sales which was recorded Smt.L.Lalitha as instructed by me. However, I require time to check the data and get back to you with its deficiencies. One deficiency that comes to my mind is that, even if I adopt a 6% gross profit for the total sales shown which is ₹.102.69 Crores, I should get a gross profit of only ₹.6.16 Cr. The suppressed profit for the last 6 years (FY 2010-11 to till date) amounting to ₹.6.16 Crores will be admitted by me across the above mentioned financial years, the details of which will be submitted by me in due date
We note from the above reply as it is evident that the gross profit of the business is around 6% and the gross profit on total sales taken together is around ₹.6.16 Crores. Further in the sworn statement dated 20.01.2017, Shri B. Ayyappan, in response to Q.No. 4, had furnished revised net profit and loss account statement for AY 2011-12, 2012-13, 2015-16 & 2016-17. At the time of completion of assessment proceedings the Assessing Officer had relied on the revised net profit and loss statement provided by the Shri B. Ayyappan on 20.01.2017. The Assessing Officer reduced the profit offered by the assessee at the time of filing return of income from the above net profit to arrive at the assessed income of the assessee. In the revised net profit & loss statement provided on 20.01.2017, Shri B. Ayappan has considered the accounted sales as well as unaccounted sales and accounted purchases as well as unaccounted purchases at the time of computing the revised net profit and loss of the assessee.
Ld AR vehemently contended that in the revised net profit & loss statement computed by Shri B. Ayyappan has not even considered the opening stock and closing stock of inventory (i.e. accounted and unaccounted) maintained by the assessee to arrive at revised Net Profit / Net Loss. Further, the gross profit disclosed in the sworn statement dated 23.11.2016 (i.e. 6%) and the gross profit computed in the revised net profit & loss statement by Shri B. Ayyappan on 20.01.2017 are themselves conflicting with each other. Shri B. Ayyappan has disclosed different gross profit ratio at different point in times.
We note from the assessment year 2011-12 that it can be seen from revised Profit & Loss Account at page 1 that the accounted sales is nothing but what is credited as Kathir Kaman and excess tally aggregating to ₹.18,11,55,919/- which is exactly matching with the Profit & Loss Account furnished along with the original return of income. The alleged unaccounted sales are shown in Profit & Loss Account as test amounting to ₹.9,21,88,058/-. The alleged unaccounted purchases similarly is ₹.5,46,60,854/- (i.e. ₹.4,81,96,726/- + ₹.64,64,128/-). It can be seen that the alleged unaccounted purchases of ₹.4,81,96,726/- has been allegedly sold for ₹.9,21,88,058/- which is 169% of the alleged unaccounted purchases which is impossible in this line of business. Further, he submits that no fault has been found with the Profit and Loss account in respect of accounted transactions where the profit is only ₹.17,70,070/- and he drew our attention to the accounted transaction from Profit & Loss Account, which as under: Particulars Amount Amount Amount Kathir Kaman Sales 17,10,66,059 Excess Tally Sales 1,00,89,860 18,11,55,919 Less: Kathir Kaman purchases 6,44,82,544 Tally bill purchases 8,45,41,407 Indirect Expenses 1,58,72,071 16,48,96,022 Net Profit 1,62,59,897 14. We note from the above, the net profit of the assessee as per the tabulation is ₹.1,62,59,897/-, which only goes to show that opening stock and closing stock if not taken cannot represent the income of the assessee.
Similarly for AY 2012-13, it can be seen from revised Profit & Loss Account page 2 that the accounted sales is nothing but what is credited as Kathir Kaman and excess tally aggregating to ₹.17,32,88,755/- which is exactly matching with the Profit & Loss Account furnished along with the original return of income. The alleged unaccounted sales is shown in Profit & Loss Account as Test amounting to ₹.13,04,10,517/-. The alleged unaccounted purchases similarly is ₹.9,69,71,697/- (i.e. ₹.7,04,70,774/- + ₹.2,65,00,923/-). It can be seen that the alleged unaccounted purchases of ₹.7,04,70,774/- has been allegedly sold for ₹.13,04,10,517/- which is 135% of unaccounted purchases. It is seen that no fault has been found with the Profit and Loss account in respect of account where the profit is only ₹.63,32,530/-, if the accounted transaction are from Profit & Loss Account, which would be as under: Particulars Amount Amount Amount Kathir Kaman Sales 14,21,73,495 Excess Tally Sales 3,11,15,260 17,32,88,755 Less: Kathir Kaman purchases 81,39,305 Tally bill purchases 12,60,09,325 Indirect Expenses 1,48,24,142 14,89,72,772 Net Profit 2,43,15,983 16. We find from the Net profit of the assessee as per the tabulation is ₹.2,43,15,983/-, thus, we hold that opening stock and closing stock if not taken cannot represent the income of the assessee, further, we note that even the closing stock of assessment year 2011-12 is not considered as opening stock of assessment year 2012-13. Considering the facts and circumstances, the discussion had above; we remand the issue to the file of the Assessing officer to verify the workings provided by Shri. B. Ayyappan, keeping all the issues opens to the assessee and the Assessing Officer. Keeping in view AY 2011-12 (FY 2010-11) being old, the assessee shall co-operate in the assessment proceedings, otherwise, in case the assessee fails to co-operate, the Assessing Officer shall proceed with assessment in accordance with law. Thus, the grounds raised by the assessee are allowed for statistical purposes.
– AY 2012-13 17. We find that this appeal is filed with a delay of 2 days. The assessee filed an affidavit for condonation of delay stating the reasons. Upon hearing both the parties and on examination of the said affidavit, we find the reasons stated by the assessee are bonafide, which really prevented in filing the appeal in time. Thus, the delay is condoned and admitted the appeal for adjudication.
We find the issue in AY 2012-13 are similar to the facts and circumstances relevant to AY 2011-12 in wherein, we have remanded the matter to the file of the Assessing Officer for fresh consideration and, therefore, we hold our findings would be equally applicable to the assessment year under consideration. Thus, the grounds raised
by the assessee for AY 2012-13 are allowed for statistical purposes. – AY 2015-16
19. We find that this appeal is filed with a delay of 2 days. The assessee filed an affidavit for condonation of delay stating the reasons. Upon hearing both the parties and on examination of the said affidavit, we find the reasons stated by the assessee are bonafide, which really prevented in filing the appeal in time. Thus, the delay is condoned and admitted the appeal for adjudication.
We find the issue in AY 2015-16 are similar to the facts and circumstances relevant to AY 2011-12 in wherein, we have remanded the matter to the file of the Assessing Officer for fresh consideration and, therefore, we hold our findings would be equally applicable to the assessment year under consideration. Thus, the grounds raised by the assessee for AY 2015-16 are allowed for statistical purposes.
AY 2016-17 21. We find that this appeal is filed with a delay of 2 days. The assessee filed an affidavit for condonation of delay stating the reasons. Upon hearing both the parties and on examination of the said affidavit, we find the reasons stated by the assessee are bonafide, which really prevented in filing the appeal in time. Thus, the delay is condoned and admitted the appeal for adjudication.
We find the issue in AY 2016-17 are similar to the facts and circumstances relevant to AY 2011-12 in wherein, we have remanded the matter to the file of the Assessing Officer for fresh consideration and, therefore, we hold our findings would be equally applicable to the assessment year under consideration. Thus, the grounds raised by the assessee for AY 2016-17 are allowed for statistical purposes.
In the result, all the appeals filed by the assessee are allowed for statistical purposes. Order pronounced on 23rd July, 2025 at Chennai.