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Income Tax Appellate Tribunal, DELHI BENCH: ‘D’ NEW DELHI
Before: SHRI R. K. PANDA & MS SUCHITRA KAMBLE
This appeal is filed by the Revenue against the order dated 28/3/2014 passed by CIT(A) -XXXIII, New Delhi for Assessment Year 2007-08.
The grounds of appeal are as under:-
1. “On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in directing the A.O. to take the GP of unaccounted sale of Rs. 49,40,736/- as no separate addition was made for the source of unaccounted sale.
2. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the addition of Rs. 95,91,030/- on account of low GP Rate even though the CIT(A) has affirmed the rejection of books of account u/s 145A as the assessee failed to produce the complete set of books of account, the result declared by the assessee on the basis of incomplete books cannot be accepted and thus the book results of the assessee were rightly rejected u/s 145A of the Income Tax Act, 1961.
3. The order of the CIT (A) is erroneous and is not tenable on facts and in law.
4. The appellant craves leave to add, alter or amend any/all of the grounds, of appeal before or during the course of the hearing of the appeal.”
The Assessee company is engaged in the business of manufacturing of packing material and trading of plastic granules. Original return of income declaring income of Rs. 19,12,110/- was filed on 30.10.2007 and the same was assessed under section 143(3) vide order dated 18.07.2008. Subsequently, search and seizure action under section 132(1) was carried out in Kurele group on 19.01.2009 and assessee’s case was centralized from Kanpur to Delhi with ACIT, Central Circle-23, New Delhi and notice under section 153A was issued. In response return declaring the already assessed income of Rs. 17,12,110/- (i.e. after reducing Rs. 2 lakhs on account of apparent mistake in the claim of depreciation) was filed on 26.10.2010. Finally, assessment was framed at an income of Rs. 1,69,22,000 (as against the returned income of Rs. 17,12,110) vide order dated 31.12.2010 and the additions made are as under:
Income as assessed u/s 143(3) vide order dated 18.7.2008 19,12,110/- (instead of returned of returned income of Rs.17,12,110/- Add: Addition for unaccounted stock: 4,78,125 49,40,736 ) Unaccounted/Excess stock of 6,375 Kg of Plastic Granules found in search on 30.5.2006 by DGCEI and valued at Rs.4,78,125 49,40,736 Addition for 41,172.80 Kg. of laminated pouch film being dispatch of goods as mentioned in the ‘kaccha book’ and valued 54,18,861 at Rs.49,40,736 Add: Addition by applying GP rate of 11.9% (as declared by the assessee in AY 2009.10) instead of GP rate of 6.16% shown by 95,91,030 rejecting book results U/s 145A due to failure to produce complete set of books of account Assessed Income Rs. 1,69,22,001
Being aggrieved by the Assessment order. The assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
The Ld. DR submitted that the original return of income was filed on 30.10.2017, which was assessed u/s 143(3) on 18.07.2008. During the financial year 2006-07, there has been a search by D.G.C.E.I, which led to detection of evidence of unaccounted sales of 41172.80 kgs. of laminated pouches. In addition unaccounted plastic granules (raw material) of 6375 kgs. were also found. Statement of Jang Bahadur Singh Chandel, an employee and Shri Pramod Kumar Mishra, Prop. M/s Alok Road Line was also recorded which confirmed unaccounted sales. The statement of Sh Sanjay Kumar Kurele, one of the main persons of assessee group, was also recorded, who admitted unaccounted sales. There was also a search u/s 132 of the Income Tax Act, 1961 on 19.01.2009, consequent to which assessment orders u/s 143(3)/153A was passed. The CIT(A) observed that seized material included certain books of account of the assessee. The unaccounted sales and stock found by excise authorities and communicated to Income Tax Department was not reflected therein. The CIT(A) in para 5.3 and 6.3, confirmed rejection of books of accounts and upheld the findings of the Assessing Officer regarding unaccounted sales. However, he sustained addition only to the extent of GP on unaccounted sales and estimated GP rate was reduced to 6.16%, being the GP as per Books in A.Y. 2007-08 rather than 11.9% being GP as per books for A.Y. 2009-10. Moreover, the addition for unaccounted sales of Rs. 49,40,636 of pouches (Excise valuation), totaling Rs. 54,18,861/- has been deleted by the CIT(A). The Ld. DR submitted that the CIT(A) presumed that unaccounted sales are out of accounted finished goods. The corresponding addition for unaccounted investment has to be made by the CIT(A). The Ld. DR submitted that excise valuation is lower than sales value. The Ld. DR further submitted that the addition of unaccounted stock of granules of Rs. 4,78,125 (Excise valuation) was deleted with strange finding which practically amounts to setting aside the issue. The Ld. DR submitted that I.T. authorities can use evidence found by excise authorities but are not bound by their order. Since CIT(A) confirmed legal validity of invoking section 153A and there is apparently no CO or appeal of the assessee in respect of the same, the said issue is not being argued, the appeal be allowed.
The Ld. AR submitted that the addition of Rs. 49,40,736 was made by the Assessing Officer by holding it to be unaccounted stock. However, looking to the facts CIT(A) found it to be only unaccounted turnover. It is trite law that in case of unaccounted turnover, only addition of profit embedded therein can be made as held by the Hon’ble MP High Court in the case of CIT vs. Balchand Ajit Kumar [2003] 263 ITR 610 (MP) and Hon’ble Gujarat High Court in the case of CIT vs. President Industries [2002] 258 ITR 654 (Guj). Further, it has been held by the Hon’ble Calcutta High Court in the case of CIT vs. S.M. Omer (1993) 201 ITR 608 (Cal) that in such circumstances AO cannot take resort to Section 69 of the IT Act, 1961, and only net profit rate has to be applied. So far as the rejection of books of accounts and estimation of GP rate is concerned, the Ld. AR submitted that complete books of accounts were already available with the Assessing Officer in the soft copy as the same were seized in the form of two CDs as per Annexure-N to the Panchnama. In any case, complete books of accounts stood produced before the Assessing Officer in 143(3) assessment wherein the GP rate as shown by the assessee stood accepted; therefore, there was no valid reason to disturb the same.
We have heard both the parties and perused all the relevant material available on record. The CIT(A) held as under:
“6.3 Decision:-
I have considered the assessment order, written submission & oral arguments of Ld. AR.
I hereby confirm the rejection of books of accounts u/s 145 (3) as I have held in earlier paragraph that the appellant is found engaged in unaccounted turnover outside books of accounts.
However, I do not approve the application of gross profit enhancement @ 11.9% against declared gross profit ratio @ 6.16%. As gross profit ratio of 11.9 is relating to subsequent A.Y. The addition confirmed in earlier paragraph is on account of increase in profit over & above the book results. Accordingly this ground of appeal is partly allowed.”
From the facts it emerges that the Assessing Officer wrongly observed the unaccounted turnover as unaccounted stock. The CIT(A) has correctly taken the actual facts and taken into account the unaccounted turnover. The decision in case of Balchand Ajit Kumar (supra) and President Industries (supra) are applicable in the present case and thus in case of unaccounted turnover, only addition of profit embedded therein can be made. The Ld. AR also relied upon the case of S. M. Omer (supra) wherein it is held that in such circumstances Assessing Officer cannot take resort to Section 69 of the Act and only net profit rate has to be applied which has been correctly done by the CIT(A). As regards to the rejection of books of accounts and estimation of GP rate is concerned, the Ld. AR submitted that complete books of accounts were already available with the Assessing Officer in the soft copy as the same were seized in the form of two CDs as per Annexure-N to the Panchnama. From the records it appears that complete books of accounts were produced before the Assessing Officer in 143(3) assessment wherein the GP rate as shown by the assessee was accepted. Thus, we are not inclined to interfere with the findings of the CIT(A). Therefore, appeal of the Revenue is dismissed.
In result, appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 29th November, 2018.
Sd/- Sd/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 29/11/2018 R. Naheed * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT
ASSISTANT REGISTRAR ITAT NEW DELHI Date of dictation 08 .10.2018 Date on which the typed draft is placed before the 09 .10.2018 dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr. PS/PS
Date on which the fair order is placed before the Dictating Member for pronouncement
Date on which the fair order comes back to the Sr. 29.11.2018 PS/PS Date on which the final order is uploaded on the 29.11.2018 website of ITAT Date on which the file goes to the Bench Clerk 29.11.2018 Date on which the file goes to the Head Clerk