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Income Tax Appellate Tribunal, ‘’ A’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal and CO have been filed at the instance of the Revenue and the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-2, Vadodara, dated 06/11/2015 (in short “Ld. CIT(A)”) arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act 1961 (here-in-after referred to as "the Act"). The assessee has filed the Cross Objection
With C.O.No.45/Ahd/2016 A.Y. 2011-12 2 in the Revenue’s appeal bearing Assessment Year 2011-2012.
The Revenue has raised the following grounds of appeal:
1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.2,17,28,079/- made on account of additional undisclosed income, without appreciating the facts discussed in the assessment order, wherein the A.O. rightly worked out the undisclosed sales applying GP rate of 10.32% on the cash seized & thereafter worked out the GP rate of @25% on the said bogus/ suppressed sales
2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition by holding that the action of the Assessing Officer is without any basis, without appreciating that there was no double standard adopted by the A., since . extrapolation of turnover from declared other income had to be based on the assessee's adopted GP rate as it is just a reverse calculation any deleting the addition of Rs. 2,17,28,079/- Relief claimed in appeal The order of the CIT9A) on the issues raised in the aforesaid Grounds be set aside and that of the Assessing Officer be restored.
3. The only issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition made by the AO for ₹ 2,17,28,079/- on account of profit on the suppressed sale.
The facts in brief are that the assessee in the present case is a private limited company and engaged in the business of manufacturing and trading of chemical products. There was a search operation at the premises of the assessee under section 14 of the Central Excise Act 1944 dated 23rd March 2011. As a result of search operation, a cash of ₹ 2,28,24,780/- was found. The Excise Department subsequently has worked out the suppressed sale of the assessee for different assessment years detailed as under: Assessment year Suppressed sale 2007-08 Rs. 23,89,773/- 2008-09 Rs. 29,54,506/-
With C.O.No.45/Ahd/2016 A.Y. 2011-12 3
2009-10 Rs. 1,81,82,422/- 2010-11 Rs. 1,84,74,022/- 2011-12 Rs. 2,20,51,824/- -------- -------------------------- Total Rs. 6,40,52,547/- 4.1 The assessee as a result of Excise Department search has admitted to have generated and undisclosed income to the tune of ₹ 2,28,24,780/-, equal to the amount of cash found during the search of the Excise Department. The assessee has offered the impugned income in the manner as detailed below:
Assessment Year Sales Income based on Relevant year GP ratio 2007-08 23,89,773/- 1,15,000/- 2008-09 29,54,506/- 2,60,000/- 2009-10 1,81,82,422 19,50,000/- 2010-11 1,84,74,022/- 29,50,000/- 2011-12 2,20,51,824 22,75,000/- Total 6,40,52,547/- 75,50,000/- Other income (A.Y. 2011-2012) 1,52,4,780/- 2,28,24,780/- 4.2 However, the AO found that impugned amount of gross profit represents on the sales which was made outside the books of accounts. As such the assessee, has already claimed the deduction of the direct/indirect expenses except the purchases against such sales. Therefore, he was of the view that the assessee must have earned higher amount of gross profit on such unaccounted sales. Thus, he has taken the rate of 25% of the sales as the gross profit of the assessee on the impugned sales. Accordingly, the AO calculated the amount of gross profit on the impugned amount of suppressed sale at ₹ 55,12,956/- on the sale of ₹ 2,20,51,824/- and added the difference amount of ₹ 32,37,956/- (₹ 55,12,956 – 22,75,000) to the total income of the assessee.
With C.O.No.45/Ahd/2016 A.Y. 2011-12 4 4.3 The AO with respect to the income disclosed by the assessee as income from other sources amounting to ₹ 1,52,74,780/- also held that this income also represents the gross profit on the undisclosed sales. Thus he worked out the amount of sale by taking the rate of gross profit shown by the assessee at 10.32% and determined the gross sales of ₹ 14,80,11,434/-. The AO subsequently applied the gross profit ratio on such undisclosed sales and determined the gross profit at ₹ 3,70,02,859/- being 25% of the sales of ₹ 14,80,11,434/-. The AO subsequently has added the sum of ₹ 2,17,28,079/- (₹ 3,70,02,859 - ₹ 1,52,74,780) being the difference in the amount of gross profit and the amount already disclosed by the assessee to the total income of the assessee.
Aggrieved assessee preferred an appeal to the learned CIT-A who has party confirmed the order of the AO by observing as under: 4.1. In the present appellate proceedings, the appellant vide Ground No. 2 has requested to accept the income as disclosed in the Return of Income since the total undisclosed income of all the years cannot exceed the amount of cash found and seized by the Central Excise Department. I find that the Assessing Officer has accepted unaccounted sale of the assessment year under consideration as determined by the Central Excise Department at Rs.2,20,51,824/-. The appellant has disclosed net j profit at Rs.22,75,000/- on the suppressed sales @ 10.32%. However, the j Assessing Officer was of the view that on the suppressed sales, various direct and indirect expenses were not required to be incurred separately since the appellant had already claimed such expenses in the profit and loss account and there was no evidence for incurring any additional expenses. Accordingly, he has applied a gross profit rate to 25% on the sales relying upon the decision of Hon'ble ITAT in the case of Vijay Proteins Ltd. vs. ACIT 58 ITD 428 (Ahd.). I find that the appellant has failed to furnish any documentary evidences to prove that any additional expenses have been incurred for generating the unaccounted turnover. It could not also controverted the detailed findings of the Assessing Officer. It is also worthwhile to mention that the appellant must have also evaded Excise Duty and Sales-tax/Vat etc. on the unaccounted sales and accordingly must have earned higher profit on such sales. Moreover, for carrying out the unaccounted business, there must have been certain amount of unaccounted investment also. Keeping in view these facts has also the ratio laid down by the Hon'ble ITAT, Ahmedabad in the case of Vijay Proteins Ltd. (supra), thus, I am of the considered view that the gross profit rate of 25% applied by the Assessing Officer on the unaccounted sales is very reasonable and justified and accordingly the addition of additional unaccounted income of Rs.32,37,956/- is confirmed. 4.1.1 As has been already discussed, the appellant has disclosed income of Rs.75,50,0007- in A.Yrs. 2007-08 to 2011-12 on the undisclosed turnover and accordingly balance amount of Rs.1,52,74,780/- has been disclosed as "other income" during the year under consideration in order to justify the entire cash seized of Rs.2,28,24,780/-. However, the Assessing Officer has computed turnover of Rs.14,80,11,434/- on additional "other
With C.O.No.45/Ahd/2016 A.Y. 2011-12 5 income" of Rs.1,52,74,780/- by applying a gross profit rate of 10.32%. Then, the Assessing Officer has applied a gross profit rate of 25% on such additional turnover of Rs.14,80,11,434/- resulting into additional undisclosed income of Rs.3,70,02,859/-. This action of the Assessing Officer is not justified because Assessing Officer himself has applied a gross profit rate of 25% on the unaccounted sale and hence additional unaccounted turnover relating to the other income cannot be worked out by applying a gross profit rate of 10.32%. The Assessing Officer cannot apply two standards for computation of the gross profit, one for extrapolating turnover and other for computation of net profit. In view of these facts, the action of the Assessing Officer is without any basis and against all the principles of justice and hence the addition on this account is directed to_be deleted. Accordingly the appellant succeeds partly in respect of Ground No.2. 4.2. Now coming to the additional ground, wherein the appellant has claimed telescoping of the additions made in A.Yrs. 2007-08 to 2010-11 amounting to Rs.52,25,181/- with the income offered/assessed in the year j under consideration. In this regard, I find that the appellant has already/ been allowed telescoping of the income offered by it additionally in the' Return of Income to the extent of Rs.52,75,000/- since the same had already been deducted from the amount of total cash found while computing! the undisclosed income of the year under consideration. Vide additional ground raised in the present proceedings, the appellant has claimed telescoping credit for the additions made in A.Yrs. 2007-08 to 2010-11 amounting to Rs.52,25,181/-_ by applying higher gross profit rate at 25% on the undisclosed sales. This claim of the appellant is not acceptable because these additions were made by notionally estimating the higher gross profit and hence there was no evidence of accumulation of such profit in the form of cash till the year under consideration. Moreover, this claim of the appellant if accepted, will result in furnishing of inaccurate particulars of income liable for penalty u/s. 271(l)(c) in view of Explanation-2, In view of these facts and also the legal position, the claim of the appellant in this regard is rejected and accordingly additional ground raised is also dismissed.
Being aggrieved by the order of the learned CIT(A) both the revenue and the assessee are in appeal before us. The Revenue is in appeal against the deletion of the addition made by the AO for ₹ 2,17,28,079/- whereas the assessee is in CO bearing No. 45/AHD/2016 against the confirmation of the addition made by the AO for ₹ 32,37,956/-. The grounds raised
by the assessee in the CO stand as under:
1. Ld. CIT (A) erred in law and on facts in confirming addition made by AO of Rs. 32,37,956/- applying gross profit rate of 25% on the unaccounted sales in place of 10.32% disclosed by the appellant. Ld. CIT (A) ought to have deleted addition made on conjectures and surmises of estimated gross profit.
2. Ld. CIT (A) erred in law and on facts in confirming addition of gross profit holding that appellant on investing certain amount of unaccounted investment would have earned higher profit on unaccounted sales evading Excise duty & Sales Tax/Vat etc. Ld. CIT (A) ought not to have confirmed estimated addition on the basis of such observation in absence of any documentary evidence.
3. Ld. CIT (A) erred in law and on facts in rejecting additional ground praying for telescoping Rs. 52, 25, 181/-of addition made in AY 2007/08 to A Y 2011/12 from total income disclosed in the current assessment year. Ld. CIT (A) ought to have granted telescoping since income
With C.O.No.45/Ahd/2016 A.Y. 2011-12 6 returned in the current year being balancing amount out of the total disclosure for A Y 2007/08 to A Y 2011/12. 4. Levy of interest u/s 234A/234B/234/C & 234D of the Act is not justified. 5. Initiation of penalty proceedings u/s 271 (1)(c) of the Act is not justified.
The appellant craves leave to add, amend, edit, delete, change or modify all or any of the ground before or at the time of hearing.
The learned DR before us contended that the assessee has made the sales outside the books of accounts. Therefore the additions are warranted.
The learned AR before us filed a paper book running from pages 1 to 221 and contended that the addition in either of the case cannot exceeds the amount of cash found during the course of search by the excise department. Furthermore, the excise department has calculated the amount of suppressed sale at ₹ 6,40,52,547/- which was pertaining to the different assessment years. On such suppressed sale, the assessee has already admitted to have offered the amount of gross profit on such sales. However there was the shortfall in the amount of income determined based on the suppressed sale and the income admitted by the assessee before the income tax Department leading to an amount of ₹ 1,52,74,780 which was rightly treated by the assessee as income from other sources.
Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them.
We have heard the rival contentions of both the parties and perused the materials available on record. The basis of making the addition on account of undisclosed income of the assessee was the cash found during the course of search proceedings by the excise department. There was the physical cash found by the excise department during the course of search amounting to ₹ 2,28,24,780/- which With C.O.No.45/Ahd/2016 A.Y. 2011-12 7 was admitted by the assessee before the income tax Department as income from undisclosed sources. However, the excise department subsequently calculated the suppressed sales. Accordingly the assessee based on the suppressed sales has calculated the amount of profit representing the GP embedded in such unaccounted sales pertaining to different years. However, the AO has adopted the GP at the rate of 25% for making the addition on the unaccounted sales determined by the excise department.
10.1 From the preceding discussion, there remains no ambiguity to the fact that the assessee was engaged in making clandestine sale in order to avoid the excise liability. The assessee from such activity has generated the income of ₹ 2,28,24,780/- which was the cash found during the course of search by the excise department. Thus, it is inferred that such cash was generated by the assessee from the unaccounted business sales carried out by it. Now the question arises how to determine the income of the assessee from the undisclosed business activities. The excise department has worked out the unaccounted sales amounting to ₹ 6,40,52,547/-. Indeed such amount of unaccounted sale is inclusive of gross profit which alone can be brought to tax in the given facts and circumstances. If we apply the gross profit ratio even at the rate of 25% on undisclosed sales, the amount of profit is worked out at ₹ 1,60,13,137/- which is much less than the amount of income admitted by the assessee before the income tax Department. Accordingly the assessee has treated the difference amount as income from other sources. In nutshell the assessee has disclosed the income in different assessment years subject to the maximum amount of ₹ 2,28,24,780/- which was accepted as income before the revenue. It is also a fact on records that the assessee has duly complied with his commitment made before the revenue for disclosing the income of the unaccounted cash. The revenue has not brought anything on record pointing out the amount of suppressed sale exceeds what has been determined by the excise department. Thus in the absence of any contrary information, we hold that the With C.O.No.45/Ahd/2016 A.Y. 2011-12 8 amount of suppressed sale stands at ₹ 6,40,52,547/- which contains the amount of gross profit of the assessee not offered to tax.
10.2 Be that as it may be, the income of the assessee cannot exceed the amount of cash found during the course of search by the excise department. It is for the reason that the maximum amount which was found unaccounted can only be brought to tax until and unless there is any other material found during the search suggesting that there was any other income other than the income embedded in the suppressed sales.
10.3 Furthermore, the revenue has not brought any material on record suggesting that the assessee has made suppressed sales over and above the amount determined by the excise department. Thus in the absence of any information available on record, we hold that the AO has wrongly determined the gross profit by working out the suppressed sale more than the amount determined by the excise department. Thus the appeal filed by the revenue is hereby dismissed and the CO filed by the assessee is allowed.
In the result the appeal filed by the Revenue is dismissed whereas the C.O. filed by the Assessee is allowed.
Order pronounced in the Court on 08/04/2022 at Ahmedabad.