SURABI BULLION,COIMBATORE vs. DCIT, COIMBATORE

is directed against the order of the Principal Commissioner of Income Tax, Central-2, Chennai, dated 15.07.2016 under Section 263 of the Income-tax Act, 1961 (in short 'the Act'). Consequent to the order of the Principal Commissioner, the Assessing Officer passed an order on 13.02.2017. The assessee filed an appeal before the CIT(Appeals) and the CIT(Appeals) confirmed the addition made by the Assessing Officer against which, the assessee filed appeal in I.T.A.

For the sake of convenience, first let’s take I.T.A.

Shri D. Anand, the Ld.counsel for the assessee, submitted that there was a search in the premises of the partners of the assessee on 24.09.2012. According to the Ld. counsel, during the course of search operation, cash was found and seized. The partners of the assessee-firm admitted that the cash found was income of the firm from the business. After reconciliation, according to the Ld. counsel, the Assessing Officer made addition of ₹11,39,930/-. However, the Principal Commissioner found that the order of the Assessing Officer was erroneous and prejudicial to the interests of Revenue. According to the Ld. counsel, the order of the Assessing Officer was passed after considering all the material documents and reconciliation statement filed by the assessee.

Referring to the judgments of Apex Court in CIT v. Max India Limited (2007) 295 ITR 282 and in Malabar Industries Co. Ltd. v.

Shri D. Anand, the Ld.counsel for the assessee further submitted that there was fluctuation in the price of gold in the international market. The rates of gold would vary several times in the course of business. According to the Ld. counsel, the stock admitted by the assessee as on 31.03.2011 has to be taken as opening stock as on 01.04.2012. Therefore, according to the Ld. counsel, the order of the Assessing Officer is not erroneous.

On the contrary, Smt. Ruby George, CIT, the Ld. Departmental Representative, pointed out that the original assessment was completed under Section 143(3) of the Act on 31.07.2014. According to the Ld. D.R., the partners of the assessee-firm admitted an unaccounted income to the extent the cash was found during the course of search operation. When the assessee admitted through its partners that the entire unaccounted cash found during the course of search operation was outside its books of account, according to the Ld. D.R., it has not offered any income from business which was carried on as per the books of account. The Assessing Officer has simply adopted the difference between the income returned by the assessee and the cash found during the course of search operation. According to the Ld. D.R., the Assessing Officer has not taken any pain to ascertain the profit earned by the assessee in the course of business as per the books of account. According to the Ld. D.R., what was assessed by the Assessing Officer is only the income generated by the assessee outside the books, therefore, the income generated as per the books also needs to be assessed for taxation. Since the Assessing Officer has not taken any step to assess the income generated as

We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, there was search operation in the premises of the partners of the assessee and cash was found and seized. The assessee returned income. However, the entire cash was not disclosed in the return of income, therefore, the Assessing Officer assessed the difference between the cash found during the course of search operation and the income returned by the assessee in the return of income to the extent of ₹11,39,930/-. The Principal Commissioner found that what was disclosed by the assessee and assessed by the Assessing Officer is in respect of the unaccounted income generated outside the books of account. Therefore, the Principal Commissioner found that the Assessing Officer has not made any proper enquiry to find out the income generated by the assessee from the business carried on as per the books of account. The Principal Commissioner also found that the unaccounted income admitted by the assessee during the course of search operation cannot be considered to be part of book profit for the purpose of computing partners’ remuneration under Section 40(b)(v) of the Act.

As rightly submitted by the Ld. Departmental Representative, the Assessing Officer assessed the difference of ₹11,39,930/- from the cash found during the course of search operation and the income disclosed by the assessee. The Assessing Officer has not made any enquiry to find out the profit or income generated in the course of business as per the books of account. Therefore, this Tribunal is of the considered opinion that there is an error in the order of the Assessing Officer which is prejudicial to the interests of Revenue. Apart from the undisclosed income found during the course of search operation in the form of cash, the assessee carried on the business as per the books. Therefore, the income / profit generated from the business carried on by the assessee as per books also needs to be disclosed apart from the unaccounted income found and admitted during the course of search operation.

Now coming to the assessee’s appeal against the order of the CIT(Appeals).

Shri D. Anand, the Ld.counsel for the assessee, submitted that the Assessing Officer has not found any defect in the books of account. According to the Ld. counsel, the assessee has disclosed gross profit of ₹1,37,36,083/- with G.P. ratio of 0.36% till 22.09.2011. In the post search period, i.e. from 22.09.2011 to 31.03.2012, the assessee has declared a loss of ₹75,80,388/- as

Shri D. Anand, the Ld.counsel for the assessee further submitted that it is not in dispute that the assessee maintains books of account in the regular course of its business. The fact is that the books maintained by the assessee in the regular course of business were not rejected by the Assessing Officer at any point of time.

We have considered the rival submissions on either side and perused the relevant material available on record. The CIT(Appeals) found that the Assessing Officer estimated gross profit at 0.17% without any comparison. Equally, the CIT(Appeals) found that the assessee could not substantiate the claim of low gross profit. Therefore, he estimated the gross profit at 0.12%. The fact remains that the assessee maintained the books of account in its regular course of business and the books were not rejected by the Assessing Officer. Moreover, no error was also pointed out. The Assessing Officer as well as the CIT(Appeals) were under the impression that in the bullion trade, there cannot be any loss. The gold rates are under fluctuation every day. Therefore, nobody can expect an assessee to earn profit in the business. This Tribunal is of the considered opinion that when the books of account were not rejected by the Assessing Officer, which were maintained by the assessee in the regular course of its business, there may not be any necessity for the Assessing Officer to estimate the profit. The estimation of profit would arise for consideration only when the books of account were not maintained properly and the same were rejected by the Assessing Officer in the course of assessment proceeding. Since the books of account were not rejected, this Tribunal is of the considered opinion that the estimation of profit may not be justified. Accordingly, orders of both the authorities below are set aside and the addition made by the Assessing Officer is deleted.

In the result, appeal of the assessee in I.T.A.