DCIT, BANGALORE vs. M/S SUDARSHAN SILKS, BANGALORE

First we take up the appeals in case of Sudarshan Silks for Assessment Year 2007-08 in wherein the revenue has raised the following grounds :

The Assessing Officer noticed that there was a difference between the sales figure maintained in Tally package and Vastra package. The Assessing Officer held that the assessee was in the habit of posting sales from Vastra package to Tally package not on the same day when the transactions takes place but only after a fortnight or even beyond that period. The Assessing Officer recorded that the partners of the assessee- firm had admitted that for the purpose of preparation of accounts sales figures reflected in Tally package were used and not figures of Vastra package. The assessee explained the difference in the sales figures of two accounting packages is due to the return of goods or exchange of goods which were taken to the Tally package. The Assessing Officer did not accept the explanation of the assessee and held that the difference in these two packages shown by the assessee represent the undisclosed sales and hence undisclosed income. The Assessing Officer calculated sample and then extrapolated the said amount of difference for 365 days to work out the total difference at Rs.1,47,56,382.

Further the Assessing Officer held that sales are fully reflected in Vastra package and the assessee has reduced the sales return from the total sales and this figure is posted on Tally package. Since the assessee is using the Tally sales for preparation of books of accounts and for filing the return of income, the Assessing Officer held that sales returned were used in balancing the figure and accordingly the Assessing Officer was of the view that sales returned of the respective years is undisclosed sales.

On appeal, the CIT (Appeals) though confirmed the addition made by the Assessing Officer by computing the difference between the two accounting software based on the figure of difference on 27 random days which was extrapolated to 365 days total amounting to Rs.1,47,56,382 however, the CIT (Appeals) was of the view that the second addition on already considered by taking the differential figure of Rs.1,47,56,382.

At the outset, the learned Authorised Representative of the assessee has raised objection of maintainability of appeal of the revenue due to the reason that grounds raised by the revenue in this appeal do not emanate from the impugned order of the CIT (Appeals). He has pointed out that the Assessing Officer made addition on account of unaccounted sales due to the difference of sales shown in the Vastra package and Tally accounting package. Therefore there is no issue of any unaccounted sales recorded in the alleged diary as the grounds raised by record as per the two accounting software and the alleged diary is not at all relevant for the issue involved in this appeal.

On the other hand, the learned Departmental Representative has submitted that the assessment in all these cases were completed under Section 153A and on the basis of the material found during the search. A diary was also found during the search in which unaccounted sales were recorded in the coded form. Therefore all these cases are arising out of the same search and seizure action and pertains to the group concerns of the assessee. The order of the CIT (Appeals) is a composite order for both the years and therefore the grounds raised in this appeal are arising from the impugned order of the CIT (Appeals).

We have considered the rival submissions as well as the relevant material on record. We find that while completing the assessment of this year the addition was made by the Assessing Officer due to unaccounted sales being the difference in the sales recorded in Vastra and Tally accounting software. There is no ambiguity in the facts that the diary found and seized during the search and seizure action contains the sales in the case of two other group concerns and not in respect of this are not at all relevant or connected with the issue of unaccounted sales of the assessee viz. Sudarshan Silks for the year under consideration.

The learned Departmental Representative has referred to the statements recorded under Section 132(4) of the partners of the assessee and submitted that the assessee has shown as sales return and to Tally package. Therefore there is an overall difference on account of the sales return of Rs.41,43,545 which was added by the Assessing Officer as unaccounted sales. This unaccounted sales is over and above difference found by the Assessing Officer in the sales recorded in Vastra and Tally accounting software. Thus the learned Departmental Representative has contended that these two amounts of unaccounted sales are independent and separate which were considered by the CIT (Appeals) as part of the higher amount of Rs.1,47,56,382. Further the learned Departmental Representative has contended that the CIT (Appeals) has adopted gross profit rate @ 15% whereas for unaccounted sales no expenditure can be allowed as the assessee has booked all the expenditure in the books of accounts. The learned Departmental Representative has contended that the CIT (Appeals) has further granted telescoping setting of against the assets found during the search and offered to tax without establishing the fact that the income from unaccounted sales has been utilized by the assessee for purchase of those assets. Thus the learned Departmental Representative has that of Assessing Officer be restored.

On the other hand, the learned Authorised Representative has supported the order of the CIT (Appeals) and submitted that the Vastra package was newly introduced and it was being just checked for pattern understanding of software programme yet to be installed. The actual figures were entered in the Tally package which are correct and genuine.

We have considered the rival submissions as well as the relevant material on record. There is no dispute that in normal course there cannot be ny variance in the daily sales recorded in Vastra and Tally accounting software. The partners of the assessee firm admitted the difference in the sales in these two account software. The sales recorded in Vastra was found more on certain days then it was recorded in Tally.

As regards, the telescoping adjustment against the amount offered by the assessee to tax, we will deal with this issue while considering the other appeals.

For Assessment Year 2008-09, the revenue has raised the following grounds :

During the course of search a diary was found which was seized and inventorised as A/SSP/2. The entries in the diary have been made by Sri J.R.Srinivas, Partner of M/s. Sudarshan Silks. These entries have been made in the coded form by using English alphabets like SA, S, K,CH, GR, G, etc. written on the left side and alphabets like M, N, O, P etc have been written on the right side of the page of the diary. The alphabets M N O P Q R S T U V have been used to denote the No.1, 2, 3, 4, 5, 6, 7, 8, 9,

The diary noting in coded form has been accepted by the partner of numerical digits. There is no dispute regarding the meaning of the coded language used in the diary for unaccounted sales recorded as partner of the firm admitted the same in the statement recorded under Section 132(4) of the Act. The Assessing Officer added an amount of Rs.1,66,17,396 on account of unaccounted sales recorded in the seized diary. This addition was made by the Assessing Officer over and above the addition on account of unaccounted sales being difference between Vastra and Tally software. On appeal, the CIT (Appeals) held that the unaccounted sales recorded in the diary is part of the unaccounted sales calculated due to difference in the two accounting software of Rs.1,93,54,147. Hence the CIT (Appeals) directed the Assessing Officer to adopt the higher of the two figures being Rs.1,93,54,147 as unaccounted sales for the year. The CIT (Appeals) then restricted the addition on the said amount by applying gross profit @ 15% instead of full amount added by the Assessing Officer.

Before us, the learned Departmental Representative has submitted that the CIT (Appeals) has deleted the addition on account of unaccounted sales recorded in the diary withut verifying the fact that the the finding of CIT (Appeals) is not based on evidence but only accepting the submissions of the assessee. She has relied upon the order of the Assessing Officer.

On the other hand, the learned Authorised Representative of the assessee has submitted that when unaccounted sales found in the Vastra package is higher than the sales recorded in the diary then it is part of the unaccounted sales found in the Vastra package. The Assessing Officer made double addition by taking these two amounts separately whereas the fact is that higher of the two can be considered and not both. He has supported the finding of the CIT (Appeals).

We have considered the rival submissions as well as the relevant material on record. The Assessing Officer made an addition of Rs.1,93,54,147 on account of unaccounted sales found due to the difference between the Vastra and Tally accounting software and further made an addition of Rs.1,66,17,396 on account of sales recorded in the seized diary in coded form. The question arises before us is whether unaccounted sales recorded in the seized diary is independent sales over and above the sales recorded in the Vastra accounting software or it is that neither the Assessing Officer nor the CIT (Appeals) has examined this fact from any record or evidence. The CIT (Appeals) decided this issue at page 30 as under :

As regards the addition of gross profit instead of total amount, we have already concurred with the view of the CIT (Appeals) on this issue.

The next issue raised by the revenue is regarding adjustment allowed by the CIT (Appeals) of deficient stock of one concern against the excess stock of the other concern and further the deficient stock was considered by the CIT (Appeals) as part of the unaccounted sales computed due to difference between Tally and Vastra accounting software.

We have considered the rival submissions as well as the relevant material on record. The Assessing Officer made separate addition on (Appeals) held that unaccounted sales due to deficient physical stock found during the search action is part of the unaccounted sales as computed by taking the difference between the Vastra and Tally accounting software due to returns of sales not shown in the Tally package. Thus it is clear that the unaccounted sales due to difference in the two accounting software packages cannot result in deficient of physical stock. Therefore the addition on account of deficient stock found during the search has to be separately considered and cannot be considered as part of unaccounted sales recorded in Vastra package. As regards the adjustment of deficient stock of one entity against the excess stock of another entity, in the absence of any relevant record to show the transfer of stock of same article from one unit to another unit, it cannot be adjusted by clubbing the stock of different units. Further the accounts of these units/firms are separately maintained and therefore we are of the considered view that the CIT (Appeals) has decided this issue by ignoring the crucial and relevant facts and aspects. Accordingly we decide this issue in favour of the revenue and against the assessee. addition on account of unaccounted sales to the extent of the unaccounted assets offered to tax by the assessee. The Assessing Officer noted that the assessee has declared a sum of Rs.3,04,25,500 under various heads. The details of which are as under :

Before the CIT (Appeals) the assessee contended that it has offered Rs.3,04,25,500 in their group including Rs.2 Crores in hands of the assessee-concern and therefore there was no need to add the other amounts on account of unaccounted sales. By considering this contention of the assessee, the CIT (Appeals) held that when the assessee has offered Rs.2 Crores to tax on account of unaccounted assets then a separate addition on account of excess assets cannot be made to that extent.

We have heard the learned Departmental Representative as well as learned Authorised Representative and considered the relevant material on record. We find that the amounts offered to tax by the assessee as well as the additions made by the Assessing Officer under different heads are not in dispute. The CIT (Appeals) has considered this issue as under : which are part of the above sum of Rs.2 Crores shall be takenout and removed.

The revenue has raised common grounds in these two appeals as under :

Whether CIT (Appeals) was correct in holding that the unaccounted sales recorded in the seized diary were the same as the difference between the total sales as per vastra package and tally accounts.”

The only issue raised by the revenue in these appeals is regarding the addition made by the Assessing Officer on account of unaccounted sales due to difference in Vastra Package & Tally Package and further the unaccounted sales as recorded in the seized diary which was restricted by the CIT (Appeals) only to the higher amount of unaccounted sales as

We have heard the learned Departmental Representative as well as learned Authorised Representative and considered the relevant Appeal No.1226/Bang/2011 of revenue and in view of our finding on this issue, we set aside this issue to the record of the Assessing Officer for conducting proper verification of the record to ascertain whether day to day sale recorded in the diary is matching with the sales recorded in the Vastra Package.

In the C.O. 54/Bang/2012, the assessee has raised the following grounds :

32. Ground No.2 is regarding the gross profit at 15% adopted by the CIT (Appeals). The learned Authorised Representative of the assessee has submitted that the CIT (Appeals) has adopted the gross profit rate at 15% of sale instead of the average gross profit for the preceding year which should be considered for the purpose of addition. In support of his contention, he has relied upon the following decisions :

On the other hand, the learned Departmental Representative has submitted that when gross profit is to be considered as income then no further deduction is allowable in respect of unaccounted sales as the entire other expenditure has already been booked by the assessee and debited to the profit and loss account. Further the assessee has not brought any evidence to have incurred any expenditure which is not claimed in the books of accounts. Therefore the learned Departmental Representative has contended that when the sales are not accounted in the books of accounts then no further claim of expenditure can be allowed against such sale. material on record. The issue is regarding assessment of income in respect of unaccounted sales. The CIT (Appeals) has adopted gross profit as income in respect of unaccounted sales which has been claimed by the assessee that only net profit has to be considered as income of the assessee. It is pertinent to note that in the case of unaccounted sales the only corresponding expenditure for which no evidence or explanation is required is purchases. Therefore the gross profit is considered as income in respect of unaccounted sales and no further deduction can be allowed against such income when the assessee has not brought out a case that apart from the purchases any other expenditure has been incurred which has not been claimed in the books of accounts. The reason behind adopting the gross profit in respect of unaccounted sales is that the other general expenses have been claimed in the books of accounts.

Though the assessee has raised Ground No.3, however neither any arguments were advanced by the assessee nor it was pressed during the 54/Bang/2012 as not pressed.

The assessee has raised the following grounds in the C.O. :

Ground No.1 is general in nature and does not require any specific adjudication.

In C.O. Nos.56&57/Bang/2012, the assessee has raised common grounds except the quantum involved. The Grounds raised in C.O.

Ground Nos.1 & 2 are regarding validity of assessment. The learned Authorised Representative has submitted that all the three entities were merged w.e.f. 1.4.2007 as recorded by the Assessing Officer and CIT (Appeals) in the impugned order. Therefore the assessment framed on non-existing person is bad in law. He has contended that even warrant cannot be issued and executed against the non-exising person when all the three partnership firms were merged w.e.f.

The learned Authorised Representative of the assessee has submitted that since this issue has not has been raised before the this issue before the Tribunal as it goes to the root of the matter. In support of his contention, the decision of Hon'ble Supreme Court in the case of NTPC Ltd. Vs. CIT 229 ITR 383 (SC).

On the other hand, the learned Departmental Representative has submitted that the assessee has raised no objection either before the Assessing Officer or before the CIT (Appeals). Even the assessee has participated in the assessment proceedings without pointing out the fact that the assessee entity is no more in existent. Thus when this fact was not raised before the authorities below, the assessee cannot be allowed to set up a new case at this stage.

We have considered the rival submissions as well as the relevant material on record. It was stated by the assessee that all three partnership firms were merged as M/s. Sundharam Silks purchased the business of other entities namely M/s. Sundharam Silk Palace & Sudarshan Jewellers and Sundharam Paradise as on going concerns.

Ground No.3 is regarding the gross profit @ 15% adopted by the CIT (Appeals). This issue is common for the C.O. No.54/Bang/2012. In view average gross profit rate for computing the income in respect of unaccounted sales.

In the result, the appeals as well as cross objections are partly allowed.