Loading judgment…
Facts
The assessee, engaged in mining and refining beach minerals, maintained two sets of accounts ('ori' and 'IT'). A search revealed that the 'IT' accounts had inflated expenses. The Assessing Officer (AO) made substantial disallowances. The Commissioner of Income Tax (Appeals) [CIT(A)] found the books unreliable and rejected them, but deemed the AO's disallowances excessive. CIT(A) estimated the profit at 2.21% of turnover.
Held
The Tribunal upheld the CIT(A)'s rejection of the assessee's books of accounts due to their unreliability and the existence of two parallel sets of accounts, one with inflated expenses. The Tribunal also affirmed the CIT(A)'s estimation of profit at 2.21% of turnover, finding it appropriate given the circumstances and the unreliability of the books.
Key Issues
Whether the rejection of books of accounts by the lower authorities was justified and whether the estimation of profit by the CIT(A) at 2.21% was appropriate.
Sections Cited
132, 153A, 143(3), 145(3), 144, 29, 30, 43D
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
आदेश / O R D E R PER ABY T. VARKEY, JM: These cross appeals preferred by the assessee and the Revenue are arising out of the common appellate order passed by the Learned Commissioner of Income Tax (Appeals)-19, Chennai [in short ‘CIT(A)’] dated 18.10.2023 in relation to the assessment orders dated 28.08.2021 & 26.08.2021 passed u/s 143(3)/153A of the Income-tax Act, 1961 [in & 1472/Chny/2023 (AYs 20 2013-14 & 2014-15) CO Nos.31 & 32/Chny/2024 (AYs 20 2013-14 & 2014-15) M/s. Bala Murugan Co. M/s. Bala Murugan Co. :: 2 ::
short ‘the Act’] for the Assessment Years [in short ‘AY’] 2015 short ‘the Act’] for the Assessment Years [in short ‘AY’] 2015 short ‘the Act’] for the Assessment Years [in short ‘AY’] 2015-16 & 2016- 17.
Briefly noted the facts of the case are that, the assessee noted the facts of the case are that, the assessee noted the facts of the case are that, the assessee-firm is engaged in the business of engaged in the business of mining, processing and refining beach mining, processing and refining beach minerals. A search action u/s 132 of the Act upon the assessee and its minerals. A search action u/s 132 of the Act upon the assessee and its minerals. A search action u/s 132 of the Act upon the assessee and its group concerns on 25.10.2018. In the course of search, several group concerns on 25.10.2018. In the course of search, several group concerns on 25.10.2018. In the course of search, several documents & electronic material were found and seized pursuant to which documents & electronic material were found and seized pursuant to which documents & electronic material were found and seized pursuant to which the AO inter alia initiated proceedings u/s 153A of the Act for the relevant initiated proceedings u/s 153A of the Act for the relevant initiated proceedings u/s 153A of the Act for the relevant AYs 2013-14 & 2014-15. From the seized electronic material viz., tally 15. From the seized electronic material viz., tally 15. From the seized electronic material viz., tally data, it was noted that the assessee was maintaining two sets of data, it was noted that the assessee was maintaining two sets of data, it was noted that the assessee was maintaining two sets of accounts, one titled “ori” ori” and other titled “IT”. Upon enquiry, the accounts enquiry, the accounts manager of the assessee affirmed in his statement recorded u/s 132(4) of manager of the assessee affirmed in his statement recorded u/s 132(4) of manager of the assessee affirmed in his statement recorded u/s 132(4) of the Act that the assessee was maintaining parallel sets of accounts for the Act that the assessee was maintaining parallel sets of accounts for the Act that the assessee was maintaining parallel sets of accounts for banking & financial purposes and other for income banking & financial purposes and other for income-tax purposes. The AO tax purposes. The AO in the course of assessment inferred that, the accounts maintained under assessment inferred that, the accounts maintained under assessment inferred that, the accounts maintained under the title “IT” was in form of suppression of income by inflating expenses ” was in form of suppression of income by inflating expenses ” was in form of suppression of income by inflating expenses in the tally data. After calling for explanation from the assessee, the AO in the tally data. After calling for explanation from the assessee, the AO in the tally data. After calling for explanation from the assessee, the AO observed that, the assessee had inflated the expens observed that, the assessee had inflated the expenses and several es and several expenses were not supported by documentary evidences and therefore expenses were not supported by documentary evidences and therefore expenses were not supported by documentary evidences and therefore made disallowances out of several heads of expenses aggregating to made disallowances out of several heads of expenses aggregating to made disallowances out of several heads of expenses aggregating to Rs.3,50,82,845/- & & Rs. Rs.2,28,75,728/- in AYs 2013-14 14 & & 2014 2014-15 respectively.
& 1472/Chny/2023 (AYs 20 2013-14 & 2014-15) CO Nos.31 & 32/Chny/2024 (AYs 20 2013-14 & 2014-15) M/s. Bala Murugan Co. M/s. Bala Murugan Co. :: 3 ::
Being aggrieved by the order of the AO, the assessee preferred Being aggrieved by the order of the AO, the assessee preferred Being aggrieved by the order of the AO, the assessee preferred appeal before the Ld. CIT(A). Having considered the contentions of the appeal before the Ld. CIT(A). Having considered the contentions of the appeal before the Ld. CIT(A). Having considered the contentions of the assessee in light of the findings of the AO, the Ld. CIT(A) took a view assessee in light of the findings of the AO, the Ld. CIT(A) took a view assessee in light of the findings of the AO, the Ld. CIT(A) took a view that, the books of accounts of the assessee was no that, the books of accounts of the assessee was not reliable and that the t reliable and that the assessee was unable to support the expenses with proper bills and assessee was unable to support the expenses with proper bills and assessee was unable to support the expenses with proper bills and vouchers. The Ld. CIT(A) accordingly rejected the books of accounts. At vouchers. The Ld. CIT(A) accordingly rejected the books of accounts. At vouchers. The Ld. CIT(A) accordingly rejected the books of accounts. At the same time, according to ld. CIT(A), the disallowance of entire the same time, according to ld. CIT(A), the disallowance of entire the same time, according to ld. CIT(A), the disallowance of entire expenses made by the AO was expenses made by the AO was excessive as it was resulting in abnormally excessive as it was resulting in abnormally high profits which was held to be not appropriate in assessee’s line of high profits which was held to be not appropriate in assessee’s line of high profits which was held to be not appropriate in assessee’s line of business. Following the order passed by the coordinate bench of this business. Following the order passed by the coordinate bench of this business. Following the order passed by the coordinate bench of this Tribunal in the case of assesssee’s sister concern M/s Beach Minerals Tribunal in the case of assesssee’s sister concern M/s Beach Minerals Tribunal in the case of assesssee’s sister concern M/s Beach Minerals Company for AY 2013- -14, which was also engaged in the same line of 14, which was also engaged in the same line of business, the Ld. CIT(A) estimated the profits of the assessee for the business, the Ld. CIT(A) estimated the profits of the assessee for the business, the Ld. CIT(A) estimated the profits of the assessee for the relevant AYs at 2.21%. The Ld. CIT(A) accordingly partly allowed the relevant AYs at 2.21%. The Ld. CIT(A) accordingly partly allowed the relevant AYs at 2.21%. The Ld. CIT(A) accordingly partly allowed the appeals of the assessee. appeals of the assessee. Aggrieved by the Ld. CIT(A)’s order, both the (A)’s order, both the assessee and Revenue are in now in appeal before us. assessee and Revenue are in now in appeal before us.
Assailing the action of the Ld. CIT(A), the Ld. CIT DR primarily Assailing the action of the Ld. CIT(A), the Ld. CIT DR primarily Assailing the action of the Ld. CIT(A), the Ld. CIT DR primarily reiterated the findings of the AO. He submitted that, the search enquiries reiterated the findings of the AO. He submitted that, the search enquiries reiterated the findings of the AO. He submitted that, the search enquiries had revealed that the assessee was mai had revealed that the assessee was maintaining parallel sets of accounts, ntaining parallel sets of accounts, one set of accounts reflecting the actual receipts & expenses and another one set of accounts reflecting the actual receipts & expenses and another one set of accounts reflecting the actual receipts & expenses and another set of accounts maintained for tax purpose. According to Ld. CIT, DR the set of accounts maintained for tax purpose. According to Ld. CIT, DR the set of accounts maintained for tax purpose. According to Ld. CIT, DR the expenditure booked in accounts maintained for tax purposes was higher expenditure booked in accounts maintained for tax purposes was higher expenditure booked in accounts maintained for tax purposes was higher & 1472/Chny/2023 (AYs 20 2013-14 & 2014-15) CO Nos.31 & 32/Chny/2024 (AYs 20 2013-14 & 2014-15) M/s. Bala Murugan Co. M/s. Bala Murugan Co. than the original set of accounts resulting in the net profit to be lower. He n the original set of accounts resulting in the net profit to be lower. He n the original set of accounts resulting in the net profit to be lower. He contended that, by inflating expenses, the assessee was generating contended that, by inflating expenses, the assessee was generating contended that, by inflating expenses, the assessee was generating unaccounted funds which were used for unaccounted funds which were used for on-money payments in relation to payments in relation to property purchases. He pointed out that, th property purchases. He pointed out that, the assessee was unable to e assessee was unable to furnish supportings for these expenses and therefore the AO rightly held furnish supportings for these expenses and therefore the AO rightly held furnish supportings for these expenses and therefore the AO rightly held that these expenses were not genuine. He therefore supported the AO’s that these expenses were not genuine. He therefore supported the AO’s that these expenses were not genuine. He therefore supported the AO’s action of not rejecting the books of accounts but making separate action of not rejecting the books of accounts but making separate action of not rejecting the books of accounts but making separate additions based on inflation of expenses, on the basis of seized material. lation of expenses, on the basis of seized material. lation of expenses, on the basis of seized material.
He further submitted that, if the Ld. CIT(A)’s action of rejecting the books He further submitted that, if the Ld. CIT(A)’s action of rejecting the books He further submitted that, if the Ld. CIT(A)’s action of rejecting the books of accounts is upheld, then the profits ought to be estimated at 53% viz., of accounts is upheld, then the profits ought to be estimated at 53% viz., of accounts is upheld, then the profits ought to be estimated at 53% viz., the profitability of another assessee, M/s Industri the profitability of another assessee, M/s Industrial Minerals Company, al Minerals Company, which according to AO, was comparable to the assessee. The Ld. CIT, DR which according to AO, was comparable to the assessee. The Ld. CIT, DR which according to AO, was comparable to the assessee. The Ld. CIT, DR further argued that, the Ld. CIT(A) having rejected the books of accounts, further argued that, the Ld. CIT(A) having rejected the books of accounts, further argued that, the Ld. CIT(A) having rejected the books of accounts, ought to still have adjudicated the merits of the disallowance of expenses, ought to still have adjudicated the merits of the disallowance of expenses, ought to still have adjudicated the merits of the disallowance of expenses, which according to him, was made on different footings. ng to him, was made on different footings. ng to him, was made on different footings. Overall, therefore, he prayed that the order of Ld. CIT(A) be reversed and the he prayed that the order of Ld. CIT(A) be reversed and the he prayed that the order of Ld. CIT(A) be reversed and the AO’s order be restored. The Ld. CIT, DR also furnished a written synopsis AO’s order be restored. The Ld. CIT, DR also furnished a written synopsis AO’s order be restored. The Ld. CIT, DR also furnished a written synopsis of his arguments, which has been taken on record. of his arguments, which has been taken on record.
Per contra the Ld. AR for the assessee supported the order of Ld. ntra the Ld. AR for the assessee supported the order of Ld. ntra the Ld. AR for the assessee supported the order of Ld. CIT(A) and urged that order of the Ld. CIT(A) estimating the profits at urged that order of the Ld. CIT(A) estimating the profits at urged that order of the Ld. CIT(A) estimating the profits at 2.21% be upheld. The Ld. AR also filed a written note rebutting the 2.21% be upheld. The Ld. AR also filed a written note rebutting the 2.21% be upheld. The Ld. AR also filed a written note rebutting the arguments raised by the Ld. CIT, DR. In this written not arguments raised by the Ld. CIT, DR. In this written note, the assessee e, the assessee & 1472/Chny/2023 (AYs 20 2013-14 & 2014-15) CO Nos.31 & 32/Chny/2024 (AYs 20 2013-14 & 2014-15) M/s. Bala Murugan Co. M/s. Bala Murugan Co. has separately objected to the validity of the income has separately objected to the validity of the income-tax assessment tax assessment framed u/s 153A of the Act on the ground that there was no incriminating framed u/s 153A of the Act on the ground that there was no incriminating framed u/s 153A of the Act on the ground that there was no incriminating material unearthed in the course of search. material unearthed in the course of search.
We have heard both the parties, perused the findin We have heard both the parties, perused the findings of the lower gs of the lower authorities and considered the material placed before us. As noted earlier, authorities and considered the material placed before us. As noted earlier, authorities and considered the material placed before us. As noted earlier, search was conducted u/s 132 of the Act upon the assessee on search was conducted u/s 132 of the Act upon the assessee on search was conducted u/s 132 of the Act upon the assessee on 25.10.2018, pursuant to which the AO had reopened income 25.10.2018, pursuant to which the AO had reopened income 25.10.2018, pursuant to which the AO had reopened income-tax assessments for AYs 2013 assessments for AYs 2013-14 to 2018-19 u/s 153A of the Act. It is not in 153A of the Act. It is not in dispute that, the assessee was maintaining two sets of books of accounts, dispute that, the assessee was maintaining two sets of books of accounts, dispute that, the assessee was maintaining two sets of books of accounts, which was found in the course of search and also affirmed by the which was found in the course of search and also affirmed by the which was found in the course of search and also affirmed by the accounts manager in his statement recorded u/s 132(4) of the Act. accounts manager in his statement recorded u/s 132(4) of the Act. accounts manager in his statement recorded u/s 132(4) of the Act.
According to the Revenue, the receipts and expenses maintained in tally enue, the receipts and expenses maintained in tally enue, the receipts and expenses maintained in tally data titled ‘ori’ was the actual results of the assessee and that the was the actual results of the assessee and that the was the actual results of the assessee and that the accounts maintained under title ‘ accounts maintained under title ‘IT’ was where expenses were inflated to was where expenses were inflated to arrive at suppressed profits for income arrive at suppressed profits for income-tax purposes. Accordi tax purposes. According to assessee however, the tally data titled assessee however, the tally data titled ‘ori’ contained unaudited, contained unaudited, incomplete data whereas the tally data incomplete data whereas the tally data ‘IT’ was finalized on the basis of was finalized on the basis of complete audited data gathered from all locations/sites of the assessee. complete audited data gathered from all locations/sites of the assessee. complete audited data gathered from all locations/sites of the assessee.
The fact however remains that, there The fact however remains that, there were two parallel sets of books of were two parallel sets of books of accounts being maintained by the assessee which was unearthed in accounts being maintained by the assessee which was unearthed in accounts being maintained by the assessee which was unearthed in course of search and which suggested discrepancies and also raised prima course of search and which suggested discrepancies and also raised prima course of search and which suggested discrepancies and also raised prima facie doubt regarding correctness of the books of accounts. facie doubt regarding correctness of the books of accounts. facie doubt regarding correctness of the books of accounts. According to & 1472/Chny/2023 (AYs 20 2013-14 & 2014-15) CO Nos.31 & 32/Chny/2024 (AYs 20 2013-14 & 2014-15) M/s. Bala Murugan Co. M/s. Bala Murugan Co. us therefore, these seized electronic material coupled with the statement ore, these seized electronic material coupled with the statement ore, these seized electronic material coupled with the statement given by the accounts manager u/s 132(4) of the Act given by the accounts manager u/s 132(4) of the Act given by the accounts manager u/s 132(4) of the Act, over-all, constituted incriminating material unearthed in the course of search and constituted incriminating material unearthed in the course of search and constituted incriminating material unearthed in the course of search and hence the preliminary plea of the assessee objecting to hence the preliminary plea of the assessee objecting to the validity of jurisdiction assumed by the AO u/s 153A of the Act for want of jurisdiction assumed by the AO u/s 153A of the Act for want of jurisdiction assumed by the AO u/s 153A of the Act for want of incriminating material, is hereby rejected. incriminating material, is hereby rejected.
We now come to the merits of the case before us. It is noted that, We now come to the merits of the case before us. It is noted that, We now come to the merits of the case before us. It is noted that, the assessee is engaged in the business of mining, processing the assessee is engaged in the business of mining, processing the assessee is engaged in the business of mining, processing and refining beach minerals. The books of accounts in relation to this business refining beach minerals. The books of accounts in relation to this business refining beach minerals. The books of accounts in relation to this business is noted to have been maintained in the tally software. The assessee is noted to have been maintained in the tally software. The assessee is noted to have been maintained in the tally software. The assessee however was found to have been maintaining two sets of books of however was found to have been maintaining two sets of books of however was found to have been maintaining two sets of books of accounts in tally software viz., ‘ori’ & ‘IT’. Upon analysis of the entries accounts in tally software . Upon analysis of the entries found in these parallel books of accounts maintained in the tally software, found in these parallel books of accounts maintained in the tally software, found in these parallel books of accounts maintained in the tally software, the AO noted that the expenses debited in the tally accounts maintained the AO noted that the expenses debited in the tally accounts maintained the AO noted that the expenses debited in the tally accounts maintained for income-tax purposes i.e. tax purposes i.e. ‘IT’, was comparatively higher that the books , was comparatively higher that the books maintained under the title ‘ maintained under the title ‘ori’. The AO also noted that several expenses . The AO also noted that several expenses did not have proper narration or payment details, which led him to believe did not have proper narration or payment details, which led him to believe did not have proper narration or payment details, which led him to believe that they were bogus in nature. Before the Ld. CIT(A), the assessee is that they were bogus in nature. Before the Ld. CIT(A), the assessee is that they were bogus in nature. Before the Ld. CIT(A), the assessee is noted to have explained that, the bo noted to have explained that, the books of accounts titled oks of accounts titled ‘ori’ were incomplete and unaudited accounts and that the books of accounts titled incomplete and unaudited accounts and that the books of accounts titled incomplete and unaudited accounts and that the books of accounts titled ‘IT’ was the complete audited accounts prepared on actual data. The was the complete audited accounts prepared on actual data. The was the complete audited accounts prepared on actual data. The assessee had explained that, due to shortage of proper accounting staff assessee had explained that, due to shortage of proper accounting staff assessee had explained that, due to shortage of proper accounting staff & 1472/Chny/2023 (AYs 20 2013-14 & 2014-15) CO Nos.31 & 32/Chny/2024 (AYs 20 2013-14 & 2014-15) M/s. Bala Murugan Co. M/s. Bala Murugan Co. :: 7 ::
and lack of proper knowledge, the accounting staff would not pass the f proper knowledge, the accounting staff would not pass the f proper knowledge, the accounting staff would not pass the entries on a day-to-day day basis or would make the entries under wrong basis or would make the entries under wrong ledgers and that the Chartered Accountant would assist in updating the ledgers and that the Chartered Accountant would assist in updating the ledgers and that the Chartered Accountant would assist in updating the books of accounts in the Tally software and pass the fina books of accounts in the Tally software and pass the fina books of accounts in the Tally software and pass the finalization entries only at the fag-end of the statutory time for filing the return of income. end of the statutory time for filing the return of income. end of the statutory time for filing the return of income.
The assessee tacitly acknowledged the accounting anomaly in maintaining The assessee tacitly acknowledged the accounting anomaly in maintaining The assessee tacitly acknowledged the accounting anomaly in maintaining the books of accounts but contended that these accounting anomalies the books of accounts but contended that these accounting anomalies the books of accounts but contended that these accounting anomalies cannot be treated as inf cannot be treated as inflation of expenses. The assessee is also noted to . The assessee is also noted to have brought on record several fa have brought on record several factual aspects regarding the ctual aspects regarding the entries passed in the parallel books of accounts, passed in the parallel books of accounts, which according to it, showed according to it, showed that there were only accounting anomalies were only accounting anomalies in the books titled in the books titled ‘ori’, which were corrected in the final audited books of accounts titled ‘IT’. It is noted were corrected in the final audited books of accounts titled that, the Ld. CIT(A) took cognizance of the explanation furnished by the that, the Ld. CIT(A) took cognizance of the explanation furnished by the that, the Ld. CIT(A) took cognizance of the explanation furnished by the assessee and found it to be acceptable. At the same time, the Ld. CIT(A) assessee and found it to be acceptable. At the same time, the Ld. CIT(A) assessee and found it to be acceptable. At the same time, the Ld. CIT(A) however noted that, the assessee was still required to reconcile the the assessee was still required to reconcile the the assessee was still required to reconcile the discrepancies between these parallel set of books of accounts and that discrepancies between these parallel set of books of accounts and that discrepancies between these parallel set of books of accounts and that such exercise could not be avoided due to various constraints and such exercise could not be avoided due to various constraints and such exercise could not be avoided due to various constraints and practical difficulties being faced by the assessee. The Ld. CIT(A) wa practical difficulties being faced by the assessee. The Ld. CIT(A) wa practical difficulties being faced by the assessee. The Ld. CIT(A) was accordingly of the view that the books of accounts accordingly of the view that the books of accounts were unreliable and therefore rejected the same. The relevant findings of Ld. CIT(A) taken therefore rejected the same. The relevant findings of Ld. CIT(A) taken therefore rejected the same. The relevant findings of Ld. CIT(A) taken note of by us, are as under: under: - & 1472/Chny/2023 (AYs 20 2013-14 & 2014-15) CO Nos.31 & 32/Chny/2024 (AYs 20 2013-14 & 2014-15) M/s. Bala Murugan Co. M/s. Bala Murugan Co. :: 8 ::
“7.5.8 The undersigned has duly examined the submission made by The undersigned has duly examined the submission made by The undersigned has duly examined the submission made by the Appellant Firm. There exists no doubt about the maintenance of two m. There exists no doubt about the maintenance of two m. There exists no doubt about the maintenance of two sets of books of accounts by the Appellant Firm. The AO on the basis of sets of books of accounts by the Appellant Firm. The AO on the basis of sets of books of accounts by the Appellant Firm. The AO on the basis of the statement recorded during the course of the search from the the statement recorded during the course of the search from the the statement recorded during the course of the search from the Accounts Manager has identified that one is titled as “ori” and an Accounts Manager has identified that one is titled as “ori” and an Accounts Manager has identified that one is titled as “ori” and another is “ IT” which denotes that “Original” and “Income Tax”. The AO in the “ IT” which denotes that “Original” and “Income Tax”. The AO in the “ IT” which denotes that “Original” and “Income Tax”. The AO in the assessment order has made a finding that in the accounts maintained assessment order has made a finding that in the accounts maintained assessment order has made a finding that in the accounts maintained under the title “Ori” is the original books of accounts where all the under the title “Ori” is the original books of accounts where all the under the title “Ori” is the original books of accounts where all the receipts and expenditures have been duly receipts and expenditures have been duly reflected. In the accounts reflected. In the accounts under the title “ IT” is the accounts where expenditures have been under the title “ IT” is the accounts where expenditures have been under the title “ IT” is the accounts where expenditures have been inflated and the net income is arrived to disclose the same in the return inflated and the net income is arrived to disclose the same in the return inflated and the net income is arrived to disclose the same in the return of income filed. However, the Appellant during the course of Appellate of income filed. However, the Appellant during the course of Appellate of income filed. However, the Appellant during the course of Appellate Proceedings has c Proceedings has contended that terming the “original” and “ IT” is wrong ontended that terming the “original” and “ IT” is wrong and the appropriate term is “audited” and “unaudited”. The undersigned and the appropriate term is “audited” and “unaudited”. The undersigned and the appropriate term is “audited” and “unaudited”. The undersigned has considered that the terming is inappropriate to arrive a meaningful has considered that the terming is inappropriate to arrive a meaningful has considered that the terming is inappropriate to arrive a meaningful decision in respect of various issues raised by the Appel decision in respect of various issues raised by the Appel decision in respect of various issues raised by the Appellant in the grounds of appeal. grounds of appeal.
7.5.9 The Appellant during the course of Appellate Proceedings has The Appellant during the course of Appellate Proceedings has The Appellant during the course of Appellate Proceedings has submitted a detailed reason for the incomplete and erroneous manner in submitted a detailed reason for the incomplete and erroneous manner in submitted a detailed reason for the incomplete and erroneous manner in which the books of accounts were maintained. The main reason for the which the books of accounts were maintained. The main reason for the which the books of accounts were maintained. The main reason for the poor maintenance o poor maintenance of accounts was the capturing of primary accounting f accounts was the capturing of primary accounting data in the tally accounts by the operational staff who were not well data in the tally accounts by the operational staff who were not well data in the tally accounts by the operational staff who were not well versed in accounting and the absence of qualified accounting staff at versed in accounting and the absence of qualified accounting staff at versed in accounting and the absence of qualified accounting staff at multiple remote locations where the processing plant and warehous multiple remote locations where the processing plant and warehous multiple remote locations where the processing plant and warehouses of the Appellant are situated. The multiple tally accounts found during the the Appellant are situated. The multiple tally accounts found during the the Appellant are situated. The multiple tally accounts found during the search was due to the fact that making accounting entries at multiple search was due to the fact that making accounting entries at multiple search was due to the fact that making accounting entries at multiple locations. The non locations. The non-availability of accurate information regarding the availability of accurate information regarding the transactions at the time making the e transactions at the time making the entries in the tally accounts and ntries in the tally accounts and omission to make accounting entries contemporaneously led to either omission to make accounting entries contemporaneously led to either omission to make accounting entries contemporaneously led to either absence of narration or incorrect / erroneous narration for the entries absence of narration or incorrect / erroneous narration for the entries absence of narration or incorrect / erroneous narration for the entries made in the books of accounts. The Appellant also explained that there made in the books of accounts. The Appellant also explained that there made in the books of accounts. The Appellant also explained that there are occasions where the entries were wrongly made by crediting the s where the entries were wrongly made by crediting the s where the entries were wrongly made by crediting the ledger accounts of group companies while debiting the relevant ledger accounts of group companies while debiting the relevant ledger accounts of group companies while debiting the relevant expenditure account in the books of the Appellant Firm in cases where expenditure account in the books of the Appellant Firm in cases where expenditure account in the books of the Appellant Firm in cases where the payments were made by the Appellant Firm itself from the the payments were made by the Appellant Firm itself from the the payments were made by the Appellant Firm itself from the borrowings made from such group companies. The Appellant also ngs made from such group companies. The Appellant also ngs made from such group companies. The Appellant also explained that while crediting the ledger account of group companies, explained that while crediting the ledger account of group companies, explained that while crediting the ledger account of group companies, mistakes occurred in adopting the name of the group company due to mistakes occurred in adopting the name of the group company due to mistakes occurred in adopting the name of the group company due to similarity in the names of various group companies. The Appellan similarity in the names of various group companies. The Appellan similarity in the names of various group companies. The Appellant also explained that it was unable to reconcile the discrepancies pointed out explained that it was unable to reconcile the discrepancies pointed out explained that it was unable to reconcile the discrepancies pointed out by the AO during the course of assessment proceedings and also unable by the AO during the course of assessment proceedings and also unable by the AO during the course of assessment proceedings and also unable to furnish the bills and vouchers in support of the expenditure genuinely to furnish the bills and vouchers in support of the expenditure genuinely to furnish the bills and vouchers in support of the expenditure genuinely incurred by it, in view of passag incurred by it, in view of passage of time, frequent changes in the staff e of time, frequent changes in the staff handling accounts and multiplicity of group companies. handling accounts and multiplicity of group companies.
& 1472/Chny/2023 (AYs 20 2013-14 & 2014-15) CO Nos.31 & 32/Chny/2024 (AYs 20 2013-14 & 2014-15) M/s. Bala Murugan Co. M/s. Bala Murugan Co. :: 9 ::
7.5.10 The undersigned has carefully examined the submissions, The undersigned has carefully examined the submissions, The undersigned has carefully examined the submissions, adduced by the Appellant to substantiate the maintenance of multiple adduced by the Appellant to substantiate the maintenance of multiple adduced by the Appellant to substantiate the maintenance of multiple accounts. At the outset the accounts. At the outset there exists no dispute about the turnover re exists no dispute about the turnover returned by the Appellant by both the AO and the Appellant. returned by the Appellant by both the AO and the Appellant. returned by the Appellant by both the AO and the Appellant.
7.5.11 In the instant case of the Appellant the undersigned is of the In the instant case of the Appellant the undersigned is of the In the instant case of the Appellant the undersigned is of the view that the reasons explained by the Appellant for the discrepancies view that the reasons explained by the Appellant for the discrepancies view that the reasons explained by the Appellant for the discrepancies that occurred in the books of accounts as identified by the AO in the in the books of accounts as identified by the AO in the in the books of accounts as identified by the AO in the assessment order are reasonable and acceptable having regard to the assessment order are reasonable and acceptable having regard to the assessment order are reasonable and acceptable having regard to the nature of the business, the remote locations where the business nature of the business, the remote locations where the business nature of the business, the remote locations where the business operations are carried out, non operations are carried out, non-availability of skilled accounting s availability of skilled accounting staff in such remote locations, multiplicity of group companies with similar such remote locations, multiplicity of group companies with similar such remote locations, multiplicity of group companies with similar sounding names and frequent intergroup company transactions. sounding names and frequent intergroup company transactions. sounding names and frequent intergroup company transactions. Notwithstanding the same, once the discrepancies in the books of Notwithstanding the same, once the discrepancies in the books of Notwithstanding the same, once the discrepancies in the books of accounts have been identified by the AO and the Appell accounts have been identified by the AO and the Appell accounts have been identified by the AO and the Appellant was confronted with the same, the Appellant is required to reconcile the said confronted with the same, the Appellant is required to reconcile the said confronted with the same, the Appellant is required to reconcile the said discrepancies and produce bills and vouchers in support of the discrepancies and produce bills and vouchers in support of the discrepancies and produce bills and vouchers in support of the expenditures in respect of such discrepancies were pointed out by the expenditures in respect of such discrepancies were pointed out by the expenditures in respect of such discrepancies were pointed out by the AO. In cases where the discrepancies were AO. In cases where the discrepancies were explained to be arising from explained to be arising from the crediting of ledger accounts of a wrong group entity instead of the the crediting of ledger accounts of a wrong group entity instead of the the crediting of ledger accounts of a wrong group entity instead of the correct group entity while debiting the expenditure incurred by a group correct group entity while debiting the expenditure incurred by a group correct group entity while debiting the expenditure incurred by a group entity on behalf of the Appellant, it is necessary to identify the name of entity on behalf of the Appellant, it is necessary to identify the name of entity on behalf of the Appellant, it is necessary to identify the name of the correct group entity which incurred the expenditure on behalf of the rect group entity which incurred the expenditure on behalf of the rect group entity which incurred the expenditure on behalf of the Appellant and adduce evidence to show that the corresponding entry for Appellant and adduce evidence to show that the corresponding entry for Appellant and adduce evidence to show that the corresponding entry for the same is found in the ledger account of the Appellant in the books of the same is found in the ledger account of the Appellant in the books of the same is found in the ledger account of the Appellant in the books of such correct group entity. such correct group entity.
7.5.12 In cases w In cases where the discrepancy has been explained to be here the discrepancy has been explained to be arising from the erroneous crediting of the ledger account of a group arising from the erroneous crediting of the ledger account of a group arising from the erroneous crediting of the ledger account of a group entity while debiting the expenditure account though the expenditure entity while debiting the expenditure account though the expenditure entity while debiting the expenditure account though the expenditure has been met by the Appellant itself out of received on transfer throug has been met by the Appellant itself out of received on transfer throug has been met by the Appellant itself out of received on transfer through banking channel from the group entity, it is necessary on the part of the banking channel from the group entity, it is necessary on the part of the banking channel from the group entity, it is necessary on the part of the Appellant to identify the relevant transactions of transfer of funds Appellant to identify the relevant transactions of transfer of funds Appellant to identify the relevant transactions of transfer of funds through bank from the group entity and incurring of expenditure by the through bank from the group entity and incurring of expenditure by the through bank from the group entity and incurring of expenditure by the Appellant from such funds by withdrawing Appellant from such funds by withdrawing the same from the bank. the same from the bank. Moreover, in both the categories of discrepancies, it is necessary for the Moreover, in both the categories of discrepancies, it is necessary for the Moreover, in both the categories of discrepancies, it is necessary for the Appellant to produce the bills and vouchers in support of the relevant Appellant to produce the bills and vouchers in support of the relevant Appellant to produce the bills and vouchers in support of the relevant expenditure in respect of which the corresponding credit entries were expenditure in respect of which the corresponding credit entries were expenditure in respect of which the corresponding credit entries were erroneously made in the books of accounts. e in the books of accounts.
7.5.13 In this regard, the Appellant has brought out various In this regard, the Appellant has brought out various In this regard, the Appellant has brought out various constraints being faced by it in carrying out such reconciliation and constraints being faced by it in carrying out such reconciliation and constraints being faced by it in carrying out such reconciliation and furnishing the supporting bills and vouchers in the written submission by furnishing the supporting bills and vouchers in the written submission by furnishing the supporting bills and vouchers in the written submission by stating that it is unab stating that it is unable to do so at present in view of the passage of le to do so at present in view of the passage of time and frequent changes in the accounting staff working with the time and frequent changes in the accounting staff working with the time and frequent changes in the accounting staff working with the Appellant. It is considered that the said submission of the Appellant Appellant. It is considered that the said submission of the Appellant Appellant. It is considered that the said submission of the Appellant & 1472/Chny/2023 (AYs 20 2013-14 & 2014-15) CO Nos.31 & 32/Chny/2024 (AYs 20 2013-14 & 2014-15) M/s. Bala Murugan Co. M/s. Bala Murugan Co. cannot be disregarded in view of the genuineness of the prActical cannot be disregarded in view of the genuineness of the prActical cannot be disregarded in view of the genuineness of the prActical difficulties expressed by the Appellant. At the same time, it is also not iculties expressed by the Appellant. At the same time, it is also not iculties expressed by the Appellant. At the same time, it is also not possible to accept the correctness of the claims in the books of account possible to accept the correctness of the claims in the books of account possible to accept the correctness of the claims in the books of account unless the discrepancies pointed out in the Assessment Order are unless the discrepancies pointed out in the Assessment Order are unless the discrepancies pointed out in the Assessment Order are subjected to necessary reconciliation. subjected to necessary reconciliation.
7.5.14 In this context, it is pertinent to observe that this is not a case this context, it is pertinent to observe that this is not a case this context, it is pertinent to observe that this is not a case where the Appellant is attempting to give incorrect reasons for its where the Appellant is attempting to give incorrect reasons for its where the Appellant is attempting to give incorrect reasons for its inability to produce the supporting bills and vouchers. Having regard to inability to produce the supporting bills and vouchers. Having regard to inability to produce the supporting bills and vouchers. Having regard to the discussion made in the preceding paragraphs, the discussion made in the preceding paragraphs, it needs to be it needs to be observed that there is no dispute regarding the fact that the books of observed that there is no dispute regarding the fact that the books of observed that there is no dispute regarding the fact that the books of account of the Appellant for the assessment years under consideration account of the Appellant for the assessment years under consideration account of the Appellant for the assessment years under consideration are erroneous and inaccurate. Though the Appellant is unable to are erroneous and inaccurate. Though the Appellant is unable to are erroneous and inaccurate. Though the Appellant is unable to reconcile the discrepancies / inaccu reconcile the discrepancies / inaccuracies by furnishing the correct racies by furnishing the correct details of the relevant transactions along with the supporting bills and details of the relevant transactions along with the supporting bills and details of the relevant transactions along with the supporting bills and vouchers the same cannot be taken as a reason to disallow the vouchers the same cannot be taken as a reason to disallow the vouchers the same cannot be taken as a reason to disallow the expenditure when the turnover is not disputed. expenditure when the turnover is not disputed.
…….
7.5.17 In this background, it is cons In this background, it is considered that the books of accounts idered that the books of accounts of the Appellant Firm, which are inaccurate, do not facilitate arriving at of the Appellant Firm, which are inaccurate, do not facilitate arriving at of the Appellant Firm, which are inaccurate, do not facilitate arriving at true and correct profits of the Appellant Firm and they are required to be true and correct profits of the Appellant Firm and they are required to be true and correct profits of the Appellant Firm and they are required to be rejected by invoking the provisions of Section 145(3) of the Act. rejected by invoking the provisions of Section 145(3) of the Act. rejected by invoking the provisions of Section 145(3) of the Act. Accordingly, the undersigned in exercise of the powers conferred u/s ingly, the undersigned in exercise of the powers conferred u/s ingly, the undersigned in exercise of the powers conferred u/s 250 and 251 of the Act, is entitled to make such enquiry as he thinks fit 250 and 251 of the Act, is entitled to make such enquiry as he thinks fit 250 and 251 of the Act, is entitled to make such enquiry as he thinks fit and may pass such other order in Appeal as he thinks fit. Thus, the and may pass such other order in Appeal as he thinks fit. Thus, the and may pass such other order in Appeal as he thinks fit. Thus, the undersigned while disposing of the appeal u/s 250 o undersigned while disposing of the appeal u/s 250 of the Act is entitled f the Act is entitled to enter into the shoes of the Assessing Officer and decide the issue. to enter into the shoes of the Assessing Officer and decide the issue. to enter into the shoes of the Assessing Officer and decide the issue. The books of accounts of the Appellant Firm for the FY(s) 2012 The books of accounts of the Appellant Firm for the FY(s) 2012 The books of accounts of the Appellant Firm for the FY(s) 2012-13 and 2013-14 are hereby rejected. Thus, having rejected the books of 14 are hereby rejected. Thus, having rejected the books of 14 are hereby rejected. Thus, having rejected the books of accounts, the business incom accounts, the business income of the Appellant Firm is required to be e of the Appellant Firm is required to be estimated under the said provisions, consequent to rejection of the estimated under the said provisions, consequent to rejection of the estimated under the said provisions, consequent to rejection of the books of accounts.” books of accounts.”
After holding so, the Ld. CIT(A) is noted to have analyzed the After holding so, the Ld. CIT(A) is noted to have analyzed the After holding so, the Ld. CIT(A) is noted to have analyzed the profitability of the assessee and noted that, if the entire profitability of the assessee and noted that, if the entire profitability of the assessee and noted that, if the entire disallowance made by the AO is upheld, then it would give an incongruous picture in as made by the AO is upheld, then it would give an incongruous picture in as made by the AO is upheld, then it would give an incongruous picture in as much as the profitability from this business would be abnormally high as much as the profitability from this business would be abnormally high as much as the profitability from this business would be abnormally high as 51.35% to 91.31%, which was not appropriate in the facts and 51.35% to 91.31%, which was not appropriate in the facts and 51.35% to 91.31%, which was not appropriate in the facts and & 1472/Chny/2023 (AYs 20 2013-14 & 2014-15) CO Nos.31 & 32/Chny/2024 (AYs 20 2013-14 & 2014-15) M/s. Bala Murugan Co. M/s. Bala Murugan Co. circumstances of the case. He thus circumstances of the case. He thus held that, although there would indeed held that, although there would indeed be discrepancies in the books of accounts as highlighted by the AO but be discrepancies in the books of accounts as highlighted by the AO but be discrepancies in the books of accounts as highlighted by the AO but that cannot result in assessee actually making profit in excess of 70% of that cannot result in assessee actually making profit in excess of 70% of that cannot result in assessee actually making profit in excess of 70% of the turnover. The Ld. CIT(A) is noted to have accordingly estimated the the turnover. The Ld. CIT(A) is noted to have accordingly estimated the the turnover. The Ld. CIT(A) is noted to have accordingly estimated the profits at 2.21% of the turnover of the assessee. The relevant findings profits at 2.21% of the turnover of the assessee. The relevant findings profits at 2.21% of the turnover of the assessee. The relevant findings taken note of by us is as under: taken note of by us is as under:-
“7.5.15 Even though the claims of the Appellant in the books of Even though the claims of the Appellant in the books of Even though the claims of the Appellant in the books of account cannot be accepted in toto in the face of the discrepancies account cannot be accepted in toto in the face of the discrepancies account cannot be accepted in toto in the face of the discrepancies brought out by the brought out by the AO in the Assessment Order, making disallowance of AO in the Assessment Order, making disallowance of the major portion of expenditure in respect of which such discrepancies the major portion of expenditure in respect of which such discrepancies the major portion of expenditure in respect of which such discrepancies were noticed is also not appropriate in the facts of the case. On making were noticed is also not appropriate in the facts of the case. On making were noticed is also not appropriate in the facts of the case. On making disallowance of entire expenditure in respect of which the disallowance of entire expenditure in respect of which the discrepancies discrepancies were found as sought to be done by the AO in the Assessment Order, were found as sought to be done by the AO in the Assessment Order, were found as sought to be done by the AO in the Assessment Order, the total income of the Appellant was assessed at Rs.3,51,11,775/ the total income of the Appellant was assessed at Rs.3,51,11,775/ the total income of the Appellant was assessed at Rs.3,51,11,775/-, and Rs.2,29,05,158/- - for the AY(s) 2013-14 and 2014-15 as against the 15 as against the turnover Rs.6,83,56,864/ turnover Rs.6,83,56,864/-and Rs.2,50,36,868/- for the FY(s) 2012 for the FY(s) 2012-13 and 2013-14 relevant to the AY(s) 2013 14 relevant to the AY(s) 2013-14 and 2014-15.
7.5.16 The said assessment(s) have resulted in impliedly considering The said assessment(s) have resulted in impliedly considering The said assessment(s) have resulted in impliedly considering the net profit of the Appellant at 51.31%, and 91.35% for the FY(s) the net profit of the Appellant at 51.31%, and 91.35% for the FY(s) the net profit of the Appellant at 51.31%, and 91.35% for the FY(s) 2012-13 and 2013 13 and 2013-14 respectively, which is abnormally high in the line , which is abnormally high in the line of business of the Appellant Firm and not appropriate to the facts and of business of the Appellant Firm and not appropriate to the facts and of business of the Appellant Firm and not appropriate to the facts and circumstances of the case. It may be appreciated that the said circumstances of the case. It may be appreciated that the said circumstances of the case. It may be appreciated that the said abnormality in the profit margin is indicative of the fact that the abnormality in the profit margin is indicative of the fact that the abnormality in the profit margin is indicative of the fact that the discrepancies in the accounts pointed out by the AO cannot be n the accounts pointed out by the AO cannot be n the accounts pointed out by the AO cannot be considered to be arising wholly from wrong claims of expenditure by the considered to be arising wholly from wrong claims of expenditure by the considered to be arising wholly from wrong claims of expenditure by the Appellant…..
…….
7.5.18 Now, the issue before the undersigned is that, what can be Now, the issue before the undersigned is that, what can be Now, the issue before the undersigned is that, what can be the reasonable profit that can be attributable to the the reasonable profit that can be attributable to the Appellant Firm in Appellant Firm in conduct of business. The Appellant Firm in the return of income filed has conduct of business. The Appellant Firm in the return of income filed has conduct of business. The Appellant Firm in the return of income filed has claimed the net profit margin at the rate of ( claimed the net profit margin at the rate of (-) 0.02% and (- -) 0.02 % for the FY(s) 2012-13 and 2013 13 and 2013-14 relevant to the AY(s) 2013 14 relevant to the AY(s) 2013-14, 2014- 15.
7.5.19 At this junc At this juncture it is significant to bring it on record in such ture it is significant to bring it on record in such circumstance that my predecessor in the case of the M/s. Beach circumstance that my predecessor in the case of the M/s. Beach circumstance that my predecessor in the case of the M/s. Beach & 1472/Chny/2023 (AYs 20 2013-14 & 2014-15) CO Nos.31 & 32/Chny/2024 (AYs 20 2013-14 & 2014-15) M/s. Bala Murugan Co. M/s. Bala Murugan Co. :: 12 ::
Mineraals Company (PAN Mineraals Company (PAN-AAJFB3329C) (a sister concern of the AAJFB3329C) (a sister concern of the Appellant’s Firm) vide Appellate Order in Appellant’s Firm) vide Appellate Order in Appellant’s Firm) vide Appellate Order in ITA No. 669/2021-22 dated 27.02.2023 for the AY 2013 or the AY 2013-14 where the facts and circumstances were 14 where the facts and circumstances were similar, has held that 30% of the turnover can be the appropriate similar, has held that 30% of the turnover can be the appropriate similar, has held that 30% of the turnover can be the appropriate income of the Appellant Firm. The said order was taken up before the income of the Appellant Firm. The said order was taken up before the income of the Appellant Firm. The said order was taken up before the Hon’ble ITAT Chennai both by the assessee and the revenue. The Hon’ble ITAT Chennai both by the assessee and the revenue. The Hon’ble ITAT Chennai both by the assessee and the revenue. The Hon’ble ITAT, Chennai vide its order in ITA Nos 366/Chny/2023 dated on’ble ITAT, Chennai vide its order in ITA Nos 366/Chny/2023 dated on’ble ITAT, Chennai vide its order in ITA Nos 366/Chny/2023 dated 09.08.2023 has upheld the decision of my predecessor in rejecting the 09.08.2023 has upheld the decision of my predecessor in rejecting the 09.08.2023 has upheld the decision of my predecessor in rejecting the books of accounts and restricted the net profit ratio @ 2.21% on sales books of accounts and restricted the net profit ratio @ 2.21% on sales books of accounts and restricted the net profit ratio @ 2.21% on sales turnover for estimating the same while determini turnover for estimating the same while determining the total business ng the total business income of the sister concern i.e. M/s. Beach Mineraals Company. income of the sister concern i.e. M/s. Beach Mineraals Company. income of the sister concern i.e. M/s. Beach Mineraals Company.
7.5.22 The undersigned to have the judicial discipline, by respectfully The undersigned to have the judicial discipline, by respectfully The undersigned to have the judicial discipline, by respectfully following the decision of the Hon’ble ITAT Chennai in the Appellant’s following the decision of the Hon’ble ITAT Chennai in the Appellant’s following the decision of the Hon’ble ITAT Chennai in the Appellant’s sister concern for the AY sister concern for the AY 2013-14, the net profit ratio of the Appellant 14, the net profit ratio of the Appellant Firm is taken @ 2.21% on the sales turnover in determining the Firm is taken @ 2.21% on the sales turnover in determining the Firm is taken @ 2.21% on the sales turnover in determining the business income of the Appellant Firm for the years under consideration. business income of the Appellant Firm for the years under consideration. business income of the Appellant Firm for the years under consideration. Accordingly, the AO is hereby directed to compute the business income ( Accordingly, the AO is hereby directed to compute the business income ( Accordingly, the AO is hereby directed to compute the business income ( Net Profit ) of the Appellant @ 2.21% of the turnover for each Net Profit ) of the Appellant @ 2.21% of the turnover for each Net Profit ) of the Appellant @ 2.21% of the turnover for each assessment year under consideration. assessment year under consideration.
7.5.23 Further the AO while determining the taxable income of the Further the AO while determining the taxable income of the Further the AO while determining the taxable income of the Appellant is directed to consider the interest receipts and commission Appellant is directed to consider the interest receipts and commission Appellant is directed to consider the interest receipts and commission receipts credited to the P&L account separately for each assessment to the P&L account separately for each assessment year 2013-14 and 2014 14 and 2014-15 respectively. Thus, the various grounds 15 respectively. Thus, the various grounds raised upon these issues are treated partly allowed.” raised upon these issues are treated partly allowed.”
Having perused these findings in light of the facts on record, it is Having perused these findings in light of the facts on record, it is Having perused these findings in light of the facts on record, it is noted that, identical facts and circumstances were also involved in the entical facts and circumstances were also involved in the entical facts and circumstances were also involved in the case of assessee’s sister concern, M/s Beach Minerals Company, which case of assessee’s sister concern, M/s Beach Minerals Company, which case of assessee’s sister concern, M/s Beach Minerals Company, which was also searched along with the assessee. Like the assessee, two parallel was also searched along with the assessee. Like the assessee, two parallel was also searched along with the assessee. Like the assessee, two parallel books of accounts were unearthed from the electronic d books of accounts were unearthed from the electronic d books of accounts were unearthed from the electronic data viz., tally software titled ‘ori’ and ‘ and ‘IT’. Upon comparison, the AO noted that, the ’. Upon comparison, the AO noted that, the accounts titled ‘IT’ were the accounts maintained for income ’ were the accounts maintained for income ’ were the accounts maintained for income-tax purposes wherein the expenses debited were higher than the expenses found wherein the expenses debited were higher than the expenses found wherein the expenses debited were higher than the expenses found debited in the books maintain debited in the books maintained in ‘ori’ and therefore made disallowance and therefore made disallowance & 1472/Chny/2023 (AYs 20 2013-14 & 2014-15) CO Nos.31 & 32/Chny/2024 (AYs 20 2013-14 & 2014-15) M/s. Bala Murugan Co. M/s. Bala Murugan Co. on account of inflated expenses. On appeal, the coordinate bench of this on account of inflated expenses. On appeal, the coordinate bench of this on account of inflated expenses. On appeal, the coordinate bench of this Tribunal upheld the Ld. CIT(A)’s action of rejecting the books of accounts Tribunal upheld the Ld. CIT(A)’s action of rejecting the books of accounts Tribunal upheld the Ld. CIT(A)’s action of rejecting the books of accounts holding it to be unreliable but estimated the profits from this holding it to be unreliable but estimated the profits from this holding it to be unreliable but estimated the profits from this business at 2.21% as opposed to 0.57% returned by the assessee. The relevant 2.21% as opposed to 0.57% returned by the assessee. The relevant 2.21% as opposed to 0.57% returned by the assessee. The relevant findings taken note of by us is as findings taken note of by us is as under: -
“14. Having heard the rival contentions, carefully considered the Having heard the rival contentions, carefully considered the Having heard the rival contentions, carefully considered the submissions, and perused the material placed on record. The case of the submissions, and perused the material placed on record. The case of the submissions, and perused the material placed on record. The case of the assessee firm for the Ay 2013 assessee firm for the Ay 2013-14 was assessed by the department u/s 14 was assessed by the department u/s 143(3) vide order dated 08.03.2016, thereafter upon a s 143(3) vide order dated 08.03.2016, thereafter upon a search action u/s earch action u/s 132 of the Act on BMC Group on 25.10.2018 the same was reassessed 132 of the Act on BMC Group on 25.10.2018 the same was reassessed 132 of the Act on BMC Group on 25.10.2018 the same was reassessed u/s 143(3) rws 153A bide order dated 26.08.2021. During the course of u/s 143(3) rws 153A bide order dated 26.08.2021. During the course of u/s 143(3) rws 153A bide order dated 26.08.2021. During the course of search, it was found that the assessee firm was maintaining parallel sets search, it was found that the assessee firm was maintaining parallel sets search, it was found that the assessee firm was maintaining parallel sets of accounts. Evidences were g of accounts. Evidences were gathered by the search team in the form athered by the search team in the form disks, laptops. Loose sheets pertaining to unaccounted receipts/ disks, laptops. Loose sheets pertaining to unaccounted receipts/ disks, laptops. Loose sheets pertaining to unaccounted receipts/ payments, deposition of key persons etc. Statement of Shri P Senthil payments, deposition of key persons etc. Statement of Shri P Senthil payments, deposition of key persons etc. Statement of Shri P Senthil Muthu Kumar, Accounts Manager of the assessee firm were taken, Muthu Kumar, Accounts Manager of the assessee firm were taken, Muthu Kumar, Accounts Manager of the assessee firm were taken, according to the sai according to the said statements Modus Operandi of accounting of the d statements Modus Operandi of accounting of the assessee firm was scripted by the Ld AO. Exhaustive workings a/w assessee firm was scripted by the Ld AO. Exhaustive workings a/w assessee firm was scripted by the Ld AO. Exhaustive workings a/w screen shots of the ledger accounts were produced in the Assessment screen shots of the ledger accounts were produced in the Assessment screen shots of the ledger accounts were produced in the Assessment Order by the Ld AO and disallowances were made. Aggrieved by the Order by the Ld AO and disallowances were made. Aggrieved by the Order by the Ld AO and disallowances were made. Aggrieved by the additions, the assessee agitated on the issues before the Ld CIT(A). Ld , the assessee agitated on the issues before the Ld CIT(A). Ld , the assessee agitated on the issues before the Ld CIT(A). Ld CIT (A), without touching the merits of individual additions, have CIT (A), without touching the merits of individual additions, have CIT (A), without touching the merits of individual additions, have observed that the reasons explained by the appellant for the observed that the reasons explained by the appellant for the observed that the reasons explained by the appellant for the discrepancies that occurred in the books of accounts as identifie discrepancies that occurred in the books of accounts as identifie discrepancies that occurred in the books of accounts as identified by the AO in the assessment order are reasonable and acceptable having AO in the assessment order are reasonable and acceptable having AO in the assessment order are reasonable and acceptable having regard to the nature of business, the remote locations where the regard to the nature of business, the remote locations where the regard to the nature of business, the remote locations where the business operations are carried on, the non business operations are carried on, the non-availability of skilled availability of skilled accounting staff in such remote locations, multipl accounting staff in such remote locations, multiplicity of group icity of group companies with similar sounding names and frequent inter companies with similar sounding names and frequent inter companies with similar sounding names and frequent inter-group company transactions. It is further noticed by the Ld CIT(A) that various company transactions. It is further noticed by the Ld CIT(A) that various company transactions. It is further noticed by the Ld CIT(A) that various discrepancies as have been identified by the AO and the appellant was discrepancies as have been identified by the AO and the appellant was discrepancies as have been identified by the AO and the appellant was confronted with the same, the appe confronted with the same, the appellant is required to reconcile the said llant is required to reconcile the said discrepancies. However, since the appellant has brought out various discrepancies. However, since the appellant has brought out various discrepancies. However, since the appellant has brought out various constraints in carrying out such reconciliation and furnishing the constraints in carrying out such reconciliation and furnishing the constraints in carrying out such reconciliation and furnishing the supporting bills and vouchers in the written submission by stating that it supporting bills and vouchers in the written submission by stating that it supporting bills and vouchers in the written submission by stating that it is unable to do so at present in view of the passage of time and frequent ble to do so at present in view of the passage of time and frequent ble to do so at present in view of the passage of time and frequent changes in the accounting staff working with the appellant. It is changes in the accounting staff working with the appellant. It is changes in the accounting staff working with the appellant. It is considered by the Ld CIT(A) that the said submission of the appellant considered by the Ld CIT(A) that the said submission of the appellant considered by the Ld CIT(A) that the said submission of the appellant cannot be disregarded in view of the genuineness of cannot be disregarded in view of the genuineness of cannot be disregarded in view of the genuineness of the practical & 1472/Chny/2023 (AYs 20 2013-14 & 2014-15) CO Nos.31 & 32/Chny/2024 (AYs 20 2013-14 & 2014-15) M/s. Bala Murugan Co. M/s. Bala Murugan Co. difficulties expressed by the appellant. At the same time, it is not difficulties expressed by the appellant. At the same time, it is not difficulties expressed by the appellant. At the same time, it is not possible to accept the correctness of the claims in the books of account possible to accept the correctness of the claims in the books of account possible to accept the correctness of the claims in the books of account unless the discrepancies pointed out in the Assessment Order are unless the discrepancies pointed out in the Assessment Order are unless the discrepancies pointed out in the Assessment Order are subjected to necessary reconciliati subjected to necessary reconciliation. Ld CIT(A) decided the appeal with on. Ld CIT(A) decided the appeal with the following observations: the following observations:
In this context, it is pertinent to observe that this is not a case 43. In this context, it is pertinent to observe that this is not a case 43. In this context, it is pertinent to observe that this is not a case where the appellant is attempting to give incorrect reasons for its where the appellant is attempting to give incorrect reasons for its where the appellant is attempting to give incorrect reasons for its inability to produce the supporting bills and vouc inability to produce the supporting bills and vouchers. The case of hers. The case of the appellant for the instant Assessment Year was subjected to the appellant for the instant Assessment Year was subjected to the appellant for the instant Assessment Year was subjected to regular scrutiny assessment u/s 143(3) vide order dated regular scrutiny assessment u/s 143(3) vide order dated regular scrutiny assessment u/s 143(3) vide order dated 08.03.2016. As evident from the contents of the said Assessment 08.03.2016. As evident from the contents of the said Assessment 08.03.2016. As evident from the contents of the said Assessment Order, the AD required the appellant to produce the bil Order, the AD required the appellant to produce the bil Order, the AD required the appellant to produce the bills and vouchers in support of the expenditure debited towards mining vouchers in support of the expenditure debited towards mining vouchers in support of the expenditure debited towards mining production and processing and other expenses during the course of production and processing and other expenses during the course of production and processing and other expenses during the course of the said Assessment proceedings. The appellant produced the the said Assessment proceedings. The appellant produced the the said Assessment proceedings. The appellant produced the supporting bills and vouchers before the AO in response to th supporting bills and vouchers before the AO in response to th supporting bills and vouchers before the AO in response to the same. The AO stated in the Assessment Order that he carried out same. The AO stated in the Assessment Order that he carried out same. The AO stated in the Assessment Order that he carried out the verification of the said bills a vouchers and he found that the the verification of the said bills a vouchers and he found that the the verification of the said bills a vouchers and he found that the vouchers to the extent of Rs.2.80 Crores were beyond proper vouchers to the extent of Rs.2.80 Crores were beyond proper vouchers to the extent of Rs.2.80 Crores were beyond proper verification and that the claim of the appellant to the said e verification and that the claim of the appellant to the said e verification and that the claim of the appellant to the said extent was not fully proved. The AD therefore made disallowance of was not fully proved. The AD therefore made disallowance of was not fully proved. The AD therefore made disallowance of production and processing expenses to the tune of Rs.2.80 Crores production and processing expenses to the tune of Rs.2.80 Crores production and processing expenses to the tune of Rs.2.80 Crores in the original Assessment Order. The facts narrated in the said in the original Assessment Order. The facts narrated in the said in the original Assessment Order. The facts narrated in the said Assessment Order clearly bring out the fact that the appella Assessment Order clearly bring out the fact that the appella Assessment Order clearly bring out the fact that the appellant maintained the bills and vouchers in support of the expenditure maintained the bills and vouchers in support of the expenditure maintained the bills and vouchers in support of the expenditure debited to the P&L Account and that the same were verified by the debited to the P&L Account and that the same were verified by the debited to the P&L Account and that the same were verified by the AO during the original Assessment proceedings. AO during the original Assessment proceedings.
Having regard to the discussion made in the preceding 44. Having regard to the discussion made in the preceding 44. Having regard to the discussion made in the preceding paragraphs, it nee paragraphs, it needs to be observed that there is no dispute ds to be observed that there is no dispute regarding the fact that the books of account of the Appellant for regarding the fact that the books of account of the Appellant for regarding the fact that the books of account of the Appellant for the Assessment Year under consideration are erroneous and the Assessment Year under consideration are erroneous and the Assessment Year under consideration are erroneous and inaccurate. Though the appellant is unable to reconcile the inaccurate. Though the appellant is unable to reconcile the inaccurate. Though the appellant is unable to reconcile the discrepancies/ inaccuracies b discrepancies/ inaccuracies by furnishing the correct details of the y furnishing the correct details of the relevant transactions along with the supporting bills and vouchers, relevant transactions along with the supporting bills and vouchers, relevant transactions along with the supporting bills and vouchers, the furnishing of the bills and vouchers and their verification by the the furnishing of the bills and vouchers and their verification by the the furnishing of the bills and vouchers and their verification by the AO during the original assessment proceedings cannot be lost sight AO during the original assessment proceedings cannot be lost sight AO during the original assessment proceedings cannot be lost sight of. Though the claims of the appellant in the books of account the claims of the appellant in the books of account cannot be accepted in toto in the face of the discrepancies brought cannot be accepted in toto in the face of the discrepancies brought cannot be accepted in toto in the face of the discrepancies brought out by the AD in the impugned Assessment Order, making out by the AD in the impugned Assessment Order, making out by the AD in the impugned Assessment Order, making disallowance of the entire expenditure in respect of which such disallowance of the entire expenditure in respect of which such disallowance of the entire expenditure in respect of which such discrepancies wa discrepancies ware noticed is also not appropriate in the facts of re noticed is also not appropriate in the facts of the case keeping in view the verification made during the original the case keeping in view the verification made during the original the case keeping in view the verification made during the original Assessment proceedings. On making disallowance of entire Assessment proceedings. On making disallowance of entire Assessment proceedings. On making disallowance of entire expenditure in respect of which the discrepancies wars found as expenditure in respect of which the discrepancies wars found as expenditure in respect of which the discrepancies wars found as & 1472/Chny/2023 (AYs 20 2013-14 & 2014-15) CO Nos.31 & 32/Chny/2024 (AYs 20 2013-14 & 2014-15) M/s. Bala Murugan Co. M/s. Bala Murugan Co. :: 15 ::
sought to be done sought to be done by the AO in the impugned Assessment Order, by the AO in the impugned Assessment Order, the total income of the appellant was assessed at Rs.104.73 the total income of the appellant was assessed at Rs.104.73 the total income of the appellant was assessed at Rs.104.73 Crores as against the sales turnover of Rs.183.35 Crores. The said Crores as against the sales turnover of Rs.183.35 Crores. The said Crores as against the sales turnover of Rs.183.35 Crores. The said assessment has resulted in impliedly considering the net profit of assessment has resulted in impliedly considering the net profit of assessment has resulted in impliedly considering the net profit of the appellant at the appellant at 57.12%, which is abnormally high in any line of 57.12%, which is abnormally high in any line of business. The said abnormality in the profit margin itself is business. The said abnormality in the profit margin itself is business. The said abnormality in the profit margin itself is indicative of the fact that the discrepancies in the accounts pointed indicative of the fact that the discrepancies in the accounts pointed indicative of the fact that the discrepancies in the accounts pointed out by the AO cannot be considered to be arising wholly from out by the AO cannot be considered to be arising wholly from out by the AO cannot be considered to be arising wholly from wrong claims of wrong claims of expenditure by the appellant.
In view of the said reasons, it is considered that the books of 45. In view of the said reasons, it is considered that the books of 45. In view of the said reasons, it is considered that the books of accounts of the appellant, which are inaccurate, do not facilitate accounts of the appellant, which are inaccurate, do not facilitate accounts of the appellant, which are inaccurate, do not facilitate arriving at true and correct profits of the appellant and they are arriving at true and correct profits of the appellant and they are arriving at true and correct profits of the appellant and they are required to be rejected required to be rejected by invoking the provisions of Section by invoking the provisions of Section 145(3) of the Act. It is held that the business income of the 145(3) of the Act. It is held that the business income of the 145(3) of the Act. It is held that the business income of the appellant is required to be estimated under the said provisions, appellant is required to be estimated under the said provisions, appellant is required to be estimated under the said provisions, consequent to rejection of the books of account. consequent to rejection of the books of account.
For the purpose of estimating the bus 46. For the purpose of estimating the business income, it is iness income, it is considered that the business income admitted by the appellant considered that the business income admitted by the appellant considered that the business income admitted by the appellant itself in its return of income for AY 2011 itself in its return of income for AY 2011-12 before claiming 12 before claiming exemption of the said income u/s.108 of the Act constitutes a fair, exemption of the said income u/s.108 of the Act constitutes a fair, exemption of the said income u/s.108 of the Act constitutes a fair, logical and reasonable indicator of true and logical and reasonable indicator of true and correct profits of the correct profits of the appellant. Since the appellant claimed exemption u/s.108 in the appellant. Since the appellant claimed exemption u/s.108 in the appellant. Since the appellant claimed exemption u/s.108 in the said Assessment Year, it is reasonable to infer that the business said Assessment Year, it is reasonable to infer that the business said Assessment Year, it is reasonable to infer that the business income disclosed in the return of income for the said Assessment income disclosed in the return of income for the said Assessment income disclosed in the return of income for the said Assessment Year represents the correct profits o Year represents the correct profits of the appellant for the said f the appellant for the said year. The said assessment year is the last year of claiming year. The said assessment year is the last year of claiming year. The said assessment year is the last year of claiming exemption u/s 108 by the appellant and there is only one exemption u/s 108 by the appellant and there is only one exemption u/s 108 by the appellant and there is only one intervening year be Veen the said assessment year and the instant intervening year be Veen the said assessment year and the instant intervening year be Veen the said assessment year and the instant assessment year. Having regard to the same, assessment year. Having regard to the same, I am of the I am of the considered view that the net profit margin of 29.77% disclosed by considered view that the net profit margin of 29.77% disclosed by considered view that the net profit margin of 29.77% disclosed by the appellant the said AY 2011 the appellant the said AY 2011-12 is a reliable indicator of the true 12 is a reliable indicator of the true profits of the appellant for the instant assessment year also. profits of the appellant for the instant assessment year also. profits of the appellant for the instant assessment year also. Hence, I consider it appropriate to estimate Hence, I consider it appropriate to estimate the net profit margin the net profit margin for the instant Assessment Year at 30% of the sales turnover for for the instant Assessment Year at 30% of the sales turnover for for the instant Assessment Year at 30% of the sales turnover for the purpose of estimating the business income of the appellant. the purpose of estimating the business income of the appellant. the purpose of estimating the business income of the appellant. The AO is accordingly directed to determine the business income of The AO is accordingly directed to determine the business income of The AO is accordingly directed to determine the business income of the appellant at 30% of the sales turn the appellant at 30% of the sales turnover of Rs.183.35 gores. over of Rs.183.35 gores. Since the business income is being determined on estimate basis, Since the business income is being determined on estimate basis, Since the business income is being determined on estimate basis, it is held that the individual additions made to the income in the it is held that the individual additions made to the income in the it is held that the individual additions made to the income in the original Assessment Order dated 08.03.2016 get subsumed in the original Assessment Order dated 08.03.2016 get subsumed in the original Assessment Order dated 08.03.2016 get subsumed in the said estimated business income and t said estimated business income and the same not required to be he same not required to be considered separately. The AO is directed to consider the interest considered separately. The AO is directed to consider the interest considered separately. The AO is directed to consider the interest receipts receipts of of Rs.14,11,587/ Rs.14,11,587/- and and commission commission receipts receipts of of Rs.6,91,482/ Rs.6,91,482/- credited to the P&L account separately apart from credited to the P&L account separately apart from & 1472/Chny/2023 (AYs 20 2013-14 & 2014-15) CO Nos.31 & 32/Chny/2024 (AYs 20 2013-14 & 2014-15) M/s. Bala Murugan Co. M/s. Bala Murugan Co. :: 16 ::
the estimated business income while determin the estimated business income while determining the total income. ing the total income. The relevant grounds of appeal arc therefore partly allowed." The relevant grounds of appeal arc therefore partly allowed." The relevant grounds of appeal arc therefore partly allowed."
15. On perusal of the aforesaid observation of the Ld CIT(A), it is On perusal of the aforesaid observation of the Ld CIT(A), it is On perusal of the aforesaid observation of the Ld CIT(A), it is evident that the case of the assessee was subjected to assessment for evident that the case of the assessee was subjected to assessment for evident that the case of the assessee was subjected to assessment for the instant year under section 143 the instant year under section 143(3) of the act and that all the (3) of the act and that all the necessary necessary necessary vouchers vouchers vouchers documents documents documents and and and submissions submissions submissions pertaining pertaining pertaining to to to expenditure debited towards mining, production and processing and expenditure debited towards mining, production and processing and expenditure debited towards mining, production and processing and other expenses during the course of the said Assessment proceedings other expenses during the course of the said Assessment proceedings other expenses during the course of the said Assessment proceedings were submitted by the assessee were submitted by the assessee as required by the Ld AO. Such as required by the Ld AO. Such evidence were duly verified by the AO, thus have made a disallowance evidence were duly verified by the AO, thus have made a disallowance evidence were duly verified by the AO, thus have made a disallowance of Rs. 2.80 Crore under the head production and processing expenses in of Rs. 2.80 Crore under the head production and processing expenses in of Rs. 2.80 Crore under the head production and processing expenses in the original Assessment Order. It is therefore well established that the the original Assessment Order. It is therefore well established that the the original Assessment Order. It is therefore well established that the appellant had maintained the bills and vouchers in support of the d maintained the bills and vouchers in support of the d maintained the bills and vouchers in support of the expenditure debited to the P & L Account and that the same were expenditure debited to the P & L Account and that the same were expenditure debited to the P & L Account and that the same were verified by the AO during the original Assessment proceedings. It is verified by the AO during the original Assessment proceedings. It is verified by the AO during the original Assessment proceedings. It is further observed by the Ld CIT(A) that in spite of the fact that the further observed by the Ld CIT(A) that in spite of the fact that the further observed by the Ld CIT(A) that in spite of the fact that the assessee was unable to reconcile the discrepancies/ inaccuracies by assessee was unable to reconcile the discrepancies/ inaccuracies by assessee was unable to reconcile the discrepancies/ inaccuracies by furnishing the correct details of relevant transactions along with the furnishing the correct details of relevant transactions along with the furnishing the correct details of relevant transactions along with the supporting bills and vouchers, no dispute with regard to books of supporting bills and vouchers, no dispute with regard to books of supporting bills and vouchers, no dispute with regard to books of accounts maintained by the assessee were noticed by accounts maintained by the assessee were noticed by the Ld AO. In the Ld AO. In such a situation, considering the additions made by Ld AO the total such a situation, considering the additions made by Ld AO the total such a situation, considering the additions made by Ld AO the total assessed income of the assessee was computed at Rs. 104.73/ assessed income of the assessee was computed at Rs. 104.73/ assessed income of the assessee was computed at Rs. 104.73/- Crores, whereas the total sales turnover, which was untouched and remain whereas the total sales turnover, which was untouched and remain whereas the total sales turnover, which was untouched and remain undisputed was Rs. 183.25 Crores, thus undisputed was Rs. 183.25 Crores, thus the resultant % of Net Profit the resultant % of Net Profit was arrived at 57.12%, this % was considered as absolutely abnormal was arrived at 57.12%, this % was considered as absolutely abnormal was arrived at 57.12%, this % was considered as absolutely abnormal and high by the Ld CIT(A). Ld CIT(A) has very rightly commented that and high by the Ld CIT(A). Ld CIT(A) has very rightly commented that and high by the Ld CIT(A). Ld CIT(A) has very rightly commented that such a huge profit margin is abnormally high in any line of business and such a huge profit margin is abnormally high in any line of business and such a huge profit margin is abnormally high in any line of business and thus indicative that the discrepancies pointed out in the accounts by the that the discrepancies pointed out in the accounts by the that the discrepancies pointed out in the accounts by the Ld AO cannot be considered to be arising wholly from the wrong claims Ld AO cannot be considered to be arising wholly from the wrong claims Ld AO cannot be considered to be arising wholly from the wrong claims of expenditure by the assessee/appellant. Ld CIT(A) thus after of expenditure by the assessee/appellant. Ld CIT(A) thus after of expenditure by the assessee/appellant. Ld CIT(A) thus after considering the books of accounts of the assessee firm, as inaccu considering the books of accounts of the assessee firm, as inaccu considering the books of accounts of the assessee firm, as inaccurate which do not facilitate to arrive at true and correct profit of the appellant which do not facilitate to arrive at true and correct profit of the appellant which do not facilitate to arrive at true and correct profit of the appellant have rejected the same by invoking the provisions of section 145(3) of have rejected the same by invoking the provisions of section 145(3) of have rejected the same by invoking the provisions of section 145(3) of the Act. Under the facts of the present case, we approve the observation the Act. Under the facts of the present case, we approve the observation the Act. Under the facts of the present case, we approve the observation of Ld CIT(A) relating to reje of Ld CIT(A) relating to rejection of the books of assessee and uphold ction of the books of assessee and uphold the same. Ld CIT(A) consequently, estimated the profit of the firm the same. Ld CIT(A) consequently, estimated the profit of the firm the same. Ld CIT(A) consequently, estimated the profit of the firm @30% of the sale turnover, the basis for 30% was returned income of @30% of the sale turnover, the basis for 30% was returned income of @30% of the sale turnover, the basis for 30% was returned income of AY 2011-12, wherein the assessee has earned a profit of 29.77% before 12, wherein the assessee has earned a profit of 29.77% before 12, wherein the assessee has earned a profit of 29.77% before claiming exemption u/s 10B of the Act. On perusal of the order of Ld exemption u/s 10B of the Act. On perusal of the order of Ld exemption u/s 10B of the Act. On perusal of the order of Ld CIT(A), it is not transpired that while estimating the profit taking the CIT(A), it is not transpired that while estimating the profit taking the CIT(A), it is not transpired that while estimating the profit taking the base year as AY 2011 base year as AY 2011-12 (FY 2010-11), whether this fact was 11), whether this fact was confronted to the assessee firm or not to submit their objectio confronted to the assessee firm or not to submit their objectio confronted to the assessee firm or not to submit their objections or confirmation on the same. However, to demonstrate the actual ratio of confirmation on the same. However, to demonstrate the actual ratio of confirmation on the same. However, to demonstrate the actual ratio of profit and its comparability with the year under consideration (FY 2012 profit and its comparability with the year under consideration (FY 2012 profit and its comparability with the year under consideration (FY 2012- 13, AY2013-14), Ld AR of the assessee firm had submitted a chart of 14), Ld AR of the assessee firm had submitted a chart of 14), Ld AR of the assessee firm had submitted a chart of & 1472/Chny/2023 (AYs 20 2013-14 & 2014-15) CO Nos.31 & 32/Chny/2024 (AYs 20 2013-14 & 2014-15) M/s. Bala Murugan Co. M/s. Bala Murugan Co. :: 17 :: production for the financial years 2010 production for the financial years 2010-11 to 2016-17, the same 17, the same extracted as under: extracted as under:-
BEACH MINERALS COMPANY BEACH MINERALS COMPANY June 2023 June 2023 Financial Garnet ilmenite Total Total Year Qty Value Value Qty Value Qty Value 2010-11 24500 158152677 158152677 0 0 24500 24500 158,152,677 2011-12 57856 408896991 408896991 23184 332034863 81040 81040 740,931,854 2012-13 84091 837603370 837603370 60190 995980129 144281 144281 1,833,583,499 2013-14 55288 659312080 659312080 40992 514625364 96280 96280 1,173,937,444 2014-15 52550 504126598 504126598 41500 518636498 94050 94050 1,022,763,096 2015-16 43000 374261914 374261914 19800 247445847 62800 62800 621,707,761 2016-17 3312 28831737 28831737 12600 157465539 15912 15912 186,297,276
On perusal of the aforesaid chart, it is evident that the ratio of On perusal of the aforesaid chart, it is evident that the ratio of On perusal of the aforesaid chart, it is evident that the ratio of profit for the AY 2011 profit for the AY 2011-12 (FY 2010-11/base year) is not comparable 11/base year) is not comparable with the relevant AY 2013 with the relevant AY 2013-14 (FY 2012-13/relevant year), since 13/relevant year), since there was a mismatch in the production mix (quantity of minerals extracted) was a mismatch in the production mix (quantity of minerals extracted) was a mismatch in the production mix (quantity of minerals extracted) for the FY 2010- -11 and FY 2012-13, wherein quantity of "ilmenite" is 13, wherein quantity of "ilmenite" is "O"(zero) in the base years as compared to 60190 units in the relevant "O"(zero) in the base years as compared to 60190 units in the relevant "O"(zero) in the base years as compared to 60190 units in the relevant year. It is the submission of Led AR tha year. It is the submission of Led AR that the rate of profit is different for t the rate of profit is different for different minerals extracted by the firm. When the basis for different minerals extracted by the firm. When the basis for different minerals extracted by the firm. When the basis for reasonableness i.e. the profit of the AY 2011 reasonableness i.e. the profit of the AY 2011-12, which was considered 12, which was considered as reliable indicator by the Ld CIT(A) itself is incomparable for the as reliable indicator by the Ld CIT(A) itself is incomparable for the as reliable indicator by the Ld CIT(A) itself is incomparable for the reason that the production mix for the base year is different than that of production mix for the base year is different than that of production mix for the base year is different than that of the years under consideration. Now the question arises is that, what is the years under consideration. Now the question arises is that, what is the years under consideration. Now the question arises is that, what is the reasonable and correct ratio, which should be applied while the reasonable and correct ratio, which should be applied while the reasonable and correct ratio, which should be applied while estimating the profit when books of accounts are rejected. In estimating the profit when books of accounts are rejected. In estimating the profit when books of accounts are rejected. In our thoughtful consideration, we find it to be most suitable and reasonable thoughtful consideration, we find it to be most suitable and reasonable thoughtful consideration, we find it to be most suitable and reasonable to apply the average profits earned by the assessee itself in the to apply the average profits earned by the assessee itself in the to apply the average profits earned by the assessee itself in the comparable years under which the business activities of the assessee comparable years under which the business activities of the assessee comparable years under which the business activities of the assessee firm were identical. We, therefore, are of t firm were identical. We, therefore, are of the considered opinion that he considered opinion that average percentage of profit for the FY 2011 average percentage of profit for the FY 2011-12 to 2016-17 (except FY 17 (except FY 2012-13) 13) 13) which which which comes comes comes to to to 0.57% 0.57% 0.57% (average (average (average of of of 0.91+0.09+0.37+0.68+0.81) shall be the most reasonable percentage 0.91+0.09+0.37+0.68+0.81) shall be the most reasonable percentage 0.91+0.09+0.37+0.68+0.81) shall be the most reasonable percentage of profit to be applied on the sales turnover of th of profit to be applied on the sales turnover of the assessee for AY 2013 e assessee for AY 2013- & 1472/Chny/2023 (AYs 20 2013-14 & 2014-15) CO Nos.31 & 32/Chny/2024 (AYs 20 2013-14 & 2014-15) M/s. Bala Murugan Co. M/s. Bala Murugan Co. :: 18 ::
14. However, since the assessment u/s 143(3), wherein certain 14. However, since the assessment u/s 143(3), wherein certain 14. However, since the assessment u/s 143(3), wherein certain additions were made, resulting the profit of the assessee assessed at Rs. additions were made, resulting the profit of the assessee assessed at Rs. additions were made, resulting the profit of the assessee assessed at Rs. 4.04 crore i.e. 2.21% of total sales turnover of Rs. 183.35 Crores. We 4.04 crore i.e. 2.21% of total sales turnover of Rs. 183.35 Crores. We 4.04 crore i.e. 2.21% of total sales turnover of Rs. 183.35 Crores. We find it appropriate to app find it appropriate to apply the rate of 2.21% on the sales turnover of ly the rate of 2.21% on the sales turnover of the assessee firm to estimate its net profit margin from business of the assessee firm to estimate its net profit margin from business of the assessee firm to estimate its net profit margin from business of assessee for the AY 2013 assessee for the AY 2013-14. Income from Interest and commission to 14. Income from Interest and commission to added separately as dire added separately as directed by the order of Ld CIT(A).
In terms of our aforesaid observations, we find no infirmity in In terms of our aforesaid observations, we find no infirmity in In terms of our aforesaid observations, we find no infirmity in the order of Ld CIT(A) apart from rate of profit adopted for estimation of the order of Ld CIT(A) apart from rate of profit adopted for estimation of the order of Ld CIT(A) apart from rate of profit adopted for estimation of net profit margin while rejecting books of accounts u/s 145(3) of the net profit margin while rejecting books of accounts u/s 145(3) of the net profit margin while rejecting books of accounts u/s 145(3) of the Act, thus, we modify the order of Ld CIT(A) by Act, thus, we modify the order of Ld CIT(A) by scaling down the scaling down the percentage of net profit margin to 2.21% on sales turnover for percentage of net profit margin to 2.21% on sales turnover for percentage of net profit margin to 2.21% on sales turnover for estimating the same while determining the total assessable income. Ld estimating the same while determining the total assessable income. Ld estimating the same while determining the total assessable income. Ld AO is directed to work out the estimated income from business AO is directed to work out the estimated income from business AO is directed to work out the estimated income from business accordingly. In the result appeal of the ass accordingly. In the result appeal of the assessee is partly allowed.” essee is partly allowed.”
Having perused the above, we find that the Ld. CIT(A) had rightly Having perused the above, we find that the Ld. CIT(A) had rightly Having perused the above, we find that the Ld. CIT(A) had rightly followed the ratio decidendi ratio decidendi laid down in the above decision (supra) for laid down in the above decision (supra) for rejecting the books of accounts and estimating the profits of the assessee rejecting the books of accounts and estimating the profits of the assessee rejecting the books of accounts and estimating the profits of the assessee at 2.21%, as the facts involved were similar. Accordingly, we do not see s the facts involved were similar. Accordingly, we do not see s the facts involved were similar. Accordingly, we do not see any reason to take a different view in the present case before us. any reason to take a different view in the present case before us. any reason to take a different view in the present case before us.
Likewise, the argument of the Ld. CIT, DR urging that the net profit rate Likewise, the argument of the Ld. CIT, DR urging that the net profit rate Likewise, the argument of the Ld. CIT, DR urging that the net profit rate ought to be adopted at 53% instead of 2.21% as estima ought to be adopted at 53% instead of 2.21% as estima ought to be adopted at 53% instead of 2.21% as estimated by this Tribunal in assessee’s sister concern (supra) cannot be countenanced. Tribunal in assessee’s sister concern (supra) cannot be countenanced. Tribunal in assessee’s sister concern (supra) cannot be countenanced.
Also, we note that, the entity viz., Industrial Mineral Company urged by Also, we note that, the entity viz., Industrial Mineral Company urged by Also, we note that, the entity viz., Industrial Mineral Company urged by the Revenue to be comparable to the assessee, was demonstrated before the Revenue to be comparable to the assessee, was demonstrated before the Revenue to be comparable to the assessee, was demonstrated before us to be in different line of b us to be in different line of business and hence, this entity identified by usiness and hence, this entity identified by the Revenue is held to be not comparable. the Revenue is held to be not comparable.
& 1472/Chny/2023 (AYs 20 2013-14 & 2014-15) CO Nos.31 & 32/Chny/2024 (AYs 20 2013-14 & 2014-15) M/s. Bala Murugan Co. M/s. Bala Murugan Co. :: 19 ::
The Ld. CIT, DR had further additionally urged that, even if the The Ld. CIT, DR had further additionally urged that, even if the The Ld. CIT, DR had further additionally urged that, even if the books of accounts are rejected, the disallowance of items of expenses books of accounts are rejected, the disallowance of items of expenses books of accounts are rejected, the disallowance of items of expenses ought to be separately adjudi ought to be separately adjudicated and decided upon as to whether it is cated and decided upon as to whether it is to be separately added to the estimated business income. According to us to be separately added to the estimated business income. According to us to be separately added to the estimated business income. According to us however, once the books of account are rejected by invoking the the books of account are rejected by invoking the the books of account are rejected by invoking the provisions of section 145 of the Act and the income is estimated to the provisions of section 145 of the Act and the income is estimated to the provisions of section 145 of the Act and the income is estimated to the best of judgment as per the provisions of section 144 of the Act, the said of judgment as per the provisions of section 144 of the Act, the said of judgment as per the provisions of section 144 of the Act, the said estimate is made in substitution of the business income that is to be estimate is made in substitution of the business income that is to be estimate is made in substitution of the business income that is to be computed in accordance with the provisions contained in sections 30 to computed in accordance with the provisions contained in sections 30 to computed in accordance with the provisions contained in sections 30 to 43D as laid down in section 29 of the Act. C 43D as laid down in section 29 of the Act. Consequently, all the onsequently, all the deductions which are referred to in sections 30 to 43D of the Act are deductions which are referred to in sections 30 to 43D of the Act are deductions which are referred to in sections 30 to 43D of the Act are deemed to have been taken into account while making such an estimate. deemed to have been taken into account while making such an estimate. deemed to have been taken into account while making such an estimate.
Useful reference in this regard may be made to Useful reference in this regard may be made to the decision of Hon’ble the decision of Hon’ble Andhra Pradesh High Cour High Court in the case of Indwell Constructions Vs. Indwell Constructions Vs. CIT (232 ITR 776) and Hon’ble Allahabad High Court in the case of and Hon’ble Allahabad High Court in the case of and Hon’ble Allahabad High Court in the case of CIT vs Banwari Lal Banshidhar (229 ITR 229) vs Banwari Lal Banshidhar (229 ITR 229). For these reasons, we do For these reasons, we do not agree with this plea of the Revenue. not agree with this plea of the Revenue.
In light of the above, we do not see any infirmity in the order of the In light of the above, we do not see any infirmity in the order of the In light of the above, we do not see any infirmity in the order of the Ld. CIT(A) in rejecting the books of accounts and estimating the total Ld. CIT(A) in rejecting the books of accounts and estimating the total Ld. CIT(A) in rejecting the books of accounts and estimating the total income of the assessee. We accordingly uphold the same. income of the assessee. We accordingly uphold the same.
& 1472/Chny/2023 (AYs 20 2013-14 & 2014-15) CO Nos.31 & 32/Chny/2024 (AYs 20 2013-14 & 2014-15) M/s. Bala Murugan Co. M/s. Bala Murugan Co. :: 20 ::
Since, the issue raised by the assessee and revenue in Since, the issue raised by the assessee and revenue in Since, the issue raised by the assessee and revenue in captioned cross appeals under various grounds have been dealt with in terms of our cross appeals under various grounds have been dealt with in terms of our cross appeals under various grounds have been dealt with in terms of our observations herein above. Contentions if any which were not argued or observations herein above. Contentions if any which were not argued or observations herein above. Contentions if any which were not argued or dealt with became academic and thus not adjudicated separately. dealt with became academic and thus not adjudicated separately. dealt with became academic and thus not adjudicated separately.
Accordingly, having regard to our Accordingly, having regard to our above findings, all the appeals of above findings, all the appeals of the assessee and Revenue stands dismissed. the assessee and Revenue stands dismissed.
Order pronounced on the 26th day of November, 2024 Order pronounced on the 24, in Chennai.