SH. SUNIL DUTT JAIN, PROP. M/S JAIN FOOD PRODUCTS,,266/33, DIGGI CHOWK, AJMER vs. ACIT, CENTRAL CIRCLE, , AJMER
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”A” JAIPUR
Before: HON’BLE SHRI SANDEEP GOSAIN, JM &
PER BENCH :
This appeal by the assessee is directed against the order dated 21.03.2023 of ld. CIT (A), Udaipur-2 passed under section 250 of the IT Act, 1961 for the assessment year 2017-18. The assessee has raised the following grounds :-
The ld. CIT (A) has erred on facts and in law in confirming the addition of Rs. 6,33,534/- by applying g.p. rate of 13.74% on alleged unaccounted sale of Rs. 46,10,880/- and addition of Rs. 32,688/- on account of initial investment in production ignoring that evidence for alleged unaccounted sale was found for the month of October, 2016 of 4803 kg of Rs. 3,84,240/- & no evidence of initial investment in production was found and thus addition, if any, at the most should have been restricted to Rs. 52,795/- (13.74% of Rs. 3,84,240/-).
2 ITA No. 308/JP/2023 Shri Sunil Dutt Jain, Ajmer.
The appellant craves to alter, amend and modify any ground of appeal.
Necessary cost be awarded to the assessee.
The brief facts of the case are that the assessee is engaged in
manufacturing, wholesale and retail business of Namkeen and Sweet products in
his proprietary concern M/s Jain Food Products. This is the family business of
assessee which he carries out along with his brother Shri Kamal Kant Jain. He filed
his original return of income for the year under consideration on 27.10.2017
declaring total income of Rs.14,10,480/-. A search and survey was carried out on
12.09.2018 at the residential and business premises of Jain Group of Ajmer
wherein the assessee is also covered. Pursuant to search, the AO issued notice
under section 153A of the Act on 29.05.2019 which was duly served upon the
assessee by E-mail. In response to the notice, the assessee filed the return of
income on 12.06.2019 declaring the income of Rs. 14,10,480/- as was originally
filed. A notice under section 143(2) was issued on 30.09.2020 and the same was
duly served upon the assessee by e-mail. Query letter along with notices under
section 142(1) were also issued on 03.12.2020, 27.02.2021 and 02.06.2021. In
response to these notices, the assessee submitted the desired details in the
assessment proceedings. The seized books of accounts and other books of
accounts have been examined on test check basis.
2.1 During the course of search certain documents marked as Exhibit 23 to 27
of Annexure AS and Exhibit 28 of Annexure AS was found and seized from the
residential premises of assessee’s brother Shri Kamal Kant Jain. These documents
3 ITA No. 308/JP/2023 Shri Sunil Dutt Jain, Ajmer.
represent the sale bills of M/s Jain Food Products and challan of namkeen products
transferred from factory premises of M/s Jain Food Products to its branch/shop.
Sale bills and goods received through challan from the factory for the month of
October, 2016 were reconciled and it was found that during the month of October,
2016 goods transferred from factory to branch/shop are 64980 kg and sales bills
were issued only for 60177 kg. Accordingly the AO observed that M/s Jain Food
Products has suppressed its sale by 4803 kg (64980–60177) during the month of
October, 2016. On these papers statement of Shri Kamal Kant Jain was recorded
u/s 132(4) of IT Act on 13.09.2018 wherein in reply to Question No.17 (PB 160)
he submitted that average value of the above unaccounted sale is Rs.80/- per kg
and thus total value of unaccounted sale for the month of October, 2016 is
calculated at Rs.3,84,240/-. In reply to Question No.18 (PB 160) he submitted
that on this basis the unaccounted sales of M/s Jain Food Products for the last 6
years works out to Rs.2,76,65,280/-. He further submitted that vouchers for the
unaccounted sales are made on daily basis and the same are destroyed on daily
basis. In search proceedings, the assessee in reply to Question No.73 (PB 50)
submitted that he agrees with the statement given by Shri Kamal Kant Jain. In post
search proceedings, assessee vide letter dated 23.10.2018 to DDIT, Investigation,
Ajmer (PB 64) submitted that unaccounted sales worked out by the investigation
team at the time of search proceedings could be assumed for the year 2016-17 on
the basis of unaccounted sales for the month of October, 2016 and thus offered
14% g.p. on suppressed sales of Rs.46,10,800/- for the F.Y. 2016-17 for taxation
to purchase mental peace and to avoid litigation. During the course of assessment
proceedings, the assessee was asked to show cause on the above issue vide notice
4 ITA No. 308/JP/2023 Shri Sunil Dutt Jain, Ajmer.
u/s 142(1) dated 27.02.2021. In response to same, the assessee submitted the
reply on 09.03.2021 which is reproduced at Pages 8-10 of the assessment order.
The AO, however, did not accept the contention of the assessee and made the
addition of Rs.46,10,880/- (384240 x 12) on account of undisclosed sales for the
F.Y. 2016-17.
2.2 Being aggrieved by the order of A.O., the assessee preferred appeal before
the ld. CIT(A). The ld. CIT (A) held that the decision of the AO with regard to the
calculation of unaccounted sales is correct. However, the AO has added entire
sales, which is not logical. The nature of business of the appellant is such that
perishable items cannot be stored for long duration. The appellant has to prepare
the Namkeens etc. daily and the prepared materials are sold within 2-3 days.
Therefore, addition can only be made with regard to initial investment in purchase
of raw material for sale of 3 days. The daily sales as estimated by the AO come to
Rs.12,632/-. The appellant declared gross profit at the rate of 13.74 percent. By
applying this gross profit rate, the cost of daily production comes to Rs.10,896/-.
Therefore, the appellant incurred cost of Rs.10896x3 = Rs.32,688/- for initial
production of three days. It can be presumed that after this the purchases might
have been made out of receipts of unaccounted sales. In addition to that gross
profit of unaccounted sales made during the year can be added. Therefore, the
gross profit for the year is calculated on the unaccounted sales of Rs.46,10,880/-
by applying gross profit @ 13.74 % which comes to Rs.6,33,534/-. Hence addition
to the extent of Rs.6,66,222/- (6,33,534 + 32688) is sustained out of addition
made by the AO of Rs.46,10,880/-.
5 ITA No. 308/JP/2023 Shri Sunil Dutt Jain, Ajmer.
Aggrieved by the order of ld. CIT (Appeals), now the assessee is in appeal
before us.
Before us, the ld. A/R submitted that the only issue in this appeal is can the
addition be made on the basis of unrecorded sales found in the month of October,
2016 by interpolating it over the entire Financial year by applying G.P. rate on
alleged unaccounted sales and making addition for alleged unexplained initial
investment in production. He further submitted that the papers based on which
allegation of unrecorded sales is made is found only for the period 24.09.2016 to
08.11.2016 and based on that the suppressed sales is found to be of 4803 kg
valued at Rs.3,84,240/-. Apart from this no incriminating material of unrecorded
sale/production was found during the course of search. Even though brother of
assessee in his statement interpolated it for 6 years which was also confirmed by
the assessee but subsequently the same was retracted with a request that
unaccounted sales can be assumed only for the financial year 2016-17. In
assessment proceedings, the AO also accepted this but made addition for the
alleged unaccounted sales of full year which is reduced by the ld. CIT(A) by
applying G.P. rate.
3.1 From the above it can be noted that incriminating material is found alone for
the month of October, 2016. The search took place in the month of September,
2018. Neither before October, 2016 nor after October, 2016 any incriminating
material is found to allege any unaccounted sale/production. Hon’ble Supreme
Court in case of PCIT Vs. Abhisar Buildwell Pvt. Ltd. (2023) 225 DTR (SC)
105 at Para 11 of its order has observed that “on true interpretation of s. 153A of
6 ITA No. 308/JP/2023 Shri Sunil Dutt Jain, Ajmer.
the Act, 1961, in case of a search under s. 132 or requisition under s. 132A and
during the search any incriminating material is found, even in case of
unabated/completed assessment, the AO would have the jurisdiction to assess or
reassess the ‘total income’ taking into consideration the incriminating material
collected during the search and other material which would include income
declared in the returns, if any, furnished by the assessee as well as the undisclosed
income. However, in case during the search no incriminating material is found, in
case of completed/unabated assessment, the only remedy available to the Revenue
would be to initiate the reassessment proceedings under ss. 147/148 of the Act,
subject to fulfilment of the conditions mentioned in ss. 147/148, as in such a
situation, the Revenue cannot be left with no remedy.” Thus, without any evidence
of unrecorded sale/ production, the same cannot be interpolated for the entire year
but restricted only to the extent of incriminating document found. Therefore, the
addition if any, should be confirmed by applying g.p. rate of 13.74% on
unrecorded sales of Rs.3,84,240/-, i.e. Rs.52,795/- as against Rs.6,33,534/-
confirmed by Ld. CIT(A).
3.2 The Ld. CIT(A) has also made addition for unexplained initial investment of
Rs.32,688/-. This addition is only on presumption without any incriminating
material found in search. Even on the date of search no excess stock was found.
Hence, the addition made solely on the basis of surmises & conjectures be directed
to be deleted.
In view of above, addition of Rs.6,66,222/- confirmed by Ld. CIT(A) be
directed to be restricted to Rs.52,795/-.
7 ITA No. 308/JP/2023 Shri Sunil Dutt Jain, Ajmer.
On the other hand, the ld. D/R supported the orders of the revenue
authorities.
We have heard rival contentions, perused the material on record and gone
through the orders of the revenue authorities and the case laws cited before us. We
note that the unrecorded sales found for the period 24.09.2016 to 08.11.2016 was
of 4803 kg valued at Rs.3,84,240/- but the AO has estimated it for the whole year at
Rs.46,10,880/- (3,84,240*12) and made the addition. But the ld. CIT(A) restricted it
to Rs.6,33,534/- by applying g.p. rate of 13.74% on such sales and also made
addition of Rs.32,688/- on account of initial investment in production. We find that
evidence of unrecorded sales was found of Rs.3,84,240/- only and therefore
interpolating it for 12 months is not justified in view of decision of Hon’ble Supreme
Court in case of PCIT Vs. Abhisar Buildwell Pvt. Ltd. (2023) 225 DTR (SC) 105
wherein the Hon’ble Supreme Court held that in the absence of incriminating
material found in search, no addition can be made u/s 153A. Thus, respectfully
following the decision of Hon’ble Supreme Court, we direct that addition be
confirmed by applying g.p. rate of 13.74% on unrecorded sale of Rs.3,84,240/- and
thus addition of Rs.52,795/- is confirmed as against Rs.6,33,534/- confirmed by the
ld. CIT(A). Further, the addition for initial investment of Rs.32,688/- is also deleted
in the absence of any incriminating material considering the fact that on the date of
search no excess stock was found. Hence, the ground of the assessee is partly
allowed.
8 ITA No. 308/JP/2023 Shri Sunil Dutt Jain, Ajmer. 6. In the result, this appeal of the assessee is partly allowed.
Order pronounced in the open court on 29/08/2023.
Sd/- Sd/- ¼lanhi xkslkbZ½ ¼ jkBkSM+ deys'k t;arHkkbZ ½ (RATHOD KAMLESH JAYANTBHAI) (SANDEEP GOSAIN) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 29/08/2023. Das/ आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Shri Sunil Dutt Jain, Ajmer. 2. izR;FkhZ@ The Respondent- The ACIT, Central Circle, Ajmer. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 308/JP/2023}
vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत
