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Income Tax Appellate Tribunal, JAIPUR BENCHES,”A” JAIPUR
ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM Both these appeals have been filed by the Revenue against two different orders of the ld. CIT(A), Alwar dated 24-04-2017 and 13-12-2016 for the assessment year 2012-13 and 2013-14respectively raising therein following grounds of appeal. – A.Y. 2012-13 ‘’1. On the facts and circumstances of the case and law the ld. CIT(A) has erred in restricting the addition of Rs.57,l2,850/- to Rs.69,125/- which was made by the AO on account of suppressed/ undisclosed sales/ stock by 2 ITA NO.573/JP/2017 ACIT, CIRCLE-2, ALWAR VS M/S. SEWA STEEL PVT LTD. BHIWADI applying the average GP rate on the undisclosed sales not recorded in the books of accounts.
2. On the facts and circumstances of the case and law the ld. CIT(A) has erred in restricting the addition of Rs.57,l2,850/- to Rs.69,125/- without appreciating the fact that the sales out of books of account was because of the suppressed production and therefore represented the undisclosed income itself.’’ ITA NO.181/JP/2017 – A.Y. 2013-14 ‘’1. On the facts and circumstances of the case and law the ld. CIT(A) has erred in restricting the addition of Rs.1,14,99,250/- to Rs.1,39,140,125/- which was made by the AO on account of suppressed/ undisclosed sales/ stock by applying the average GP rate on the undisclosed sales not recorded in the books of accounts.
2. On the facts and circumstances of the case and law the ld. CIT(A) has erred in restricting the addition of Rs.1,14,99,250/- to Rs.1,39,140/- without appreciating the fact that the sales out of books of account was because of the suppressed production and therefore represented the undisclosed income itself.
3. On the facts and circumstances of the case, the ld.CIT(A) having held that subsidy amounting to Rs.39,45,868/- was investment subsidy and not employment generation subsidy erred in not issuing any directions in his order as per the provisions of Explanation 10 of Section 43(1)of the Act to reduce the amount of investment subsidy of Rs.39,45,868/- from cost of fixed assets for the purpose of calculation of depreciation allowable to the assessee as a deduction.’’ 2.0 It is pertinent to mention that the intimation was sent by the Registry by Registered Post to the assessee to its last known address available on record to appear before the Bench for argument of the case but the Post office returned the Registered AD Dak mentioning on the envelop that ‘’ FIRM FOUND CLOSED’’ 3 ITA NO.573/JP/2017 ACIT, CIRCLE-2, ALWAR VS M/S. SEWA STEEL PVT LTD. BHIWADI Hence, none appeared on behalf of the assessee when the case was called out for hearing. Therefore, the Bench decided to dispose off the appeals on merit based on the materials available on record. 3.1 First of all, we take up the appeal of the Revenue for the assessment year 2012-13 for adjudication 4.1 Apropos Ground No. 1 and 2 of the Revenue, the facts as emerges from the order of the ld. CIT(A) are as under:-
5.3 I have gone through the assessment order as well as submissions made by the appellant. It is prudent to mention that on the similar issues and ground, I have adjudicated the case for A.Y 2013-14 vide appeal order dated: 13/12/2016 in Appeal no. 354/2015- 16. However, for the sake of clarity following facts are repeated here; 1. That the appellant company is engaged in business of manufacturing steel ingots.
2. That during the year under consideration a survey was conducted by the Central Excise Department in the premises of the company and found that MS ingots worth Rs. 1,54,57,100/- was manufactured and removed from the company premises without recording in the regular books of account.
3. That apart from the above discrepancy, it has been found that MSingots worth Rs. 17,54,900/- from the regular books of accountshave also been removed without entering it as sales and thereby thestock was found short by 54.50 MT valued at Rs. 17,54,900/-.
4. That in total the discrepancy was found by the Central ExciseDepartment to the extent of Rs. 1,72,12,100/-.
4 ACIT, CIRCLE-2, ALWAR VS M/S. SEWA STEEL PVT LTD. BHIWADI 5. That during assessment proceedings, the A.O had found that out of the above amount, MS ingots worth Rs. 1,14,99250/- corresponds to the A.Y 2013-14 and balance Rs. 57,12,850/- relates to A.Y 2012-13. 5.3.2. I have considered the above mentioned facts of the case. I have also considered the fact the above mentioned discrepancies have been found and confronted with the officers of the company on the day of the survey conducted by the Central Excise Department. The discrepancies have been admitted by the officers of the company. I have also considered the fact that during income tax assessment proceedings, the evidences and the statements have been brought to the notice of the assessee company. The replies submitted by the assessee company during the income tax assessment proceedings are neither convincing nor backed by any cogent evidences/reasoning. 5.3.3 However, I have also considered the fact that the A.O has added the entireturnover i.e. Rs. 57,12,850/- which was either not reflected in the books ofaccounts or are sold out of books. In this regard, I have taken into consideration following judicial citations; ……there were credit sales not recorded in the books of accounts. The 40 has added a sum which was held as "sales profit" of the assessee The first appellate authority had come to the conclusion that the entire credit sales could not have been included in the total income and followed the method of adding net profit rate. The Tribunal held that the reasonable method was the net profit rate on sales and not the entire sales could be regarded as the profit of the assessee. When the matter reached before the Hon'ble High Court, it was affirmed that the total sales could not be regarded as the profit of the assessee. It was held that net profit rate had to be adopted and once it was adopted, it could not be said that there was perversity of approach It was concluded that whether the rate was low or high, would depend upon the facts of each case. A fervent reliance was placed on a decision of Hon'ble Jurisdictional High Court pronounced in the case of CIT vs. President Industries 258 ITR 654 (Guj.)[supra] and therein 5 ACIT, CIRCLE-2, ALWAR VS M/S. SEWA STEEL PVT LTD. BHIWADI also a conclusion was made that on account of survey conducted at the premises of the assessee undisclosed sales were found and the AO had made addition of entire sale-proceeds as undisclosed income. The CIT(Appeals) affirmed the addition but the Appellate Tribunal found that there was no material to indicate that the assessee had made investments outside the books of accounts to make the alleged sales and, therefore, held that the entire sale-proceeds could not have been added as undisclosed income. It was held that the addition could only be of the profits embedded in the sales. The Hon'ble Court has opined that the sales only represented the price received by the seller of the goods. The Hon'ble Court has defined the "profit", ie. "only the realisation of the excess over the cost incurred could form part of ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos. 1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.MurarilalChhaviram Gupta Asst. Years 2001-02 to 2006-07 the profit included in the consideration for the sales". According to the Hon'ble Court since there was no finding to the effect that investment was by way of incurring the cost in acquiring the goods which were sold by the assessee, then only the excess over the cost incurred could be treated as profit. A conclusion therefore can be drawn that the entire sales should not be added as undisclosed income but unaccounted income can only be to the extent of the estimated profit which is embedded in the sales and therefore only net profit rate is to be applied to compute the suppressed unaccounted income. We hereby hold so.
The last question which is yet to be addressed is that whether the ld.CIT(A) was right in directing the AO to tax higher of the two figures, i.e. the peak investment or the net profit. As far as the peak investment is concerned, the assessee's strong objection was that the same did not represent any investment. The balance remained in any of the bank account was nothing but the liability of the trade creditors. It was explained that in a running business, it is never possible that on a particular date all the liabilities of the trade creditors can get squared up and the balance on a particular date available in the accounts, may be a bank account, is the asset of the 6 ACIT, CIRCLE-2, ALWAR VS M/S. SEWA STEEL PVT LTD. BHIWADI assessee reflecting the accumulation of profit. Such a presumption is incorrect. Almost on identical situation in the case of India Seed House 69 TTJ 241(supra) AO had made the addition of peak investment on unaccounted sales on the basis of a statement of the partner. However, on the basis of the seized material, the assessee was able to prove that purchases were made on credits. The payments were made from realization of sales. On that ground, it was held that there was no material with the AO to arrive at the figure of peak ITA Nos. 2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh. MurarilalChhaviram Gupta Asst. Years 2001-02 to 2006-07 investment. Now referring the facts of this case, it is contested that the stock only to the extent of Rs. 15 lacs and cash of Rs. 1,86,000/- was physically found as undisclosed assets at the time of survey. It has also been contested that on a particular date in a bank account an outstanding balance might have gone high but the outstanding balance always remained fluctuating, as a result sometimes it was at the lowest level. Had the balances in the accounts was assessee's own savings representing accumulated profit, then the outstanding balances either at the close of the each accounting period or continuously for all the involved six years should have recurred or persisted constantly at that high amount alleged to be incrementing peak, e.g. for F.Y. 2003-04 at Rs.1,10,29,696/- or for F.Y. 2004-05 at Rs.1,42,22,063/- or for the F.Y.05-06 1,43,72,475/-, But the fact as evident from the impugned bank accounts is that the said peak balance was available only for a day or two. That balance has not lasted even for a reasonable period of one complete financial year. The Bank balances thus kept on fluctuating through out the year depending upon the business requirement in the context of squaring up of trade liability. As a consequence it was placed on record that it was wrong on the part of Id.CIT(A) to adopt a higher figure of the two figures for computing the undisclosed income of the assessee. On the basis of the reasons assigned hereinabove, we are not in agreement with the said view taken by ld.CIT(A). Hence, dismiss the same.
7 ACIT, CIRCLE-2, ALWAR VS M/S. SEWA STEEL PVT LTD. BHIWADI 11. As far as the question of adoption of net profit on the sales is concerned, the assessee has adopted profit rate at 3% NP, but CIT(A) has adopted NP @ 5% Even in the case of K.C.K.A. Gupta vs. ACIT ITA Nos. 2418 to 2423/Ahd/09 (By Revenue) and ITA Nos. 1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh. MurarilalChhaviram Gupta Asst. Years - 2001-02 to 2006-07 90 TTJ 555 (Hyd)[supra] the view taken was that in the case of unaccounted sales only a percentage of sales should be considered as undisclosed income. Presently, the assessee has furnished a chart through which it was demonstrated that as far as the working of the Net Profit of the group in general and the working of the Net Profit of the assessee in particular, in the past as per the regular returns, is concerned, in this line of business, the same had varied from 4.27%, 4.65%, 5.62%, 6.09% 2.14%, and 2.75%, respectively from FY 2000-01 to F.Y. 2005-06. As per the said chart, through which computed the average net profit in last six years earned by this assessee, namely, Murarilal Gupta was thus arrived at the figure of 3.43%. The requisite chart through which the net profit in the past six years was earned by the assessee is reproduced below: Calculation of group N.P. Particulars/2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Total FYs MurarilalC.Gupta Turnover (Rs.) 1162976 792413 412860 1102398 3519270 1880644 8870561 NP (Rs.) 49647 36882 23218 67125 75211 51765 303848 NP Rate (Rs.) 4.27% 4.65% 5.62% 6.09% 2.14% 2.75% 3.43% 11.1. On the basis of above chart and considering the facts and circumstance of the case, since this is the only reasonable data available on record through which a justifiable rate of net profit can be arrived at, we hereby direct the Revenue Authorities to compute the undisclosed income of the assessee by applying the net rate of profit at 3.43% on the ITA Nos. 2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.MurarilalChhaviram Gupta Asst. Years 2001-02 to 2006-07 undisclosed and unearthed turnover of the assessee. Before we 8 ACIT, CIRCLE-2, ALWAR VS M/S. SEWA STEEL PVT LTD. BHIWADI conclude, we are also conscious about an equally important aspect that at the start of the business there ought to be some investment made by the assessee and because it was an accepted fact that the business in question admittedly was an unaccounted and undisclosed activity, therefore the initial investment should be taxed as unaccounted as well as undisclosed investment. Therefore for the first year of the years in question, we hereby direct that the said unaccounted investment has to be brought to tax and the said amount can be the peak credit in the bank of Rs.2,92,716/- as detected by the AO. For that year, i.e. A.Y. 2001-02 the AO is hereby directed to tax the impugned unaccounted initial investment of Rs.2,92,716/- plus the net profit as directed by us. For rest of the years, as already held, the other directions shall remain in force. In this manner, the assessee is entitled for the part relief only. I have taken into consideration that the A.O has not disputed the declared GP and NP rate. In this regard, the Central Excise Department had discovered out of book sale/purchase and also short stock. Therefore, taking a rational view and on the observation of Judicial authorities as mentioned in the above paras, I find it prudent to calculate Gross profit de on such out of book sale as the fixed expenditure of the accountedand unaccounted sales remain same. The GP declared and accepted by the AO in the last 3 years are 1.04%, 1.36% and 1.23%. The average GP rate of last 3 years is 1.21%. Therefore applying the average GP rate of last 3 years, the income on sale of Rs. 57,12,850/- during the relevant period. comes to Rs. 69,125/- Accordingly, the addition to the income of the assessee company on this issue is reduced to Rs. 69,125/-. Hence, the appellant's ground of appeal on this issue is partly allowed.
6. In the result, the appeal is partly allowed.’’ 9 ACIT, CIRCLE-2, ALWAR VS M/S. SEWA STEEL PVT LTD. BHIWADI 4.2 During the course of hearing, the ld. DR supported the order of the AO and further submitted that in the case of bogus purchase g.p. should be applied @ 12% and relied upon the order of the bench. 4.3 On the other hand, neither the assessee appeared nor any controverting arguments/submissions were raised by the assessee. It appears that the assessee is neither interested to pursue its case nor it has inclination to follow up the current status of its case. It is the duty of the assessee or ld. AR of the assessee to make understand the current status of it’scase as the assessee has already contested its before the first appellate authority i.e. ld. CIT(A), Alwar. 4.4 We have heard the ld. DR and perused the materials available on record since no one appeared on behalf of the assessee when the case was called out for hearing. It will be better to repeat the history of the case of the assessee. The case was firstly filed by the Department which was dismissed by the Bench vide its order 23-08-2018 being the monetary limit below Rs.20 lacs of its case as prescribed by CBDT vide Circular No. 3/2018 dated 11-07-2018 as the tax involved in this case is Rs.17,43,911/-. Further the Misc. Application No. 3/JP/2019 was filed by the department mentioning that the case fall under the exception laid down in para 10(e) of the Circular No. 3/2018 and the same is required to be decided on merits of the case irrespective of the tax effect involved in this case. In view of the submissions of the Department, the M.A. was recalled 10 ACIT, CIRCLE-2, ALWAR VS M/S. SEWA STEEL PVT LTD. BHIWADI vide its order dated 21-01-2019 by the ITAT Jaipur Bench. Further, the appeal was recalled for hearing on 20-8-2019 which was dismissed by ITAT vide its order dated 22-08-2019 by holding that the appeal of the department is not maintainable being monetary limit is less than / not exceeding Rs.50,00,000/-.
3. The department is at liberty to file the Misc. Application in case the tax effect in this appeal is found to be more than Rs.50,00,000/- or the case falls in any of the exceptions of the Circular.
In the result, appeal of the department is dismissed.’’ Further, the Department filed the Misc. Application No. 36/JP/2020 vide application dated 6th Feb. 2020 praying that the case fall under the exception laid down in para 10(e) of the Circular No. 3/2018 and the same is required to be decided on merits of the case irrespective of the tax effect involved in this case and the M.A. filed should be allowed. The Bench heard the ld. DR and AR of the assessee and recalled its order vide order dated 21-01-2019. Now the appeal of the Department is listed for hearing wherein the Department Representative appeared but neither the assessee appeared nor any submission was filed on its behalf. The Bench has noted that it has directed the learned assessing officer to compute the unaccounted profit earned by the assessee at the rate of 12% on bogus purchasesin the case of Kandoi Metal Powders Manufacturing Co. vs DCIT vide its order dated 15-09-2022 in ITA No. 122/JP/2022 by observing as under:-
11 ACIT, CIRCLE-2, ALWAR VS M/S. SEWA STEEL PVT LTD. BHIWADI ‘’ 20. Recently in [ 2022] 136 taxmann.com 345 (Mumbai - Trib.) Deputy Commissioner of Income-tax v DBM Geotechnics and Construction (P.) Ltd. has upheld the income embedded at the rate of 12.5% in such purchases as income of the purchaser.
As we have the guidance available of the honourable Jurisdictional High Court directly on the issue which has been relied upon by the revenue as well as ld. AR of the assessee so as to know how much profit should be imputed to bogus purchases transactions, we deem it fit and proper that profit is required to be estimated only on the amount of bogus purchases. The quantum of the profit as generally estimated in the cases of bogus purchases should be at the rate of 12% of such purchases as held by the Honourable Jurisdictional High Court and we have not been guided by both the party as to why and how the said view of the Honourable Jurisdictional High Court is not acceptable in the present case. Accordingly, we reverse the order of the learned CIT – A and direct the learned assessing officer to compute the unaccounted profit earned by the assessee at the rate of 12% on bogus purchases. As we have followed the jurisdictional high court decision where in the court has not guided as to make separate addition on the commission on the bogus purchases and therefore, respectfully following that judgement we do not find any merits in the appeal of the revenue to confirm the addition of commission and thus this ground of the revenue is dismissed and that of the assessee is allowed.’’ In view of the above deliberation, the ground No. 1 and 2 of the Revenue are disposed off as indicated above. 5.1 As regards the appeal of the Revenue in for the assessment year 2013-14, the grounds raised herein above by the Department being 12 ACIT, CIRCLE-2, ALWAR VS M/S. SEWA STEEL PVT LTD. BHIWADI similar, bears the similar findings as in the appeal of Revenue in ITA No. 375/JP/2017 meaning thereby the decision taken by us in the appeal in ITA No. 375/JP/2017 shall apply mutatis mutandis in the ITA No. 181/JP/2017. 6.1 As regards the Ground No. 3 of the Revenue, the facts as emerges from the order of the ld.CIT(A) are as under:- ‘’6.3 I have gone through the assessment order as well as submissions made by the appellant. Following facts have emerged; 1. That during the year under consideration, the assessee companywas entitled for Investment subsidy from Rajasthan Investment promotion Scheme, 2010, RIPS). The subsidy scheme is intended for expansion of the project or capital investment.
That the subsidy is calculated @ 50% of the total tax paid and is given for 30% for investment subsidy and 20% for employment generation subsidy.
That the A.O has contended that subsidy given for investment purpose alone is entitled as capital receipts where as subsidy received for the intended purpose of employment generation is revenue in nature. Accordingly, the A.O had calculated the portion of employment generation subsidy by applying @ 20% as per RIPS formula, and added back to the income of the assessee as revenue receipts, an amount of Rs. 40,48,161/- out of total subsidy received by the company during the relevant period i.e. Rs. 1.01,20,403/-.
4. That the appellant has submitted that the amount of Rs. 1,01,20,403/- received during the year under consideration is on account of investment subsidy and only an amount of Rs. 1,50,000/- were received towards employment generation subsidy. . 6.3.2 I have considered the above mentioned facts. I have also gone through the subsidy challans submitted by the appellant both during assessment proceedings as well as during appellate proceedings. As per the Challans,following investment subsidy has been received by the assessee company; 13 ITA NO.573/JP/2017 ACIT, CIRCLE-2, ALWAR VS M/S. SEWA STEEL PVT LTD. BHIWADI S.N. Date of Receipt Nature of Subsidy Amount (in Rs.) 1. 01/04/2012- Investment 24,51,288/- 31-06-2012 Subsidy 2. 01/07/2012- Investment 22,53,455/- 30-09-2012 Subsidy 3. 01/10/2012- Investment 23,82,772/- 31-12-2012 Subsidy 4. 01/01/2013- Investment 29,30,595/- 31-03-2013 Subsidy 1,00,18,110/- In addition to the above an amount of Rs.1,50,000/-has been received on account of employment generation only. Taking into account the above facts as backed by the copies of challans submitted, and the contention of the A.O with regard to subsidy received on account of investment subsidy, the AO is not justified in making addition of an amount of Rs. 40,48,161/- as revenue receipts merely on calculation on the basis of RIPS disregarding nature of actual receipts of subsidy as per Form VAT 37 to be read with Rule 39 of state Commercial Taxes. Accordingly an amount of Rs. 1,00,18,110/- out of claim of Rs. 1,01,20,403/- is allowed as capital receipt. As a result, the addition of Rs. 40,48,161/- is reduced to Rs. 1,02,293/-. The appellant's ground of appeal on this issue is partly allowed.’’ 6.2 During the course of hearing, the ld. DR supported the order of the AO whereas none appeared on behalf of the assessee nor any controverting material has been advanced from the side of the assessee.
6.3 We have heard the ld. DR and perused the materials available on record. No contrary material was advanced either by the assessee or by his counsel. From the issue raised by the Revenue, we find that the ld. CIT(A) has discussed the 14 ACIT, CIRCLE-2, ALWAR VS M/S. SEWA STEEL PVT LTD. BHIWADI issue elaborately wherein we did not find any written submission on the issue in question nor any effective reasoning to controvert the findings of the ld. CIT(A). In this situation, the Bench has no other alternative except to confirm the order of the ld. CIT(A) on this issue. Thus Ground No. 3 of the Revenue is dismissed.
7.0 In the result, the appeals of the Revenue are partly allowed. Pronounced in the Open Court on 13 /03/2023.
Sd/- Sd/- ¼Mk0 ,l- lhrky{eh ½ ¼jkBksMdeys'kt;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;dlnL;@Judicial Member ys[kklnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 13/03/2023 *Mishra आदेश की प्रतिलिपिअग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- The ACIT, Circle-2, Jaipur ,. 2. izR;FkhZ@ The Respondent- M/s. Sewa Steel Pvt. Ltd., Bhiwadi, Alwar . 3. vk;djvk;qDr@ The ld CIT 4. विभागीय प्रतिनिधि] आयकरअपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZQkbZy@ Guard File (ITA No.573/JP/2017) vkns'kkuqlkj@ By order,
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