2012 (8) TMI 593 - AT - Income Tax

Alleged Under invoicing and suppression of additional turnover - assessee contended that Revenue assumed under invoicing on the basis of SCN issued by the Commissioner of Customs & Central Excise and order passed by Settlement Commission for Customs and Central Excise - AY 02-03, 03-04, 04-05 - Held that - There is no case of additional turnover warranting any addition to the turnover disclosed. As such, the allegation of under-invoicing is also not fully supported by the orders of the Excise authorities. Prima facie, we are not agreeing with the CIT(A) s decision in relying on the order of the Settlement Commission, as merely on the basis of SCN issued by the Commsisioner, of Central Excise, additions made by the AO cannot be sustained. There is requirement of going into factual calculations. Further, proceedings under Central Excise laws do not have a direct bearing on the proceedings under the Income-tax Act, inasmuch as the proceedings under the Excise laws determine the correct duty leviable to goods of the traded, whereas the objective of the proceedings under the Income-tax Act is to arrive at the correct income of the assessee. Therefore, matter restored to the file of the AO, for fresh examination Estimation of G.P. without rejection of books of accounts - alleged low G.P. - AY 05-06 - Held that - It is not permissible to resort to estimation of the income of the assessee in terms of S.145(3), without rejecting the books of account maintained, a decision that follows the discovery of incompleteness, inaccuracy, etc. in the said books. Further, AO has not pointed out any defects in the books. Also, material seized at the time of search in the case of the assessee, has no bearing or relevance to the determination of the income of the assessee for the year under appeal. There is no scope for estimated additions in matters of search assessment s made u/s 153A of the Act. Addition made is deleted - Decided in favor of assessee.

Summary

Issues Involved:
1. Addition on account of under-invoicing.
2. Verification and revision of unaccounted sales.
3. Estimation of gross profit rate.

Issue-wise Detailed Analysis:

1. Addition on Account of Under-Invoicing:
The primary issue pertains to the addition made by the Assessing Officer (AO) based on Annexures D and D-1, which indicated under-invoicing and suppression of sales by the assessee. The AO adopted a differential value realized from these annexures, resulting in a significant addition to the assessee's income. The CIT(A) deleted the addition related to Annexure D-1, citing the lack of corroborative evidence and reliance on the Settlement Commission's order, which did not support the AO's claims. However, the CIT(A) sustained the addition based on Annexure D, amounting to Rs.14,15,020, as admitted by the assessee before the Settlement Commission. The Tribunal found that the AO's reliance on the Settlement Commission's order was misplaced, as the proceedings under the Income-tax Act and the Excise laws serve different purposes. The Tribunal set aside the CIT(A)'s order and remanded the matter back to the AO for fresh examination, emphasizing the need for factual verification and proper application of income-tax laws.

2. Verification and Revision of Unaccounted Sales:
The second issue involves the addition based on Annexures E and E-1, which pertained to unaccounted sales. The CIT(A) directed the AO to verify and modify the turnover addition based on the revised duty determined by the Excise Department, as per the Settlement Commission's order. The Tribunal upheld the CIT(A)'s direction, stressing the importance of careful application of income-tax laws while revising the figures based on the Excise authorities' modifications. The Tribunal emphasized the need for factual verification by the AO before making any additions.

3. Estimation of Gross Profit Rate:
For the assessment year 2005-06, the issue was the estimation of the gross profit (G.P.) rate by the AO, who applied a rate of 25% based on the performance of the assessee's sister concern, Madhucon Granites Ltd. The assessee argued that the AO resorted to estimation without pointing out any defects in the books of account or rejecting them under S.145(3) of the Act. The Tribunal agreed with the assessee, noting that the AO's estimation was not justified without rejecting the books of account and without any seized material relevant to the year under consideration. The Tribunal set aside the orders of the lower authorities and deleted the G.P. addition made by the AO, allowing the assessee's appeal.

Conclusion:
The Tribunal's judgment addressed the issues of under-invoicing, unaccounted sales, and gross profit estimation. It emphasized the need for factual verification, proper application of income-tax laws, and the necessity of rejecting books of account before resorting to estimation. The appeals were partly allowed for statistical purposes, and the matter was remanded to the AO for fresh examination.