2016 (10) TMI 1322 - AT - Income Tax

Suppressed sales/unaccounted sales - clubbing turnover of Swastik Polymers with the assessee firm - on the basis of information received from Central Excise Department with regard to suppressed sales there were two proprietorship firms out of which one named M/s Subham Polymers owned by Shri Ashokkumar C. Dharewa HUF, (the assessee) and the other named M/s Swastik Polymer, owned by Shri Bimalkumar Chainroop Dharewa (brother of Shri Ashok Chainroop Dharewa) Karta of HUF - HELD THAT - Excise Department has mainly clubbed the gross turnover of two concerns M/s Subham Polymers and M/s Swastik Polymers and have taken the clearance value of ₹ 1,52,38,813/- as against total turnover of ₹ 1,52,43,382/- (turnover of Subham Polymers ₹ 87,76,159/- turnover of Swastik Polymers ₹ 64,67,823/-) as shown in their respective audited financial statements. No case against the assessee of suppressed sales or unaccounted sales, when the turnover as calculated by Excise Department has been shown in separate books of account and they are part of audited books of account and income-tax return furnished. AO has grossly erred in taking the excise limit of ₹ 1.5 crores whereas for the year under appeal excise limit was at ₹ 1 crore. During the course of hearing ld. AR has relied on the judgment of President Industries 1999 (4) TMI 8 - GUJARAT HIGH COURT wherein it has been held that sale proceeds itself cannot be treated as undisclosed income rather the net profit embedded in the sale should be treated as undisclosed income. CIT(A) while adjudicating the appeal of assessee has rightly given effect to the judgment of President Industries (supra) and has taken the net profit of ₹ 2,27,573/- shown by M/s Swastik Polymers in the audited profit and loss account placed as an addition to the income of assessee at the place of addition towards suppressed sales of ₹ 1,13,24,749/- taken by ld. Assessing Officer. We, therefore, find no reason to interfere with the order of ld. CIT(A) - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition made by the Assessing Officer (AO) for suppressed sales.
2. Validity of reassessment proceedings under section 143(3) read with section 147 of the Income Tax Act, 1961.
3. Clubbing of turnover of two proprietary concerns for the purpose of income tax assessment.

Detailed Analysis:

1. Deletion of Addition for Suppressed Sales:
The primary issue was whether the addition of ?1,13,24,749/- as suppressed sales by the Assessing Officer (AO) was justified. The AO based this addition on information from the Central Excise Department, which indicated that the assessee had suppressed sales. The Excise Department had treated two proprietary concerns, M/s Subham Polymers and M/s Swastik Polymers, as a single entity and clubbed their turnovers. The assessee argued that the Excise Department's case was purely technical, focusing on the denial of SSI exemption by clubbing the turnovers, rather than alleging any unaccounted or suppressed sales.

The CIT(A) observed that the AO had incorrectly calculated the total turnover by using an exemption limit of ?1.5 crores instead of ?1 crore. Moreover, the CIT(A) noted that the AO had merged the turnovers of both concerns without considering the purchases and other expenses of M/s Swastik Polymers, which were genuine and not doubted by the Excise authorities. The CIT(A) concluded that only the net profit of ?2,27,573/- from M/s Swastik Polymers should be added to the assessee's income, not the gross turnover.

The Tribunal upheld the CIT(A)'s decision, noting that the sale proceeds themselves cannot be treated as undisclosed income; rather, the net profit embedded in the sales should be considered. This was in line with the judgment of the Hon. Gujarat High Court in the case of CIT vs. President Industries.

2. Validity of Reassessment Proceedings:
The assessee challenged the reassessment proceedings under section 143(3) read with section 147 of the Income Tax Act, 1961, as being wrong, invalid, and beyond the law. The CIT(A) dismissed this ground, and the Tribunal did not find it necessary to interfere with this part of the CIT(A)'s order.

3. Clubbing of Turnover of Two Proprietary Concerns:
The Excise Department had clubbed the turnovers of M/s Subham Polymers and M/s Swastik Polymers, treating them as a single entity to calculate excise duty. The AO followed this approach for income tax purposes, leading to the addition for suppressed sales. However, the CIT(A) and the Tribunal found this approach incorrect for income tax purposes. They held that the net profit, not the gross turnover, should be considered for addition to the assessee's income. The Tribunal upheld the CIT(A)'s decision to add only the net profit of ?2,27,573/- from M/s Swastik Polymers to the assessee's income.

Conclusion:
The Tribunal dismissed the Revenue's appeals for both assessment years 2007-08 and 2008-09, upholding the CIT(A)'s decision to add only the net profit from the sister concern to the assessee's income. The cross objections by the assessee were dismissed as not pressed. The order was pronounced in the open Court on 17th October, 2016.