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TMI Blog2017 (9) TMI 1348X X X X Extracts X X X X X X X X Extracts X X X X ..... papers and incriminating documents found during the course of survey, the matter was referred for special audit u/s 142(2A) of the I.T. Act. The assessment proceedings were thereafter completed by passing an order under section 143(3) of the Act wherein an addition of Rs. 2,42,47,241/-was made by the Assessing Officer under various heads as against the return income of Rs. 11,54,207/- 3. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who has given certain relief to the assessee against which the Revenue is in appeal before us. 4. In its appeal, the Revenue has taken as many as 10 grounds of appeal. In most of the grounds, we find that the matter relating to rejection of books of accounts, determination of suppressed turnover, estimation of profits and where the profits are so estimated, can there be separate additions made under various specific heads have been taken by the Revenue. For the sake of discussions, we have taken all these grounds of appeal together. Thereafter, other remaining grounds have been adjudicated upon. Whether the books of accounts have been rejected 5. The first and foremost question that arises for consideration in al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd rejection of books. The contention of assessee for rejection of books on the basis of the judgment of Hon'ble ITAT is also not seems correct because the judgment of the Hon'ble ITAT is not applicable on this assessment as AO has not rejected the books of the assessee and has made the additions on the basis of impounded books and documents and regular books of account of assessee. Further, the Department has moved an appeal before the Hon'ble Rajasthan High Court against said order of the Hon'ble ITAT." 7. In this regard, we also refer to the finding of the ld. CIT(A) wherein he has upheld the action of the AO in referring the matter for special audit u/s 142(2A) of the Act. The ld CIT(A) has upheld the action of the AO relying on the finding of the Coordinate Bench in assessee's own case in the previous assessment years. The relevant findings of the Coordinate Bench are contained at para 4.12 of the ld. CIT(A) order which are reproduced as under:- "4.12 This issue came up before Hon'ble Tribunal in the case of assessee itself in the appeals of previous assessment years. The Hon'ble Tribunal observed as under:- "The facts in this case are similar to the facts in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned above with the aim to enable the Department to arrive at the true state of affairs of various concerns in which the assessee is associated either as a proprietor or partner. The basic purpose was for examined of the books of accounts and to give the comments on different issues including the violation of provisions of section 269SS, 269T and section 40A(3) of the IT Act. The A.O. has mentioned in the letter that audit is to be carried out in view of the provisions of Rule 14A. One has to read entire letter together and from this letter one cannot infer that the A.O. referred the matter for special audit for getting the books of accounts prepared. The facts in the instant case are distinguishable from the facts of CIT vs. Bajrang Textiles (supra) in which the audit was referred just one day prior to the limitation period." The facts and circumstances of the case of assessee for assessment year 2009-10 are similar with the facts and circumstances of the case of assessee for A.Y. 2004-05 to 2008-09 for which the Hon'ble ITAT has decided as above so far as this ground is concerned. Following the decision of Hon'ble Tribunal (the facts being identical the issue is decided in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he accounts audited by an accountant and to furnish a report of such audited accounts in the prescribed form duly signed and verify by such accountant setting forth such particulars as may be prescribed and such other particulars of the Assessing Officer may require. 11. In the instant case, a survey u/s 133A was carried out on 01.10.2008 at the business premises of the assessee. On the basis of nature and complexity of the accounts, loose papers and incriminating documents found during the course of survey, the case was referred for special audit u/s 142(2A) by CIT, Kota. The Assessing Officer has stated at para-3 of his assessment order as to the precise reasons as to why the case was referred for special audit and the same is reproduced as under:- "3. In this context, it was noticed that during the course of hearing dated 21.11.2011, The A/R of the assessee, Shri Harish Dhyani, CA along with Shri Vinod Duggar, Accountant appeared. They inspected the impounded records. In their presence, this office tried to work out unrecorded sales, unrecorded investments and other undisclosed income etc. The A/R and Accountant of the assessee were asked to get the entries verified as appear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch has been recorded by the Assessing Officer in the assessment order recording his satisfaction as to rejection of the books of accounts and the result so declared by the assessee. It is true that the matter was referred for special audit u/s 142(2A) but that by itself will not result in an implied finding of the AO about his non-satisfaction about the books of accounts and rejection thereof. As noted by the Coordinate Bench as well, the basic purpose for special audit was for examination of the books of accounts and to give specific comments on specific issues and it cannot be inferred that the matter for special audit was referred for getting the whole of the books of account recasted and preparation thereof afresh. The defects so pointed out by the special auditor have been incorporated in the recasted books of accounts effectively means taking into consideration the results already declared by the assessee in respect of its declared transactions and the results as per unrecorded transactions relating to purchase and sales and other income, presenting an overall position regarding the business results in relation to activities carried out by the assessee. Therefore, we are of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee in respect of reported transactions and infact, has accepted the same. When the book results relating to more than 84% of turnover have been accepted, can it be inferred that the books of accounts, basis which the book results have been so declared, have been rejected and the answer to the same cannot be in affirmative. In our view, all the AO has done is that he has accepted the book results in respect of recorded transactions and in addition, the unrecorded transactions relating to sales/income, unrecorded purchase and other expenditure have also been brought to tax. In any case, there cannot be a presumption regarding rejection of books of accounts in absence of specific exercise of powers under section 145(3) of the Act. 17. Further we find that there is no specific finding which has been given by the ld. CIT(A) wherein in exercise of his co-terminus powers, he is of the opinion that the books of accounts cannot be relied upon and deserve to be rejected in the instant case. All the ld CIT(A) has stated is that the AO has in substance rejected the books of accounts and after doing so, the AO should have computed estimated income by estimating turnover of the assessee and sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... findings of the ld CIT(A) to this extent is set-aside and the findings of the AO are confirmed. Estimation of net profit vis-a-vis specific disallowances/additions done by the AO 21. In ground no. 3, the Revenue has challenged the action of the ld CIT(A) in holding that AO had rejected books of account of the assessee and, therefore, addition of only Rs. 5,03,251/- is required to be made by applying net profit rate of 10% on undisclosed sales and 9% on disclosed sales of assessee as against the following additions made by A.O. in view of various discrepancies in impounded books of account vis-a-vis regular books of account of the assessee:- S.N. Brief particulars of addition Accounts (Rs.) i) Unexplained expenditure u/s 69C 20,88,402/- ii) Expenses claimed excessive/bogus 2,63,189/- iii) Different in ledgers u/s 69B 28,30,670/- iv) Unrecorded Marble & Granite purchase & sales 14,02,856/- vi) Unrecorded loading receipts from Railways 1,95,889/- vii) Unrecorded sales of March 2009 of Dabora/ballast to Railway 12,27,248/- viii) Unrecorded purchases/labour and transportation charges of lime 8,49,286 ix) Unrecorded income from Crusher Hire Charges 10,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32/- whereas the same comes to Rs. 30,69,266/- by taking figures of undisclosed sale. Giving the benefit of telescoping the undisclosed sale figure is taken at Rs. 36,01,132/- being higher of the two. In the case of assessee for A.Y. 2004-05, 2005-06, 2006-07, 2007-08 & 2008- 09 ITA No. 602 to 606 & 609 to 613/JP/2011 the Hon'ble Tribunal has applied net profit rate of 6% on discloses sales and net profit rate of 8% on undisclosed sales. The logic for applying higher rate of net profit (8% as compared to 6%) was because some of the expenses in respect of such sales stands included in disclosed sales applying the same ratio a net profit rate of 10% is applied on undisclosed sales (the assessee, itself, has disclosed net profit rate of 8% on disclosed sales). This gives net profit of Rs. 3,60,113/- on undisclosed sales, resulting into addition of Rs. 5,03,251/- (3,60,113/- on undisclosed sale + 1,43,138/- on disclosed sales). The above grounds of appeal dealt with either disallowance of expenses or unexplained sales etc and are treated as covered by estimation of income [as discussed above] and are treated as partly allowed." 23. In ground no. 4, the Revenue has challenged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imated income by applying net profit rate on sales. 26. The relevant finding of the ld. CIT(A) are as under:- "The A.O. made addition of Rs. 36,45,562/- for violation of provision of section 40A(3). As held by me the books of account of assessee were rejected and profit has to be estimated. Therefore, in view of various judgment [e.g. CIT Vs. G.K. Contractors (2009) 19DTR 305 (Raj.)] no addition is called for when net profit rate is applied. The A.O. is therefore directed to delete addition of Rs. 36,45,562/-." Our findings 27. The Assessing Officer has made specific disallowances/additions under various specific heads such as unexplained expenditure u/s 69C, expenses claimed excessive/ bogus, differences in ledgers u/s 69B, unrecorded Marble & Granite purchases, unrecorded purchases/labour and transportation charges of lime, unexplained expenses, transportation charges paid to various truck owner for supply of ballast/grit to railway u/s 69C, unexplained expenses being repair & maintenance of plant and machinery, unexplained transportation expenses, addition on account of non- deduction of TDS on labour & transactions u/s 40(a)(ia), addition on account of violation of provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disputed the nature, quantum and incurrence of the expenditure but could not offered any explanation regarding the source of the expenditure which has not been recorded in the books of accounts and the same has been rightly brought to tax under section 69C of the Act and which could be reconciled and brought to tax under section 69B of the Act. Similarly, the assessee has not disputed the payments which are liable for TDS and given that, the assessee's contention that there are no written/verbal contracts has been rightly rejected by the AO and provisions of section 40(a)(ia) has been rightly invoked. Regarding cash payment and violation of section 40A(3), the AO has given a specific finding that the persons to whom cash has been paid has also been paid through account payee cheques and the assessee has offered no explanation as to the reasons and the circumstances under which cash payment has been made. In view of lack of explanation on the part of the assessee regarding the source of expenditure as per specific provisions of section 69B and 69C and violation of provisions of section 40(a)(ia) on account of non-deduction of TDS and section 40A(3) of the Act on account of payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confronted to the assessee that "he has sold 26017.459 M. Tons of grit/dabora to Railway during the year, which is evident from your sales bills of the assessee. Besides this you have sold 5748.840 tons (143721)CFT) grit to others as per recasted books of account. In this way you have sold 31766.299M. Tons Grit/dabora during the year. The purchase of dabora for the period 1-04-2008 to 30-09-2008 comes to 11825 M. Tons. The dabora purchases in the period 01.10.2008 to 31.03.2009 come to 42770 M. Tons. So the total dabora purchases for the year come to 54595 M. Tons. You have also purchased 1621 M.T. ballast in period up to 30.09.2008 and 4140 M.T. from 01.10.2008. You have sold 31766.299 M. tons ballast. In this way you have not shown the sales for the balance ballast/grit procured from dabora. Please clarify that how much grit has been procured by you from dabora during the year as correct sales could be determined." After deducting 31766.299 M.Tons from above production the balance is your suppressed sales & these sales are your profit as purchases and expenses of the same has already been debited by you and there is no closing stock of dabora/ grit please file your explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounded annexures and purchase vouchers which has been examined during the course of assessment proceedings, so no dispute about the quantity and value of purchases and sales remains. While going through the sale bills of the assessee, it has been gathered that assessee has collected sales tax @ 12.50 per M.Ton on supply to Railway because the sales tax is Rs. 12.50 per M.Ton on sales on grit from other persons. As per Sales Tax Act prevailing in this period, the sales tax was Rs. 12.50 per M.Ton on ballast and Rs. 20 per M.Ton on grit. It proves that assessee has sold ballast to Railway and not the grit. Here it is pertinent to say that ballast which has been supplied by the assessee to the Railway is of big size that normal grit size and the chances of wastages is negligible in production of ballast in comparison to grit. After considering the assessee's submissions and circumstances of the case I am of the view that the assessee has procured 80% ballast from the dobara, which will cover all the deficiencies if any, occurred during the transportation, unloading of stacking of ballast at Railway site. Dabora purchases 54595 M.Tons During the year The production at 80% comes to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ballast, the production is on higher side as there is lesser wastage in the production of Ballast. Considering this fact, I estimate a production of 80% of the Dabora purchases. Accordingly, the excess production is computed as under:- Dobara purchases 54595 M.Ton 80% production thereof i.e. 43676 M.Ton Add. Ballast purchased from others 5761 M.Ton Total Ballast available 49437 M.Ton Ballast sold to others 5749 M.Ton Ballast sold to Railway Upto 20.02.2009 (as above) 33889 M.Ton Total: 39638 M.Ton This gives a difference of 9799 metric ton. Taking the value of sale at Rs. 367.5 per metric ton, the suppressed sale figure comes to Rs. 36,01,132/-. The same is considered as undisclosed turnover of assessee and used for computing the income of assessee. This ground of appeal is therefore treated as partly allowed." 34.1 Ground no. 2 of the Revenue is therefore dismissed. 35. In Ground no. 3, the Revenue has challenged the deletion of addition on account of unrecorded sales of grit of Rs. 14,02,856, unrecorded loading receipts from Railways of Rs. 1,95,889, unrecorded sales of March 2009 of Dabora/ballast to Railway of Rs. 12,27,248, unrecorded income from crus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This ground of appeal is therefore allowed." 43. As we have held above, books of accounts have not been rejected in the instant case, therefore there is no basis to estimate net profit. We have pursued the material available on record. The findings of the AO remain uncontroverted before us and the same are hereby confirmed. In the result, ground of appeal no. 9 is allowed. 44. In ground no. 10, the Revenue has challenged the deletion of addition of Rs. 5,03,251/- out of total addition of Rs. 8,67,670/- made by A.O. on account of peak of negative cash balance since the decision of Ld. CIT(A) rejecting the Books of Account of the assessee and estimating undisclosed income of the assessee at Rs. 5,03,251/- by applying net profit rate has not been accepted by the Department. 45. The relevant finding of the ld. CIT(A) is as under:- "Considering the above the reply of the assessee cannot be accepted and on merits the findings of A.O. is confirmed. However, it would be fair and justified, if assessee is allowed benefit of telescoping. I have confirmed addition of Rs. 1,43,138/- on disclose sale and Rs. 3,60,113/- on undisclosed sales, totalling to Rs. 5,03,251/-. It is therefore hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be paid to Swastik Crusers but it was not paid and money withdrawn from Bank on strength of bearer was taken in cash book. I have gone through the reply of the assessee and the same is not found tenable, because the payment of Rs. 1.00 Lac was made by the assessee to M/s Swastik Stone Crusher but later on, the assessee has entitled this amount in his cash book to increase his cash balance. This cash balance was introduced by the assessee in his cash book out of his income from undisclosed sources. Therefore, the same is added to the total income of the assessee. B. The assessee has given a cheque of Rs. 21,000/- to Patel Tyres on 13.08.08 from Bank A/c No. 8034 of PNB as evident from Ann- 30. The assessee has shown it as cash withdrawal in his audited books of account. Assessee filed reply stating that tyres for truck were intended to be purchased from Patel Tyres, and cheque was prepared, however neither tyres were purchased nor payment was made and therefore money withdrawn from Bank on strength of bearer cheque was taken in cash book. I have gone through the reply of the assessee and have not found it as tenable, because the assessee has opted some operandi, as he ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is added to the assessee's income from undisclosed sources. As discussed above in paras A to D, after going through the reply of assessee, it is not found tenable because submission put forth by the assessee is not reliable being there are so many wrong/suppressed sales & purchases and inflated expenses entered in the books of account of the assessee. Looking to facts and circumstances of the case, an amount of Rs. 4,16,000/- (100000 + 21000 + 50000 + 245000) relating to paras A to D above is hereby added to the total income of the assessee." 50. The comment of the AO in the remand report called by the ld CIT(A) are reproduced below: "i) The submission and certificate submitted by the appellant is baseless misleading and false. I am enclosing herewith the photocopy of Annexure- 1 (Page No. 26) in which it is clearly mentioned that this payment has been received by Swastik Crusher by self cheque which is marked now as exhibit ......B. ii) The payment of Rs. 21,000/- has been made by the appellant by cheque to Patel Tyres. I am enclosing herewith the photocopy of Annexure-30 Page No. 11 which is now marked as exhibit.....C and this is not cash withdrawal made by the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X
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