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TMI Blog2011 (9) TMI 1186X X X X Extracts X X X X X X X X Extracts X X X X ..... l Excise Department had conducted a search in case of assessee. During the search, Central Excise Department had found that the assessee was suppressing the maximum retail price on which sale of tiles has been actually made and maximum retail price as disclosed in the books. A show cause letter issued by the Evasion Wind of Central Excise Department was forwarded to the Income-tax Department on 22-122009. On the basis of said show cause notice of the Evasion Wing of the Central Excise Department, the AO issued show cause notice dated 24-12-2009 which has been reproduced by the AO at page 2 to 6 of his order. In the show cause notice, the detail of suppressed profit itemwise was given. In the show cause notice, the addition of ₹ 21,52,03,905/- was on account of suppressed sale/turnover for the period from 01-04-2006 to 28-02-2007 and from 01-03-2007 to 31-03-2007 on pro-rata basis. The AO estimated suppressed profit applying 25% rate of profit on the suppression of sale proceeds ₹ 21,52,03,905/- of which calculation comes to ₹ 5,38,00,976/-. The AO made addition of that amount. 5. The CIT(A) held that the AO was justified in rejecting the books of accounts as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , similar were the facts of the case of Vijay Protiens Ltd. Vs. ACIT 58 ITD 428 (Ahd.) decided by the Hon'ble Ahmedabad Tribunal and also relied upon by the Assessing Officer. However, the facts of the case of the assessee are entirely different. The Modus Operandi adopted by the appellant company had been elaborately discussed in para-2.1 of the show cause notice dated 25.09.2008 of the Central Excise department and further reproduced in para-3 of the report of the Assessing Officer received on 29.10.2010. The appellant was suppressing the sales by showing lesser MRP in the sales invoices than the actual MRP. The differential value was collected in cash from the buyers and such cash amounts were not accounted for in their statutory records. The recipient dealers and distributors were also not showing on records, the actual expenses incurred by them towards local transportation, transit insurance, loading and unloading expenses, actual margin of profit etc. These expenses were also meted out by them in cash from the suppressed sales. While part of the cash amounts collected by the dealers and distributors in the aforesaid manner was spent by them towards meeting the undeclared expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 100/- per box of tiles as against actual MRP of ₹ 150/-. The central excise duty is payable after abatement of 45%. Thus, the excise duty was paid on an amount of ₹ 55.00 (₹ 100.00 - ₹ 45.00) as against payable on ₹ 82.50 (₹ 150.00 - ₹ 67.50). The sales invoices were issued for ₹ 55/- excluding excise duty and other taxes. The sales invoices were required to be issued for ₹ 55/- excluding excise duty and other taxes. The sales invoices were required to be issued for ₹ 82.50. Thus, there was the suppression of sale of ₹ 27.50. This amount was shared by the dealers and distributors, raw material suppliers and by the appellant company. The above example clarifies that a certain portion of the suppressed sale was came in its pocket. This portion was estimated by the Assessing Officer at 25% of the suppressed sales without bringing any material on record or without considering any comparable cases dealing in similar line of business. From the show cause notice of the Central Excise department, it was gathered that a few of the manufacturing units were selected for search amongst about 400 such tile manufacturing units ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcise Department do not find any suppression. The CIT(A) while examining the assessee reproduced the following table at page-29 of his order which was filed by the assessee before the CIT(A):- S.No. Particulars Vrundavan Ceramics Pvt. Ltd. Gokul Ceramics Pvt. Ltd. Ramco Ceramics Pvt. Ltd. Ferro Glazed Tiles Pvt. Ltd. 1. Net Sales 298316856 196809729 229302683 139616396 2. Production Cost 232408426 154130503 207310178 126862632 3. Gross Profit 65908430 42679226 21992505 12753764 4. Gross profit ratio 22.09 21.68 9.59 9.13 5. Production Cost% 77.91 78.32 90.41 90.87 6. Other Expenses 26521029 21660813 5064045 7656117 7. Net Profit before depreciation 39387401 21018413 16928460 5097647 8. Net Profit ratio before depreciation. 13.20 10.68 7.38 3.65 9. Depreciation 19923640 16155412 8539070 3155590 10. Net Profit after depreciation 19463761 4863001 8389390 1942057 11. Net Profit ratio after depreciation 6.52 2.47 3.66 1.39 7. The CIT(A) held that the assessee has declared hire gross profits from the declared sales as compared to others that sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO without pointing out the defects in the books of accounts regularly maintained by the assessee estimated profit on alleged suppression. The ld. A.R. submitted that it is settled principle of law that mere non-receipt of information from such department and show cause notice issued by it does not constitute valid reasons for disturbing book results in absence of anything to show that AO has independently applied his mind to arrive at a conclusion that the assessee suppressed sales and expenditure. The ld. A.R. submitted that the books of account are subject to audit u/s.44AB of the Act and the auditor did not point out any discrepancy or qualify his report on such audited books of account nor could the AO found any defects therein. As regards the addition sustained by CIT(A), the ld. A.R. submitted that the books of account are subject to Companies Act and also as per section 44AB of the I.T. Act. Neither the AO nor the auditor has pointed out any defects in the books of account. The AO without examining the complete facts simply relied upon a show cause notice issued by CED estimated the profit. The ld. A.R. submitted that proceedings under the Central Excise Rules and under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both correct in rejecting books of account. 13. An another disputed fact is in respect of turnover. However, both the parties agreed with the finding of the CIT(A) that the suppressed sale will be subject to rectification if the same are increased or decreased by the Central Excise Department. 14. Now the question remains to be examined at this stage is in respect of estimation of profit from suppressed turnover. The AO estimated the suppressed profit applying 25% rate of profit which has not been accepted by the CIT(A) on the ground that the AO estimated 25% of profit without any basis and without bringing any material on record or without considering any comparable case dealing in similar line of business. The CIT(A) also noted from the show cause notice of the Central Excise Department that a few of manufacturing units were selected for search amongst about 400 such tile manufacturing units. Thus, there were number of comparable cases where assessment was completed u/s.143(3) of the Act but AO had not collected such assessment order and put the relevant material on record. The CIT(A) after discussion on various judgments CIT vs. Laxminarain Badridas 5 ITR 170(PC), The State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the circumstances, we agree with the view of the CIT(A) that for estimation of fair and reasonable profit comparable cases have a vital role. Therefore, same are required to be considered. The CIT(A) accordingly considered the comparable case from page-28 to 32 and in para No.4.15 to 4.19 of CIT(A) order but the CIT(A) did not accept the results of comparable cases merely on the ground that the assessee has declared higher profit in the books of account in comparison to the profit declared by the comparative cases. The main thrust of the arguments of the assessee before us are that the CIT(A) has accepted in principle with the assessee's contention that the assessee has declared higher profit in the books of account which includes part of the suppressed profit. The assessee has demonstrated and which has also been established by the facts that the assessee has declared higher rate of profit in the books of account in comparison to the comparable cases. The contention of the assessee that the set off of this higher profit which includes suppressed profit should be allowed in estimating the profit on suppressed turnover. We find force in this contention of the assessee. The comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result of comparable case on the ground that the assessee has declared higher profit in comparison to comparable cases. On account of fair and reasonable estimation of profit, the CIT(A) ought to have allow set off the profits which were declared by assessee in books of account while making estimation of the profit. From the table given by the CIT(A) at page-30 and 31 of his order on application of 10%(G.P. rounded for calculation purposes) as declared in comparable cases. We find that the assessee declared excess profit in books of account as under:- Vrundavan Gokul A. Sale as per books. 29,83,16,856 19,68,09,729 B 10% G.P. if applied For estimation. 2,98,31,685 1,96,80,972 C G.P. declare d in books of account. 6,59,08,430 4,26,79,226 D. ( C - B) Excess profit declared 3,60,76,745 2,29,98,254 18. From the above discussion, we find that the CIT(A) is not correct in applying net profit rate declared by the assessee as that net profit includes some portion of profit on suppressed turnover. Therefore, it can be held that estimation made by CIT(A) is fair and reasonable estimation of profit on suppressed sale. The estimation made by the CIT(A) is on hi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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