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TMI Blog2015 (5) TMI 1192X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in making addition for the purpose of Income Tax Department in present case by independent enquiries by concern Income Tax Authorities. No such exercise was undertaken by Income Tax Department at all. AO has simply relied on show cause notice issued by Excise Department. Nowhere did he conclude that there was a large scale removal of goods without payment of tax under Income Tax Act. Merely because Excise Department issued show cause notice, that alone cannot be a ground to assume and conclude that there was evasion of Income Tax Act as well. It is not even the case of Department that such show cause notice proceeding has culminated into any final order against petitioner. This makes it clear that concern ITOhas acted upon in mechanical manner and passed order of assessment merely on premises of Excise Department issued show cause notice alleging large scale removal of goods - See FUTURA CERAMICS PVT. LIMITED VERSUS STATE OF GUJARAT THRO SECRETARY [ 2013 (11) TMI 1752 - GUJARAT HIGH COURT] - Decided in favour of assessee. - ITA. No. 117, 142, 113, 150, 109, 146, 105, 138, 99, 132, 133, 100, 125, 169/RJT/2013 (Assessment Year: 2008-09) - - - Dated:- 25-5-2015 - Shri S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ceramic P. Ltd. (3) Gangotri Glaze Tiles P. Ltd. And (4) Ganga Glaze Tiles (now known as Ganga Glaze Tiles P. Ltd.). 3.1 The Directorate General of Central Excise Intelligence, Ahmedabad (hereinafter called DGCEI ) Unit came to know that an estimated number of over two hundred manufacturers of tiles, situated in different parts of the state of Gujarat, are evading duty of excise and other taxes on a massive scale. It was found to be practically an impossible task to simultaneously search all these manufacturers and their 1000s of dealers, depots, distributors and godowns, situated across the country as well as a large number of shroffs and angadias, transporters, shipping companies etc. Therefore, DGCEI selected eleven manufacturers of tiles situated in Morbi including the Units of appellant Group and several transporters, shroffs, angadias, shipping companies and dealers and depots, situated at different locations and conducted a coordinated search operation on17.01.2008. Information regarding the details of consignments shipped in coastal vessels was also collected from the Customs Houses at Kandla and Mundra Ports. Similarly, statements of various bank accounts held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual sale price. (iv) The differential value, over and above the value declared in the Central Excise invoices, was collected by them in cash from the buyers and such cash amounts was found not accounted for in their statutory records. (v) The recipient dealers of such tiles were also selling the same to ultimate consumers by not showing the actual MRP or sale value in their sale bills. They have artificially worked out the selling price to match with the landed cost declared by them on records. Differential value, over and above the value declared in the sale bills, was collected by them from the consumers in cash. Thus, the dealers also evaded Value-added Tax (hereinafter called VAT ) on the tiles sold by them. (vi) While part of the cash amounts collected by the dealers and distributors in the aforesaid manner was spent by them towards meeting the undeclared expenses towards local transportation, transit insurance, loading and unloading expenses etc., the remaining cash amounts which formed the actual cost of tiles, over and above the value declared in the Central Excise invoices, were transferred by them to the manufacturers. (vii) In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant group, dealers, shroffs etc. as well as statements recorded of all the key persons with reference to the seized incriminating material with due analysis and findings of evasion of taxes on a massive scale by adopting the above modus operandi. The show cause notice also contains a number of Annexures which summarizes all the financial activities of the manufacturers including the appellant group regarding suppressed sales resulting into evasion of taxes. on a massive scale. For the purpose of computing the extent of evasion of excise duty, difference in assessable value that should have been adopted for the purpose of the Central Excise duty after allowing abatement @ 45% has been determined on the basis of actual MRP or sale price of tiles. The difference between the above assessable value and the assessable value that has been subjected to payment of Central Excise duty after allowing abatement @ 45% on the basis of MRP adopted as per records and disclosed by the appellant for actual payment of Central Excise determines the assessable value for the purpose of calculating differential excise duty at the prescribed rates which has been evaded. 3.4 This wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of 25% and consequently making an addition of ₹ 4,39,13,515/- being profit on suppressed sale by relying on the decisions of Vijay Proteins Ltd. Vs. ACIT 58 ITD 428 of ITAT, Ahmedabad Bench and Sanjay Oil Cake Industries vs. CIT 316 ITR 274 (GUJ). 3.7 Assessing Officer also observed that CIT(A) in the case of M/s Vrundavan Ceramics P. Ltd. As well as M/s Gokul Ceramics P. Ltd. for AY 2007-08 has vide order No.CIT(A)-IV/331-R/CC-1/09-10 dtd. 15-02-2011 and order No CIT(A)-IV/330-R/CC1/09-10 dtd. 15-02-2011 respectively has upheld the action of Assessing Officer so far as rejection of books of account u/s 145 of the Act as well as the quantum of suppressed sales is concerned. However, so far as estimation of profits on suppressed sales is concerned, the CIT(A) has determined the same at the net profit rate of 13.2% / 10.68% on the suppressed sales which was actually the net profit rate before depreciation in the case of M/s Vrundavan Ceramics P. Ltd. And M/s Gokul Ceramics. Ltd. respectively in respect of its recorded sales. 4. Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee and having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing abatement @ 45% (Rs.) Difference in assessable value on which there is evasion of excise duty (Rs.) (₹ 110-₹ 55) 1 100/- 55/- 200/- 110/- 55/- In the present case, by taking into account the size/ quality / no. of boxes manufactured and cleared for payment of duty and on the basis of actual MRP i.e. the price at which the tiles have been actually sold determined on the basis of incriminating documents as contained in the show cause notice, the difference in the assessable value on which there is evasion of duty has been determined. 9.3 In view of the above, once there is evasion of excise duty, it invariably signifies the suppression of sales on which there is evasion of income-tax since the actual sale price in respect of boxes of tiles is more than the recorded sale price in the books of accounts. Such suppression of sales is actually the difference between the actual sale price and the sale price as recorded in the books. The AO has determined the quantum of suppress ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the manufacturers. Out of such net sale price of ₹ 110/-, ₹ 55/- has been received by way of cheque or remaining ₹ 55/- has been received by way of cash over and above the recorded sale price. Thus, the suppressed sales in the case of the appellant will be the difference between the actual net sale price to its dealers which is taken at ₹ 11 0/- as against actual MRP of ₹ 200/- and the recorded sale price in the books of accounts at ₹ 55/- as against the declared MRP of ₹ 100/- The quantum of abatement @ 45% takes care of the freight / profit margin etc. attributable to the dealers. 9.4 The contention of the appellant that there is no suppression of sales is devoid of any merit or logic in view of the fact that huge amount of cash arising on account of sale of tiles at a price which is much more than the documented price has been sent to the appellant group through shroffs by the dealers which is evident as per the incriminating documentary evidences available on record. The unaccounted cash transactions which exceeds more than 1820 crores in respect of tiles manufacturer including the appellant group is an established fact as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 185/- and ₹ 180/- per box. Thus the said documents also reveal that M/s Cable were selling the tiles at the rates much higher than the MRP declared by the manufacturers of tiles. 9.5 The quantum of such suppressed sales determined on the above basis has been confirmed by the Hon'ble ITAT in its order in the case of M/s Vrundavan Ceramics P. Ltd. and M/s Gokul Ceramics P. Ltd. for AY 2007-08 as mentioned above. 9.6 I do not agree with the contention of the appellant that mere information received from DGCEI and show cause notice issued by it does not constitute valid reasons for disturbing book results of the appellant in absence of anything to show that the AO has independently applied his mind to arrive at a conclusion that the appellant suppressed sales. In fact the AO has independently applied his mind to the incriminating documents brought on record by OGCEI as part of the show cause notice and determined the quantum of suppressed sales which is duly confirmed by ITAT. It is an obvious fact that once there is under invoicing for evasion of excise duty, the suppression of sales is an obvious outcome accounting for evasion of income-tax as well. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication done in respect of such unrecorded expenditure made by way of cash. The appellant has also not submitted the details / extent / quantum of such unrecorded expenditure either during the course of assessment proceedings or appellate proceedings. Therefore, estimation of profits on suppressed sales is the only available option since the entire suppressed sales cannot be taxed. Only the profit element on such suppressed sales can be brought to tax. I also agree with the appellant that the estimation should be made on the basis of available material and circumstances of the case in order to make a fair and honest estimate of the evaded income 9.9 The AO has estimated the profit, on suppressed sales @ 25% by relying on the decisions in the case of Vijay Proteins Ltd. and Sanjay Oil Cake Industries. However, the facts of the above cases are entirely different from the facts of the present case. In the above cases, the issue involved is of bogus / unverifiable purchases whereas in the present case there is suppression of sales. 9.10 The CIT (A) in his order in the case of M/s Vrundavan Ceramics P. Ltd. and M/s Gokul Ceramics P. Ltd. for AY 2007-08 has estimated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ressed sales is already debited in the books of account. The valid comparison, therefore, could have been made amongst the concerns which have been subjected to investigation by the DGCEI. Moreover, the CIT (A) in his finding has not accepted he book results of the comparable cases. Further, the facts of the case of Aero Club (2011) 336 ITR 400 (Delhi), are entirely different. In that case, there is no suppressed sales. There is no adverse evidence in that case justifying the rejection of book results. Therefore, it is held by the Court that- The profit margins of a taxpayer as declared by him can be varied and disturbed only if the profit margins in the case of other assessees engaged in similar business are higher. In the instant case, the assessee had brought on record evidence that in the case of a company having similar business, the declared profits were, in fact, lower than the profits declared by the assessee. The Assessing Officer, in his remand report, was also unable to comment on the comparable cases relied upon by the assessee. In the circumstances, the Tribunal rightly held that the net profit as declared by the assessee was not required to be disturbed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,85,45,409/- (iv) Remaining expenses Claimed (including cost Of Raw material) 15,61,87,612/- Total Expenses 32,82,41,933/- Ratio of Remaining expenses to Net Sales 46% Thus, amount of total expenses of ₹ 32,82,41,933/- claimed, a major portion of the expenditure of ₹ 17,20,54,321/- which includes expense on power and fuel and manufacturing expenses as well as depreciation, is not subject to any manipulation in the sense that there cannot be any unrecorded expenditure in respect of the above with reference to the suppressed sales. Thus, in respect of more than 50% of expenses, there is no scope of any variation. Only in respect of remaining expenses, there is possibility of unrecorded expenditure relating to suppressed sales. The amount of remaining expenditure is ₹ 15,61,87,612/- as against the recorded net sales of ₹ 33,73,62,8701-. The ratio of such remaining expenditure to the recorded net sales will be 46%. Therefore, if unreco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,08,865/- is confirmed. The balance addition is deleted. 10. Before us, Revenue has opposed the restriction of profit on suppressed sale @ 9% as against 25% as determined by Assessing Officer and thereby requested that CIT(A) was not justified in restricting the addition to ₹ 1,58,08,865/- out of total addition of ₹ 4,39,13,515/-. Accordingly, order of CIT(A) on the issue be set aside and that of Assessing Officer be restored. On other hand, learned Authorized Representative submitted that CIT(A) erred in facts and law in confirming the rejection of books result and confirming the estimated addition on account of suppressed sale and profit. CIT(A) also erred on facts and also in law in observing that profit element in respect of suppressed sales estimated by Assessing Officer @ 25% is reasonable. The finding of Assessing Officer is totally unjustified and contrary to the facts on record and matter accordingly be quashed. Learned Authorized Representative further submitted that CIT(A) erred in alleging that assessee has suppressed MRP to the tune of ₹ 17,56,54,060/- on which it would have earned profit @ 9% and thereby retaining /confirming addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 72,06,934 Balance excess 90,38,554 13,45,295 20. In accordance with above calculation, we confirm the addition to the extent of ₹ 1,93,68,351/- in the hands of Vrundavan and ₹ 72,06,934/- in the hands of the Gokul and balance addition ₹ 90,38,554/- in case of Vrundavan and ₹ 13,45,295/- in the case of Gokul out of the total addition sustained by CIT(A) are deleted. 21. The learned representatives of the parties submitted that facts of the case in Gokul Ceramics Pvt. Ltd. are similar. Therefore, the cross appeal of that case is also decided in accordance with above discussion. 22. In the result, appeals of assessee are partly allowed and appeals by revenue are dismissed. Subsequently Hon ble Gujarat High Court in Special Civil Application No.6500 of 2012 in case of Futura Ceramic Pvt. Ltd. vs. State of Gujarat in its dated 20th December, 2012, in similar situation observed as under: From the above, it can be seen that the assessment which was previously concluded was reopened on the premise that during the exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Such order, therefore, cannot be sustained and is accordingly quashed. When the order is ex facie illegal and wholly untenable in law, mere availability of alternative remedy would not preclude us from interfering at this stage in a writ petition. Thus, Hon ble Jurisdictional High Court held that concern Assistant Commissioner, Sales Tax was not justified in initiating action and passing final assessment order merely on the premises that Excise Department has issued a show cause notice alleging clandestine removal of goods. Such order was quashed. 10.1 Similar view has been taken by Hon ble Gujarat High Court in Special Civil Application No. 1038 of 2013 in case of Futura Ceramic Pvt. Ltd. vs. State of Gujarat in its order dated 13.11.2013 by observing as under: [6.0] In view of the above decision of Division Bench of this Court, the impugned reassessment order deserves to be quashed and set aside. However liberty can be reserved in favour of the department to pass an order afresh in accordance with law and on merits after giving an opportunity to the petitioner and if permissible under the law now. [6.1] In view of the above and for the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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