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TMI Blog2020 (3) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... ural justice because the A.O. without giving opportunity to the assessee and without any justification made the addition by enhancing the net profit rate. Therefore, on this reason alone the Departmental Appeal is liable to be dismissed. There is no requirement under the Law that the trading result should be constant or should keep going up always even if there justification for the same to vary. CIT(A) at the appellate stage forwarded all the documents to the A.O. for examining and filing remand report. The A.O. examined the same and found the contention of assessee to be correct. Thus, assessee produced the books of account when called for by the A.O. and explanation of assessee was found to be correct for fall in N.P. rate which was on account of increase in financial cost and increase in cost of raw material consumed. Since no discrepancy was found in the maintenance of the books of account, therefore, the CIT(A) correctly deleted the addition. The decisions noted above clearly apply to the facts and circumstances of the case. Additional income declared by the assessee, the A.O. has specifically noted in the assessment order that assessee made declaration of additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000/- surrendered by the assessee during search can be included in regular P L account of the assessee. 2. Briefly the facts of the case are that search and seizure operation under section 132 of the Income Tax Act was carried out on M/s Jaipuria group (R.K. Jaipuria Group) of cases on 27.03.2012. Warrant of authorization under section 132 of the I.T. Act, 1961 was also issued in the name of the assessee. Notice under section 142(1) of Income Tax Act, 1961 was issued to the assessee to file the return for the A.Y. 2012-13 under appeal. In response thereto, assessee filed the return of income on 22.01.2014 declaring loss at ₹ 24.06 crores. The A.O. required the assessee to file necessary details and to produce the books of accounts. The A.O, however, noted that there was no compliance made to various notices, details of which are noted in the assessment order. 2.1. During the year under consideration, the assessee is deriving income from house property and business and profession. The assessee-company was engaged in the business of manufacturing and trading in soft drinks under the brand name Pepsi, Miranda, 7 UP, Miranda Lemon, Everest Soda etc and other allie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot produce the books of accounts. Therefore, the assessee has no explanation. The A.O. also noted that during the post-search proceedings, the assessee has surrendered an amount of ₹ 3 crores on account of the above discrepancies and filed the documents. The A.O, however, noted that findings of the Investigation Wing regarding construction expenses as per Annexure-A2 in respect of which ₹ 4.50 crores was surrendered. It was submitted that assessee paid ₹ 4.5 crores to M/s. Rockard Infrastructure P. Ltd., and balance of ₹ 5 crores is only contra entry. The A.O. noted that no compliance was made by M/s. Rockard Infrastructure P. Ltd., in response to the summons. The A.O. noted further facts with regard to the findings given at the assessment stage. Shri R.K. Jaipuria was asked to appear personally and to produce the books of account. Shri R.K. Jaipuria, Director of the assessee Company attended the proceedings. His statement was recorded. No books of account have been produced. The A.O, therefore, made addition of ₹ 4.50 crores. The A.O. made further addition of ₹ 43,91,000/- on account of unaccounted cash seized. 2.2. The A.O. further examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic each and every year and the books of account are audited and supported by documentary evidences. The A.O. has not rejected the books of account till passing of the assessment order. No basis have been shown for rejecting the books of account. All the expenses are recorded in the books of account which were subjected to verification before A.O. The Auditor has not given any adverse report against the assessee. The financial cost of the assessee has increased in assessment year as compared to earlier years, the details of the same are noted in the impugned order. The assessee, therefore, pleaded that there was no justification to apply higher N.P. rate to make the addition of ₹ 56.81 crores against the assessee. The assessee made further submissions with regard to rejection of books of account which are noted in the appellate order. The Ld. CIT(A) considering the material on record and by calling the remand report from the A.O. found that no show cause notice have been given to the assessee before making the proposed addition. There was no basis to reject the books of account. The financial cost of the assessee have increased. No discrepancy was noted in the books of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat apart from calling for various details, the AO had not given any show cause notice to the appellant about the proposed action of estimating the net profit at the rate of 4.57% of the gross turnover, which has resulted in a huge addition of ₹ 56.81 crores. In the Questionnaire issued to the appellant, the AO had asked for providing certain ratios such as GP, NP ratios, but there was no correspondence with the assessee indicating that he would be estimating the net profit at such and such percentage which would result in such and such addition. There is no requirement under the law that the trading results should be constant or should keep going up always even if there are valid reasons for the same to vary. The AO has not given adequate opportunity to the appellant to clarify on the adverse inferences which he was going to draw based on non-submission of details in time. In the given circumstances, AO should have given out some indication to the appellant to allow them to explain their side of the story especially since the issue involved huge addition of ₹ 56.81 crores. In this background, the explanations given during the appeal proceedings in the form of wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m top explain their side of the story especially since the issue involves huge addition of ₹ 56.81 crores. In this background, the explanations given during the appeal proceedings in the form of written submission are hereby admitted as additional evidence under Rule 46A(l)(d) of Income Tax rules, 1962. The AO is hereby required to examine the explanations and submit his comments/ report on the same. The AO may call for any further information, books of account and other details and examine the same before sending his report. Further during the appeal proceedings, it has been submitted that the appellant has only paid ₹ 4.5 crores to M/s Rockhard Infrastructure Pvt. Ltd. and not ₹ 9 crores as stated in the assessment order. The AO is requested to examine the seized documents and also the explanation of the AR on this issue and submitted the correct details of the amount paid by appellant to M/s Rockhard Infrastructure Pvt. Ltd. Brief facts of the case: Search and Seizure operation u/s 132 of Income Tax Act 1961 was carried out on Jaipuria group (M/s Varun Beverages Ltd.) of cases on 27.03.2012. Warrant of authorization u/s 132 of the I.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. outling the terms conditions of the work to be executed, the payments to be made, and copy of bills in support of your transactions with M/s Rockhard Infrastructure Pvt. Ltd. ii. Please furnish the detail nature of transaction made between M/s Varun Beverages Ltd. to Rockhard Infrastructure Pvt. Ltd. iii. Please also produce the principal officer of M/s Rockhard Infrastructure Pvt. Ltd. In respect of the summons u/s. 131 issued by the A.O. the assessee company has filed reply on 07.02.2014 along with the relevant documents i.e., purchase order, bank statements evidencing payments, ledger accounts and bills raised by M/s Rockhard Infrastructure Pvt. Ltd. Further, it is pertinent to mention here that statement of Sh. Ravi Kant Jaipuria was also recorded on oath during the course of assessment proceedings. The relevant part of the said statement is reproduced below :- Ques. No. 8. What was the total amount of transaction involved? Also state that amount paid by M/s Varun Beverages Ltd. to M/s Rockhard Infrastructure (P) Ltd. Ans: The total paid against contract to M/s Rockhard Infrastructure (P) Ltd. during F Y 2011-12 by M/s Varun B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o on record dated wherein the assessee had admitted that the details as required in questionnaire as 23.10.2013 would be filed meaning thereby the details had not been produced. Further, the assessee has also stated that there was no occasion to reject the books of account. So, the issue of rejection of the books of account was duly confronted by the Assessee. So, it is clear from the records and the discussion in the Assessment order that the assessee was given adequate opportunity to present his case. Keeping in view the above facts, the additions made by the AO are reasonable and may kindly be confirmed. 4.1.7. In the background of the AO s remand report the basis for rejection for books of accounts does not survive. I agree with the comment of the JCIT in his forwarding letter to the extent that the AO had duly confronted the assessee with the proposal to reject the books of accounts. As noted earlier it was however incumbent upon the AO to have intimated the assessee about adopting particular rate of NP. The show cause issued as to why books of accounts should not be rejected. Does not disclosed the AO s intention of adopting a particular NP rate. In fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the complete details. In view of the above, you are required to show cause as to why your books of account should not be rejected under the Income Tax Act and profit be estimated on the basis of seized material and other relevant fact of the case. In this regard it is very humbly submitted that questionnaire dated 23.10.2013 was issued by your honour in the aforesaid case. In the aforesaid questionnaire, queries were raised as contained in 51 points. The reply to aforesaid queries required voluminous data to be processed and lot of documents to be compiled and in certain cases the matter pertains to records for more than 7 years old. The assessee company time and again has filed various details before your honour and letters dated 18.11.2012, 11.12.2012, 10.02.2014, 24.01.2014, 20.02.2014 have already been filed before your honour containing reply to most of the details required by your honour vide questionnaire dated 23.10.2013. The balance details are under compilation and shall be filed before your honour very shortly. In this regard it is further submitted that your honour in addition to the questionnaire dated 23.10.2013, has also issued Summons u/s 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r filed on 26/03/2014 addressed to the AO but supposed to have been filed before Addl. CIT on 26/03/2014. In the said letter, the appellant has made submissions on two issues, namely (i) reasons for increase in depreciation claimed from ₹ 71.52 crore in A.Y. 2011-12 to ₹ 129.34 crore for A.Y. 2012- 13. (ii) Reasons for fall in NP ratio. The AO has accepted the claim of depreciation (as noted by him in the assessment order in the para just below point (h) on page 28, but did not accept the justification given by the appellant on fall in NP ratio. The relevant portion of appellant s submission in the said letter dated Nil submitted before Addl. CIT is reproduced below for ready reference : 2(i) On going through Profit Loss Account, the ratio of net profit are as under :- Y.E. 31.03.2012 Y.E. 31.03.2011 Net profit 36,79,10,942 42,40,56,355 Turnover 13,46,86,49,804 10,71,13,17,456 % of Net Profit 2.73 3.96 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Paper Book). The relevant letter is reproduced below for ready reference : Your honour has raised a query regarding fall in N.P. Ratio during i.e. 31.03.2012 as compared to i.e. 31.03.2011. In this regard it is very humbly submitted that the reason for fall in Net Profit Ratio during the i.e. 31.03.2012 is as under :- Y.E. 31.03.2012 Net Profit as per Profit Loss A/c 367910942 Less: Additional Income declared at the time of Search 345000000 Adjusted Net Profit 22910942 Adjusted Net Profit Ratio for Financial Year 2011-12 0.17% Add: Increase in Finance Cost 1.00% Add: Fall in GP Ratio 3.08% 4.25% Less: Decrease in Depreciation (-)0.04% Less: Decrease in Other Expenses (-)0.25% Net Profit Rati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was, stated to be, accountable by other raw materials. The appellant also gave the necessary chart giving detailed break up of increase in cost of raw material working of GP rate. The said details are as under : VARUN BEVERAGES LTD. INCREASE IN COST OF RAW MATERIAL DURING FY 2011-12 2010-11. 4.1.16. From the facts noted at para 4.1.9 to 4.1.12 above, it is evident that the appellant has been able to justify in its own way the fall in GP and fall in NP during the year. All these submissions have been omitted to be considered and dealt with by AO. Had he considered the above facts, the result might have been different. 4.1.17. The appellant s financial cost has substantially increased from 4.9% to 5.91% which straight away accounted for fall in NP by one percent. Further the increase in cost of major raw materials (PET Resin Mango pulp) has been shown to be responsible for fall in GP by 2.55%. Thus if one takes into account these facts the fall in GP stands explained. No doubt, the appellant has attempted to cover up the fall in NP by crediting the undisclosed income to P L account. However, crediting undisclosed income to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based on the seized paper and apart from that there was no material with the A.O. to make any addition against the assessee. The A.O. never asked for the production of the books of account and applied higher G.P. rate without calling for explanation of assessee. This contention was duly noted by the Ld. CIT(A) and matter was remanded to the A.O. The A.O. in the remand report confirmed that assessee was never asked for production of the books of account at original assessment stage and even in the statement recorded of the Director, the A.O. never asked for production of the books of account. The books of account were called for at the remand proceedings, which were duly produced by the assessee, in which, no specific defects have been pointed-out. In fact the books tallies with the financial results. The A.O. in the remand report also accepted the fact that assessee produced the books of account along with necessary documents which have been verified by the A.O. The fall in N.P. rate was on account of increase in financial costs for new expansion and cost of material which is accepted by the Ld. CIT(A) based on the material on record. The assessee explained before the A.O. at the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hers at remand proceedings. The A.O. verified the books of account of the same and do not find any defect thereon. Thus the books of account of the assessee did not contain any discrepancy and the book results were acceptable. The assessee further explained that A.O. never asked for any question regarding any infirmity in the maintenance of the books of account. The A.O. at the remand proceedings was satisfied with the book results. The assessee further explained that fall in N.P. rate was on account of increase in the financial costs as well as increase in the price of raw material. The Ld. CIT(A) specifically dealt with the issue in the appellate order and found the contention of assessee to be correct. No material have been produced by the Revenue before us to rebut the findings of fact recorded by the Ld. CIT(A). Since no specific defects have been pointed-out in the books of account of the assessee, therefore, there was no reason to apply higher N.P. rate against the assessee. The Revenue to some extent may be justified in contending that since assessee made surrender of additional income based on Annexure-A1 found during the course of search which assessee failed to explain m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial cost and increase in cost of raw material consumed. Since no discrepancy was found in the maintenance of the books of account, therefore, the Ld. CIT(A) correctly deleted the addition. The decisions noted above clearly apply to the facts and circumstances of the case. 6.3. As regards the additional income of ₹ 34.50 crores declared by the assessee, the A.O. has specifically noted in the assessment order that assessee made declaration of additional income which is based upon Annexure-A1 seized during the course of search. It is connected with the business activity of the assessee. Whatever discrepancy was explained by assessee have been accepted and whatever discrepancy assessee could not explain as per seized paper, assessee offered the same for taxation. Therefore, it is clearly business income in nature and assessee has rightly taken it into P L A/c. The A.O. has not brought any material on record if assessee doing any other business so as to link the surrender to any other income earned by the assessee. Therefore, there is no infirmity in the Order of the Ld. CIT(A) in deciding this issue in favour of the assessee. Considering the totality of the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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