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TMI Blog2023 (7) TMI 1045X X X X Extracts X X X X X X X X Extracts X X X X ..... on the amount of sales but on the income embedded in such sales. It clearly emerges from the discussion made in the assessment order that not only the sales but also the purchases were unrecorded. The assessee was into manufacturing the goods outside the books of account to evade excise duty. Since both the sales and corresponding purchases were unrecorded, it is but natural that only the profit element could have been added and not the amount of sales in entirety. We, therefore, affirm the view taken by the ld. CIT(A) in restricting the addition to the level of gross profit rate declared by the assessee for the year under consideration. The grounds taken by the assessee as well as the Revenue in this regard stand dismissed. Addition on account of working capital required for manufacturing the goods outside the books of account, which was reduced by the ld. CIT(A) to 50% - In the original assessment, the AO estimated suppressed production on the basis of higher electricity consumption and also made addition towards working capital required for purchase of raw materials and day-to-day activities. The ld. CIT(A), firstly, sustained the addition at the level of the gross profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010-11 2011-12 involve some common issues. For the sake of convenience, we are proceeding to dispose them off by this consolidated order. A.Y. 2010-11 : 2. The first ground assails the initiation of reassessment proceedings. 3. Succinctly, the facts of the case are that the assessment in this was originally completed u/s. 143(3) of the Act at a total income of Rs. 1,36,25,352/-. Thereafter, the AO initiated the reassessment proceedings by means of notice u/s. 148. The assessment was completed u/s. 143(3) r.w.s. 147 of the Act determining total income at Rs. 102,64,98,000/-. The assessee unsuccessfully challenged the initiation of reassessment proceedings before the ld. CIT(A). 4. Having heard the rival submissions and gone through the relevant material on record, it is seen that the reassessment was initiated on the basis of reasons dated 23-01-2017, reading as under: Assessee is Private Limited Company. Excise department carried out search action in the premises of company. During the course of search action excise department seized pen drive data on which unaccounted purchases and sales were reflected. They also recorded statement of Sushil Subhshchandra Badj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also information that the assessee company was purchasing unaccounted MS Ingots/Billets for the manufacture of the aforesaid products, which were unrecorded. A separate record was prepared about the unaccounted manufacture and sale etc., which was available in the pen-drives and in the computers of the assessee company. Not only the petition of the majority shareholder of the assessee company was dismissed, the Hon ble High Court clearly recorded in para No.28: That relevant material is already discussed and it shows that present petitioner was involved in running of the business and he was collecting sale proceeds.. . . . . . There is prima facie case for evasion of excise (sic. estate) duty and also non-payment of income-tax on the income made by utilizing aforesaid modus operandi . The Hon ble High Court further held that not only the duty payable was to be ascertained under the present Act: but the Income-Tax authorities need to take action in present case . . . . . . . . .When such matter comes before Court it is also duty of the Court to see that the Income Tax Department is heard in such a case and intimation of the incident is given to the Income Tax Department al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the course of search. The ld. AR argued that achieving this level of unrecorded sale was humanly impossible considering the capacity of the assessee company and hence the amount of such unrecorded sales be reduced. He put on record some working showing the possible unrecorded sales at a much low level. We are disinclined to accept the assessee s contention for the obvious reason that the figure of unrecorded sales was deduced from the data found in the assessee s computer during the course of search by Central Excise authorities. Not only this, even the director of the assessee company also accepted the unrecorded sales at this level during the course of search. The later retraction is of no avail because the data from the computer corroborated the amount of unrecorded sales. We, therefore, reject the assessee s version about the amount of unrecorded sales at a level lower than that taken note of by the authorities below. 8. The second connected issue is the making of addition in respect of such unrecorded sales. Whereas the AO added the amount of sale itself as the undisclosed income, the ld. CIT(A) reduced it to the declared gross profit rate at 4.86% for the year under c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copy of such order in ITA No.2071/PUN/2014 and 2023/PUN/2014 has been placed on record at page 46 onwards of the paper book. In the original assessment, the AO estimated suppressed production on the basis of higher electricity consumption and also made addition towards working capital required for purchase of raw materials and day-to-day activities. The ld. CIT(A), firstly, sustained the addition at the level of the gross profit rate applied on the undeclared sales and deleted the addition towards the working capital. Both the assessee as well as the Revenue came up in appeal before the Tribunal. The Revenue raised ground No.3 in its ITA No.2023/PUN/2014 challenging the deletion of addition towards working capital. The Tribunal, relying on certain orders, upheld the deletion of addition on account of working capital. Since the issue under consideration is fully covered by the order of the Tribunal in assessee s own case for the year under consideration itself, we are satisfied that no addition was called for on account of working capital required for the suppressed production and the same was rightly deleted. The ground of the assessee is allowed and that of the Revenue is dismisse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ash is sine qua non for making the disallowance. Adverting to the facts of the present case, it is seen that there is no specific reference to any cash purchases exceeding the prescribed amount, warranting disallowance u/s 40A(3) of the Act. In fact, the addition on account of such unrecorded business was made by the AO on the basis of unrecorded sales and sustained in the first and the second appeals on the basis of gross profit rate applied on such unrecorded sales only without any reference to any specific amount of purchases in cash. We, therefore, hold that the grievance of the Revenue on the not-made addition by the AO u/s 40A(3) of the Act is uncalled for. This ground is, therefore, not allowed. 15. In the result, the appeal of the assessee is partly allowed and that of the Revenue is dismissed. A.Y. 2011-12 : 16. We have heard both the sides and gone through the relevant material on record. It is seen that the facts and circumstances of the cross appeals by the assessee as well as the Revenue for the year under consideration are mutatis mutandis similar to those for the immediately preceding assessment year. 17. Following the view taken hereinabove, we dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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