9911796707
TMI Blog2017 (4) TMI 1643X X X X Extracts X X X X X X X X Extracts X X X X ..... sales by extrapolating the GP rate of 72% - HELD THAT:- Assessee has made certain disclosure of income during certain assessment years. The AO has also found defects in the books of account and we have sustained the rejection of books of account. Considering all these aspects, we are of the view that estimating the profit @ 58% on the declared sales shall meet the ends of justice. In the result, the Ground No. 3 of the assessee's appeal is partly allowed. However, wherever the disclosure made in the return of claim u/s 153A of the Act is over and above the estimated income on the basis of profit @ 58%, same shall be maintained. The appeal filed by the assessee stands partly allowed. Maintainability of revenue appeal on low tax effect - Reduction of GP rate - HELD THAT:- Revenue has questioned only reduction of GP rate. The Revenue has not questioned the reduction of sales made by ld CIT(A). Furthermore, the Revenue has not questioned the quantum of relief given by ld. CIT(A). In view of the above facts and circumstances, it is held that the grievance of the revenue is on the reduction of GP rate made by the ld. CIT (A) from 72% to 62% and the tax effect should be calculated on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounted sales. Total additional income Rs. 84,25,000/- 2011-12 (u/s 139(1) after search) 17/08/2012 (Revised) 88,18,798/- Additional income surrendered Rs. 41,30,000/- on account of profit on unaccounted sales 2.3 During the course of search the assessee group admitted undisclosed income of Rs. 3,50,00,000/-. This surrender was honored by assessee group by declaring the additional income of Rs. 1,75,00,000/- in the hands of assessee and Rs. 1,75,00,000/- in the hands of chairperson/director of assessee company Smt Kulsum Malik. The additional income in pursuant to search statement declared by assessee group was as under:- AY Kayakalp Herbal Pvt Ltd Kulsum Malik Additional Income (Amount) Description of additional income Additional Income (Amount) Description of additional income 2005-06 0 0 2006-07 2050000 Share Capital 690000 Investment in Property 2007-08 2200000 Share Capital 0 2008-09 695000 Share Capital 0 2009-10 0 0 2010-11 5625000 Investment in Property 1875000 Investment in Property 2800000 Profit from Unaccounted sales 0 2011-12 4130000 Profit from Unaccounted sales 14935000 Business Income utilized in unexplained assets/expenditure Total 17500000 17500000 2.4 The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined CIT(A) Findings 2005-06 74,90,831 6371460 1119371 (i) Estimation of unaccounted sales made by AO was not sustained. (ii) GP estimated @ 62% on declared sales in books as against 72% by ld AO and 50.56% by assessee. 2006-07 71,27,221 71,27,221 0 (i) Estimation of unaccounted sales made by AO was not sustained. (ii) GP estimated @ 62% on declared sales in books as against 72% by ld AO and 53.20% by assessee. 2007-08 1,00,28,398 1,00,28,398 0 (i) Estimation of unaccounted sales made by AO was not sustained. (ii) GP estimated @ 62% on declared sales in books as against 72% by ld AO and 52.70% by assessee. 2008-09 1,16,05,760 1,07,01,306 9,04,454 (i) Estimation of unaccounted sales made by AO was not sustained. (ii) GP estimated @ 62% on declared sales in books as against 72% by ld AO and 53.33% by assessee. 2009-10 1,77,24,552 1,51,35,146 25,89,406 (i) Estimation of unaccounted sales made by AO was not sustained. (ii) GP estimated @ 62% on declared sales in books as against 72% by ld AO and 51.09% by assessee. 2010-11 1,09,99,158 1,09,99,158 0 (i) Estimation of unaccounted sales over and above to seized records made by AO was not sustained. (ii) GP estimated @ 62% on declared sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. ITA No 635/JP/16 AY 2009-10 1. The assessment order passed u/s 153A read with section 143(3) of the Income Tax Act for Assessment year 2009-2010 is bad in law, void ab-initio, and also the addition made therein deserves to be deleted as no addition can be made in the assessment made u/s 153A read with sec. 143(3) consequent to the search unless some incriminating material in support of the addition is found as a result of search. 2. On the facts and in circumstances of the case and in law the ld. CIT (A) erred in confirming the rejection of the books of accounts and application of section 145(3) of the I.T. Act, 1961. 3. On the facts and in the circumstances of the case and in law the ld. CIT (A) erred in confirming the addition of Rs. 25,89,406/- on a/c of trading addition, by estimating the GP of assessee @ 62% on declared sales as against GP rate @ 51.09% declared by assessee. ITA No 636/JP/16 AY 2011-12 1. On the facts and in circumstances of the case and in law the ld. CIT (A) erred in confirming the rejection of the books of accounts and application of section 145(3) of the I.T. Act, 1961. 2. On the facts and in the circumstances of the case and in law the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 279/Misc. 142/2007-ITJ (Pt) 10th December, 2015. 2.10 On the other hand the ld CIT-DR supported the maintainability of appeals by stating that the tax effect on the relief given by the CIT (A) is more than the limit prescribed in the circular. However, The ld AR in rejoinder submitted a chart showing the tax effect on the grounds raised by the department and stated that the ld CIT (A) allowed relief by reducing the sales by not sustaining the estimation on unaccounted sales over and above the seized documents and also reducing the GP rate from 72% to 62%. The department is not in appeal on the relief allowed by ld CIT (A) on account of estimation of unaccounted sales. In revenue s appeal quantum of relief given by ld CIT (A) is not under question and only ground is reducing the GP rate from 72% to 62%. 2.11 On merit, the ld AR submitted following written submission relating to the appeals filed by the assessee 4.1 Regarding rejection of books of accounts:- a) The ld CIT (A) confirmed the rejection of books of account on the ground that the assessee is not maintaining of quantitative detail of raw material, its consumption and production of finished goods. In this regard we submit t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (A) was right in his reasoning about admitted state of affairs. Resorting to estimate of GP rate was founded on no material. It was merely a case of making certain additions on the basis of certain defects pointed out by the AO and which he has shown in different account by giving margin of unvouched expenses. He has disallowed certain expenses. 11. The Tribunal committed basic error in not appreciating the reasoning given by the CIT(A). It is trite to say that in the facts and circumstances of present case, account books are maintained as they were ordinarily maintained years after years and which were found to yield a fair result. Mere deviation in GP rate cannot be a ground for rejecting books of account and entering realm of estimate and guesswork. Lower GP rate shown in the books of account during current year and fall in GP rate was justified and also admitted by the AO as well as CIT (A) as well as the Tribunal. Therefore, fall in GP rate lost its significance. Having accepted the reason for fall in GP rate, namely, stiff competition in market and also that huge loss caused in particular transaction, neither the rejection of books of account was justified nor resort to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectness or completeness of the accounts of the assessee or where either the method of accounting provided in subs. (1) or the Accounting Standards as notified under sub-s. (2) have not been regularly followed by the assessee. This is not the case of the Revenue that the assessee had not followed either cash or mercantile system of accounting stipulated in sub-s. (1) of s. 145. This is also not the case of the Revenue that the Central Government had notified any particular Accounting Standards to be followed by manufacturers and exporters of readymade garments. Hence, the second part of sub-s. (3) of s. 145 does not apply to this case. As noted by the CIT (A) as well as by the Tribunal, the AO had not pointed out any defect in the accounts books maintained by the assessee, which, admittedly, were produced before the AO for his consideration. This is also not the finding of the AO that the account of the assessee was not complete. No provision either in the Act or in the rules requiring an assessee carrying business of this nature, to maintain a stock register, as a part of its accounts has been brought to notice. As regards non-production of stock register, the assessee has given a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut certain transactions which have been left to be entered in the books of account or that the assessee has sold some of the items at a price higher than what is disclosed in the books of account or if proper particulars, bills, vouchers, are not forthcoming etc., the books of account cannot be rejected without assigning specific reasons. In the instant case merely because different range and nature of items are being dealt with by the assessee and the maintenance of quantitative stock of each and every item is not practically possible, the books of account maintained by the assessee which are free from any defect cannot be rejected merely because the average GP rate was slightly lower than the average GP rate of the earlier year. (v) Vishal Infrastructure Ltd Vs ACIT 104 ITD 537 (ITAT Hyderabad) :- Hon ble ITAT Hyderabad A Bench held that the undisputed fact is that the assessee which is a limited company has been consistently following a particular method of accounting. Its accounts are audited both under the Companies Act as well as under s. 44AB. Such audited accounts are being filed with the Registrar of Companies as well as with the IT Department for more than 7 years. The Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts of the assessee by applying the provisions of section 145(3) of Income Tax Act, 1961 merely on presumption and assumption. 4.2 Sustaining the trading addition by estimating the GP rate @ 62% a) The Income Tax department carried out intensive search over the assessee group which includes the business premises of the assessee as well as residence of the directors of the assessee. During the course of search the department found all the material regarding income/assets/investments of the assessee group whether recorded or unrecorded and whatever unrecorded/unexplained assets/investment/income was detected as a result of search the same was surrendered as income and offered for tax in Income Tax return filed after search. The detail of additional income offered by the assessee company in various years is as under: - AY Nature of income surrendered Amount 2006-07 Unexplained share application money 20,50,000 2007-08 Unexplained share application money 22,00,000 2008-09 Unexplained share application money 6,95,000 2010-11 Unexplained investment in property at G-2 and G-3, Subhash Marg, Jaipur. 56,25,000 Undisclosed income earned from undisclosed sales 28,00,000 2011-12 Undisclosed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005-06, AY 2008-09 and AY 2009-10 were filed under section 139, which were subjected to assessment under section 143(1) which was completed much before the date of search tabulated as under:- Particulars AY 2005-06 AY 2008-09 AY 2009-10 Date of filing return u/s 139(1) 29/10/2005 27/09/2008 21/10/2009 Notice u/s 143(2) can be issued upto 31-10-2006 30-09-2009 30-09-2010 On the date of issuance of notice under section 153A, no assessment was pending and the assessment so completed earlier had attained finality. From a plain reading of the provisions of section 153A, it is evident that if a search has been initiated under section 132(1) or requisition has been made under section 132A, then the Assessing Officer is obliged to issue notice under section 153A, requiring such person to furnish return of income of six years in the prescribed form for the immediately preceding the year of search. The Assessing Officer is legally required to assess or re-assess the total income of six assessment years immediately proceeding to the year of search. The second proviso to section 153A provides that if the assessment or re- assessment of any of the assessment year, falling within the period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material. v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. Conclusion 38. The present appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Das (2012) 25 Taxmanna.Com 227 (Del) The ld. DR further submitted that in the case of CIT vs. Continental Warehousing Corporation (2015) 64 Taxmann.Com 34 (SC), SLP filed by the Department had been admitted by the Hon'ble Supreme Court . The ld. DR further submitted that ld CIT (A) held that the assessee has retracted from the search by not showing the income in the returns filed by it subsequent to search. She submitted that this implied retraction is not acceptable. 2.14 In rejoinder ld AR submitted that ld CIT-DR has argued the case beyond the scope of grounds raised by the revenue. He submitted that the department has not questioned over the reduction of sales made by CIT (A) on the basis of categorical findings in para 3.1.3 (b) of the order of ld CIT(A). Further, the revenue has not raised dispute over the quantum of relief given by ld CIT(A). The only dispute is over the reduction of GP rate from 72% to 62%. Further, after considering all the discrepancies in accounts and documents found by the search party, the assessee group declared the undisclosed income of Rs. 3,50,00,000/- in the search statement, which the assessee group honored by showing additional income of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent were abated. The ld AR submitted that the documents other than AY 2005-06 and AY 2009-10 were found and seized and on that basis the assessee has declared additional income, therefore, in absence of any incriminating material and assessments of these two years were not abated then no addition can be made in these years. The ld AR further submitted that if income had generated then it would have been found in the shape of cash, stock or other assets or unexplained credit or unexplained expenses, but in the case of assessee no such cash, stock or other assets or unexplained credit or unexplained expenses were found over and above to what has been disclosed by the assessee company or its directors. The ld. AR further submitted that Hon'ble Supreme Court has held that in case of two conflicting views of the court, favourable view of the assessee would be taken as held in the case of CIT Vs Vegetable Products Ltd. (1973) 88 ITR 192 (SC) . 2.15 We have heard rival contentions of both the parties and perused the material available on record. First we take the appeals filed by the assessee for adjudication. ITA No 633/JP/2016 (AY 2005-06) and 635/JP/ 16 (AY 2009-10), 2.16 With rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esult, but the duty of the court is to read the section, understand its language and give effect to the same. If the language is plain, the fact that the consequence of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the legislature to step in and remove the absurdity. On the other hand, if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. This is a well accepted rule of construction recognised by this court in several of its decisions. Hence, all that we have to see is, what is the true effect of the language employed in section 271(1)(a)(i). If we find that language to be ambiguous or capable of more meanings than one, then we have to adopt that interpretation which favours the assessee, more particularly so because the provision relates to imposition of penalty. Thus the assessee s appeal succeeds for AY 2005-06 and AY 2009-10 The appeal filed by the assessee in ITA No 633/JP/2016 (AY 2005-06) and 635/JP/ 16 (AY 2009-10) stand allowed. ITA No 634/JP/2016 (AY 2008-09) 2.17 In ground no 1, the assessee has challenged the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent could be adopted instead of 35 per cent by the Assessing Officer. The Assessing Officer was to make calculations by adopting estimated profit of 32 per cent. The assessee has also made certain disclosure of income during certain assessment years. The AO has also found defects in the books of account and we have sustained the rejection of books of account. Considering all these aspects, we are of the view that estimating the profit @ 58% on the declared sales shall meet the ends of justice. In the result, the Ground No. 3 of the assessee's appeal is partly allowed. However, wherever the disclosure made in the return of claim u/s 153A of the Act is over and above the estimated income on the basis of profit @ 58%, same shall be maintained.. The appeal filed by the assessee in ITA No 634/JP/2016 (AY 2008-09) stands partly allowed. ITA No 636/JP/2016 (AY 2011-12) 2.18 Ground No 1 is regarding rejection of books of account. It may be noted that similar issue has been decided against the assessee in Ground 1 No. 2 of the assessee s in ITA No. 634/JP/2016 for the assessment year 2008-09. Hence, this ground of the assessee is also dismissed for the same reasons as the facts re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 11 12 13 14 15 2005 -06 97,80,619 60,63,984 49,44,613 11,19,37 1 0 11,19,371 7042046 2097433 0 2097433 1119371 978062 293419 2006 -07 1,36,70,714 84,75,843 72,73,292 12,02,551 20,50,000 Income Surrendered is more than addition to be made for trading results, therefore no further addition deserves to be made 9842914 2569622 2050000 519622 0 519622 155887 2007 -08 1,62,92,362 1,01,01,264 85,86,549 15,14,715 22,00,00 0 Income Surrendered is more than addition to be made for trading results, therefore no further addition deserves to be made 11730501 3143952 2200000 943952 0 943952 283185 2008-09 1,84,47,586 1,14,37,503 98,38,049 15,99,454 6,95,000 9,04,454 13282262 3444213 695000 2749213 904454 1844759 553428 2009-10 2,37,34,690 1,47,15,508 1,21,26,102 25,89,406 0 25,89,406 17088977 4962875 0 4962875 2589406 2373469 712041 2010-11 4,09,70,620 2,54,01,784 2,20,44,082 33,57,702 84,25,000 Income Surrendered is more than addition to be made for trading results, therefore no further addition deserves to be made 29498846 7454764 8425000 Income Surrender ed is more than addition to be made for trading results, therefore no further addition deserves to be made 0 0 0 2011-12 7,29,45,281 4,52 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ises and conjectures. The Department has no evidence of unaccounted during the post search period. The AO mentioned that the customer base of the assessee was same in all the previous year. The assessee has submitted a chart showing year wise list of parties to whom it sold goods. I found only 16 parties were common out of total 145 parties. Therefore, it cannot be presumed that all the parties were purchasing the goods from the assessee without bill. The AO has not made any inquiry from the buyer parties of the assessee to establish the unaccounted sales by the assessee. Merely on the basis of search statement of the directors of the assessee stating that the assessee was making unaccounted sales in past also and estimate slips against the unaccounted sales were destroyed after settling the account unaccounted sales cannot be estimated without having corroborative evidence. It may be further noted that the CIT (A) in para 3.1.3 (c) tabulated a chart showing sales taken by him and shortfall in GP on the basis of GP rate of 62% applied by him and addition sustained by him. It may be further noted that Revenue has taken the common following grounds in its all appeals (supra) Whether ..... X X X X Extracts X X X X X X X X Extracts X X X X
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