9911796707
TMI Blog2024 (11) TMI 1306X X X X Extracts X X X X X X X X Extracts X X X X ..... he effect of increase in closing stock in AY 2013-14 increase in opening stock in AY 2014-15 will get subsumed therein and hence no separate addition in this regard is warranted. As noted that the above findings of the CIT(A) is supported by the decision of Bahubali Neminath Muttin [ 2017 (1) TMI 820 - KARNATAKA HIGH COURT] wherein it was held that, once the books of accounts have been rejected, then the same cannot be relied upon for arriving at closing stock. The Hon ble High Court accordingly deleted the addition made on account of suppressed closing stock. Addition of advances received by the assessee - Assessee was unable to conclusively substantiate that the aggregate sales towards which the impugned sum was received, had indeed formed part of the reported turnover and been offered to tax. Having considered the material placed before us and in light of several accounting anomalies found in the books of accounts maintained in tally software, we are in agreement with the foregoing finding of the CIT(A). At the same time, it is noted that, the CIT(A) held that, the entire sales value cannot be considered as income and instead only the profit element embedded therein ought to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs u/s 153A of the Act for the relevant AYs 2013-14 to 2018-19. From the seized electronic material viz., tally data, it was noted that, the assessee was maintaining two sets of accounts, one titled ori and other titled IT . Upon enquiry, the accounts manager of the assessee affirmed in his statement recorded u/s 132(4) of the Act that, the assessee was maintaining parallel sets of accounts for banking financial purposes and other for income-tax purposes. The AO in the course of assessment inferred that, the accounts maintained under the title IT was in form of suppression of income by inflating expenses in the tally data. After calling for explanation from the assessee, the AO observed that, the assessee had inflated the expenses and several expenses were not supported by documentary evidences and therefore made disallowances out of several heads of expenses aggregating to Rs. 19,68,61,188/-, Rs. 16,36,96,574/-, Rs. 10,21,54,055/- and Rs. 6,49,29,886/- in AYs 2013-14, 2015-16, 2016- 17 2017-18 respectively. Apart from the foregoing, in AY 2013-14, the AO also made separate additions on account of suppression of closing stock amounting to Rs. 150 lacs and advance received from cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore the AO rightly held that these expenses were not genuine. He therefore supported the AO s action of not rejecting the books of accounts but making separate additions based on inflation of expenses, on the basis of seized material. He further submitted that, if the Ld. CIT(A) s action of rejecting the books of accounts is upheld, then the profits ought to be estimated at 53% viz., the profitability of another assessee, M/s Industrial Minerals Company, which according to AO, was comparable to the assessee. The Ld. CIT, DR further argued that, the Ld. CIT(A) having rejected the books of accounts, ought to still have adjudicated the merits of the disallowance of expenses, which according to him, was made on different footings. Overall therefore, he prayed that the order of Ld. CIT(A) be reversed and the AO s order be restored. The Ld. CIT, DR also furnished a written synopsis of his arguments, which has been taken on record. 6. Per contra, the Ld. AR for the assessee supported the order of Ld. CIT(A) and urged that order of the Ld. CIT(A) estimating the profits at 2.21% be upheld. The Ld. AR also filed a written note rebutting the arguments raised by the Ld. CIT, DR. In this wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is engaged in the business of mining, processing and refining beach minerals. The books of accounts in relation to this business is noted to have been maintained in the tally software. The assessee however was found to have been maintaining two sets of books of accounts in tally software viz., ori IT . Upon analysis of the entries found in these parallel books of accounts maintained in the tally software, the AO noted that the expenses debited in the tally accounts maintained for income-tax purposes i.e. IT , was comparatively higher than the books maintained under the title ori . The AO also noted that several expenses did not have proper narration or payment details, which led him to believe that they were bogus in nature. Before the Ld. CIT(A), the assessee is noted to have explained that, the books of accounts titled ori were incomplete and unaudited accounts and that the books of accounts titled IT was the complete audited accounts prepared on actual data. The assessee had explained that, due to shortage of proper accounting staff and lack of proper knowledge, the accounting staff would not pass the entries on a day-to-day basis or would make the entries under wrong ledg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Appellant in the grounds of appeal. 7.5.9 The Appellant during the course of appellate proceedings has submitted a detailed reason for the incomplete and erroneous manner in which the books of accounts were maintained. The main reason for the poor maintenance of accounts was the capturing of primary accounting data in the tally accounts by the operational staff who were not well versed in accounting and the absence of qualified accounting staff at multiple remote locations where the processing plant and warehouses of the Appellant are situated. The multiple tally accounts found during the search was due to the fact that making accounting entries at multiple locations. The non-availability of accurate information regarding the transactions at the time making the entries in the tally accounts and omission to make accounting entries contemporaneously led to either absence of narration or incorrect / erroneous narration for the entries made in the books of accounts. The Appellant also explained that entries were wrongly made by crediting the ledger accounts of group companies while debiting the relevant expenditure account in the books of the Appellant Firm in cases where the pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crepancy has been explained to be arising from the erroneous crediting of the ledger account of a group entity while debiting the expenditure account though the expenditure has been met by the Appellant itself out of received on transfer through banking channel from the group entity, it is necessary on the part of the Appellant to identify the relevant transactions of transfer of funds through bank from the group entity and incurring of expenditure by the Appellant from such funds by withdrawing the same from the bank. Moreover, in both the categories of discrepancies, it is necessary for the Appellant to produce the bills and vouchers in support of the relevant expenditure in respect of which the corresponding credit entries were erroneously made in the books of accounts. 7.5.13 In this regard, the Appellant has brought out various constraints being faced by it in carrying out such reconciliation and furnishing the supporting bills and vouchers in the written submission by stating that it is unable to do so at present in view of the passage of time and frequent changes in the accounting staff working with the Appellant. It is considered that the said submission of the Appellant ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Appellant in the books of account cannot be accepted in toto in the face of the discrepancies brought out by the AO in the Assessment Order, making disallowance of the major portion of expenditure in respect of which such discrepancies were noticed is also not appropriate to the facts of the case. On making disallowance of entire expenditure in respect of which the discrepancies were found as sought to be done by the AO in the Assessment Order, the total income of the Appellant was assessed at Rs. 19,73,18,968/- for the AY 2013-14 as against the turnover Rs. 18,82,97,110/- for the FY(s) 2012-13 relevant to the AY 2013-14. 7.5.16 The said assessment has resulted in impliedly considering the net profit of the Appellant at 104.79%, for the FY 2012-13, which is abnormally high in the line of business of the Appellant Firm and not appropriate to the facts and circumstances of the case. It may be appreciated that the said abnormality in the profit margin is indicative of the fact that the discrepancies in the accounts pointed out by the AO cannot be considered to be arising wholly from wrong claims of expenditure by the Appellant. .. . 7.5.18 Now, the issue before the undersigne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earthed from the electronic data viz., tally software titled ori and IT . Upon comparison, the AO noted that, the accounts titled IT were the accounts maintained for income-tax purposes wherein the expenses debited were higher than the expenses found debited in the books maintained in ori and therefore made disallowance on account of inflated expenses. On appeal, the coordinate bench of this Tribunal upheld the Ld. CIT(A) s action of rejecting the books of accounts holding it to be unreliable but estimated the profits from this business at 2.21% as opposed to 0.47% returned by the assessee. The relevant findings taken note of by us is as under:- 14. Having heard the rival contentions, carefully considered the submissions, and perused the material placed on record. The case of the assessee firm for the Ay 2013-14 was assessed by the department u/s 143(3) vide order dated 08.03.2016, thereafter upon a search action u/s 132 of the Act on BMC Group on 25.10.2018 the same was reassessed u/s 143(3) rws 153A bide order dated 26.08.2021. During the course of search, it was found that the assessee firm was maintaining parallel sets of accounts. Evidences were gathered by the search team in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dated 08.03.2016. As evident from the contents of the said Assessment Order, the AD required the appellant to produce the bills and vouchers in support of the expenditure debited towards mining production and processing and other expenses during the course of the said Assessment proceedings. The appellant produced the supporting bills and vouchers before the AO in response to the same. The AO stated in the Assessment Order that he carried out the verification of the said bills a vouchers and he found that the vouchers to the extent of Rs. 2.80 Crores were beyond proper verification and that the claim of the appellant to the said extent was not fully proved. The AD therefore made disallowance of production and processing expenses to the tune of Rs. 2.80 Crores in the original Assessment Order. The facts narrated in the said Assessment Order clearly bring out the fact that the appellant maintained the bills and vouchers in support of the expenditure debited to the P L Account and that the same were verified by the AO during the original Assessment proceedings. 44. Having regard to the discussion made in the preceding paragraphs, it needs to be observed that there is no dispute r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the business income disclosed in the return of income for the said Assessment Year represents the correct profits of the appellant for the said year. The said assessment year is the last year of claiming exemption u/s 108 by the appellant and there is only one intervening year be Veen the said assessment year and the instant assessment year. Having regard to the same, I am of the considered view that the net profit margin of 29.77% disclosed by the appellant the said AY 2011-12 is a reliable indicator of the true profits of the appellant for the instant assessment year also. Hence, I consider it appropriate to estimate the net profit margin for the instant Assessment Year at 30% of the sales turnover for the purpose of estimating the business income of the appellant. The AO is accordingly directed to determine the business income of the appellant at 30% of the sales turnover of Rs. 183.35 gores. Since the business income is being determined on estimate basis, it is held that the individual additions made to the income in the original Assessment Order dated 08.03.2016 get subsumed in the said estimated business income and the same not required to be considered separately. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. Under the facts of the present case, we approve the observation of Ld CIT(A) relating to rejection of the books of assessee and uphold the same. Ld CIT(A) consequently, estimated the profit of the firm @30% of the sale turnover, the basis for 30% was returned income of AY 2011-12, wherein the assessee has earned a profit of 29.77% before claiming exemption u/s 10B of the Act. On perusal of the order of Ld CIT(A), it is not transpired that while estimating the profit taking the base year as AY 2011-12 (FY 2010-11), whether this fact was confronted to the assessee firm or not to submit their objections or confirmation on the same. However, to demonstrate the actual ratio of profit and its comparability with the year under consideration (FY 2012- 13, AY2013-14), Ld AR of the assessee firm had submitted a chart of production for the financial years 2010-11 to 2016-17, the same extracted as under:- BEACH MINERALS COMPANY June 2023 Financial Year Garnet Ilmenite Total Qty Value Qty Value Qty Value 2010-11 24500 158152677 0 0 24500 158,152,677 2011-12 57856 408896991 23184 332034863 81040 740,931,854 2012-13 84091 837603370 60190 995980129 144281 1,833,583,499 2013-14 55288 659 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, thus, we modify the order of Ld CIT(A) by scaling down the percentage of net profit margin to 2.21% on sales turnover for estimating the same while determining the total assessable income. Ld AO is directed to work out the estimated income from business accordingly. In the result appeal of the assessee is partly allowed. 11. Having perused the above, we find that the Ld. CIT(A) had rightly followed the ratio decidendi laid down in the above decision (supra) for rejecting the books of accounts and estimating the profits of the assessee at 2.21%, as the facts involved were similar. Accordingly, we do not see any reason to take a different view in the present case before us. Likewise, the argument of the Ld. CIT, DR urging that the net profit rate ought to be adopted at 53% instead of 2.21% as estimated by this Tribunal in assessee s sister concern (supra) cannot be countenanced. Also, we note that, the entity viz., Industrial Mineral Company urged by the Revenue to be comparable to the assessee, was demonstrated before us to be in different line of business and hence, this entity identified by the Revenue is held to be not comparable. 12. The Ld. CIT, DR had further additiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, once the books of accounts have been rejected u/s 145(3) of the Act and the profits for the year is being estimated, then the effect of increase in closing stock in AY 2013-14 increase in opening stock in AY 2014-15 will get subsumed therein and hence no separate addition in this regard is warranted. The relevant findings of the Ld. CIT(A) taken note of by us, is as follows:- 7.6.2 The submission made by the Appellant has been examined. The above contention of the Appellant is not acceptable. For the year under consideration, if the closing stock of the Appellant is enhanced by treating the suppressed amount of Rs. 1.5 crores, obviously in the subsequent financial year there will be a reduction in the opening stock to such extent. In the instant case, the books of accounts itself is rejected u/s 145(3) of the Act for both the assessment years 2013-14 2014-15 and income of the Appellant is determined upon estimation as discussed supra, making any addition on account of suppression of closing stock for the AY 2013- 14 naturally will have the bearing on reduction of opening stock for the Ay 2014-15. The undersigned has rejected the books of accounts, hence the effect of increase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g note of the above, the Hon ble High Court is noted to have upheld the order of the Tribunal, deleting the addition made on account of closing stock, when the books of accounts had been rejected, by observing as under:- 15. The principle that if a finding of fact is not challenged as being perverse, the High Court is bound to accept such finding. Therefore, as no such substantial question of law has been framed and the questions pertain to findings of fact, which cannot be said to be perverse as it is evident that the books of accounts of the respondent had been rejected by the assessing authority, in which case the same books of accounts could not be relied upon in an addition on account of trade creditors and also for arriving at the closing stock. This is an established principle as has been held in the decisions relied upon by the respondent namely Indwell Constructions case (supra), Banwari Lal Banshidhar's case (supra), Aggarwal Engg. Co.'s case (supra) and Amman Steel Allied Industries case (supra). 18. In light of the above therefore, we do not see any reason to interfere with the above findings of the Ld. CIT(A). 19. The next issue involved in AY 2013-14 is concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such increased turnover. We find this action of the Ld. CIT(A) to be supported by the decision of the Hon ble Gujarat High Court in the case of CIT Vs President Industries (258 ITR 654) wherein it was held that the amount of receipts/ sales by itself would not represent the income of the assessee. For this, we gainfully rely on the following findings of the Hon ble High Court :- 3. Having perused the assessment order made by the Assessing Officer, the order made by the Commissioner (Appeals) and the Tribunal, we are satisfied that the Tribunal was justified in rejecting the application under section 256(1). It cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represent the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that investment by way of incurring cost in acquiring goods which have been sold has been made by the assessee and that h ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
