9911796707
TMI Blog2024 (12) TMI 1382X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Ld. CIT(A) in rejecting the books of accounts and estimating the total income of the assessee. We accordingly uphold the same. - Shri Aby T. Varkey, Judicial Member And Shri Jagadish, Accountant Member For the Department : Mr. R. Clement Ramesh Kumar, CIT For the Assessee : Mr. S. Sridhar, Advocate ORDER PER ABY T. VARKEY, JM: These cross appeals preferred by the assessee and the Revenue are arising out of the common appellate order passed by the Learned Commissioner of Income Tax (Appeals)-19, Chennai [in short CIT(A) ] dated 18.10.2023 in relation to the assessment orders dated 28.08.2021 26.08.2021 passed u/s 143(3)/153A of the Income-tax Act, 1961 [in short the Act ] for the Assessment Years [in short AY ] 2015-16 2016-17. 2. Briefly noted the facts of the case are that, the assessee-firm is engaged in the business of mining, processing and refining beach minerals. A search action u/s 132 of the Act upon the assessee and its group concerns on 25.10.2018. In the course of search, several documents electronic material were found and seized pursuant to which the AO inter alia initiated proceedings u/s 153A of the Act for the relevant AYs 2013-14 2014-15. From the seized e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as higher than the original set of accounts resulting in the net profit to be lower. He contended that, by inflating expenses, the assessee was generating unaccounted funds which were used for on-money payments in relation to property purchases. He pointed out that, the assessee was unable to furnish supporting s for these expenses and therefore 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that 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 ledgers and that the Chartered Accountant would assist in updating the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse 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 there are occasions where the 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 payments were made by the Appellant Firm itself f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cannot be disregarded in view of the genuineness of the prActical difficult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but that cannot result in assessee actually making profit in excess of 70% of the turnover. The Ld. CIT(A) is noted to have accordingly estimated the profits at 2.21% of the turnover of the assessee. The relevant findings taken note of by us is as under:- 7.5.15 Even though the claims 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 in 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. 3,51,11,775/-, and Rs. 2,29,05,158/- for the AY(s) 2013-14 and 2014-15 as against the turnover Rs. 6,83,56,864/-and Rs. 2,50,36,868/- for the FY(s) 2012-13 and 2013-14 relevant to the AY(s) 2013-14 and 2014-15. 7.5.16 The said assessment(s) have resulted in impliedly considering the net profit of the Appellant at 51.31%, and 91.35% for the FY(s) 2012-13 and 2013-14 respectively, which is abnormally h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these issues are treated partly allowed. 9. Having perused these findings in light of the facts on record, it is noted that, identical facts and circumstances were also involved in the case of assessee s sister concern, M/s Beach Minerals Company, which was also searched along with the assessee. Like the assessee, two parallel books of accounts were unearthed 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 0.57% 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal with the following observations: 43. In this context, it is pertinent to observe that this is not a case where the appellant is attempting to give incorrect reasons for its inability to produce the supporting bills and vouchers. The case of the appellant for the instant Assessment Year was subjected to regular scrutiny assessment u/s 143(3) vide order 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 Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business income admitted by the appellant itself in its return of income for AY 2011-12 before claiming exemption of the said income u/s. 108 of the Act constitutes a fair, logical and reasonable indicator of true and correct profits of the appellant. Since the appellant claimed exemption u/s. 108 in the said Assessment Year, it is reasonable to infer 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 incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld AO cannot be considered to be arising wholly from the wrong claims of expenditure by the assessee/appellant. Ld CIT(A) thus after considering the books of accounts of the assessee firm, as inaccurate which do not facilitate to arrive at true and correct profit of the appellant have rejected the same by invoking the provisions of section 145(3) of 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgin from business of assessee for the AY 2013-14. Income from Interest and commission to added separately as directed by the order of Ld CIT(A). 17. In terms of our aforesaid observations, we find no infirmity in the order of Ld CIT(A) apart from rate of profit adopted for estimation of net profit margin while rejecting books of accounts u/s 145(3) of the 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. 10. 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
