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TMI Blog2024 (1) TMI 1436X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and had suppressed production. Accordingly, the Assessing Officer estimated unaccounted sales of assessee at 40% of the turnover. The Gujarat High Court held that the contention of the Revenue that entire excess consumption should be added to the income of the assessee could not be accepted as the AO himself has recorded in the assessment order that there has been unaccounted purchases which needed to be considered against unaccounted sales and further excess consumption of raw materials could not automatically result into matching value of excess sales of finished product. High Court held that the entire unaccounted sales cannot be added the income but only the net profit can be added to the income of the assessee. Thus, in instant facts, in our view, Ld. CIT(A) has correctly observed that Assessing Officer has not recorded any finding of any undisclosed investment found as a result of search by Excise Department. The undisclosed investments has only been assumed as the source of purchases recorded for subsequent sales. Accordingly, in view of the aforesaid discussions, we are of the considered view that Ld. CIT(A) has correctly held that looking into the instant facts, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les for a total amount of Rs. 96,73,950/- and the aforesaid movement of vitrified tiles represents the unaccounted sales evaded by the assessee. Considering the rate of gross profit of 12.46% as mentioned in the assessee's return of income, the gross profit on this unaccounted sales of Rs. 96,73,950/- was worked out by the Ld. Assessing Officer at Rs. 12,05,375/-, which was added to the income of the assessee. Apart from the above, the Assessing Officer made a further addition of Rs. 84,68,575/- (96,73,950 - 12,05,375) being unrecorded investment in purchase of raw material and subsequent manufacturing expenditure on unaccounted raw material for manufacturing of 29,315 boxes of vitrified tiles under Section 69C of the Act. While making the additions, the Assessing Officer made the following observations:- "12. Further on verification of the sale invoices submitted by the assessee during the course of assessment proceedings, it is seen that the assessee is offering 28% to 42% discount on MRP. Considering the average discount of 35%, the sale price is calculated at Rs. 390/- per box. However, the Central Excise Department has adopted the sale price of Rs. 330/- per box (55% of 600) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 1828 of 2010). The facts involved in these cases were similar to the instant case; there also were the findings of undisclosed sales recorded during the course of search by the Excise Department. And in all these judgments it was propounded that only profit margin is to be taxed in the absence of any specific finding of any investment in (funding purchases towards) undisclosed sales. It was held that in such circumstances the undisclosed investment cannot be taxed only on assumption basis. The legal propositions of these judgments are squarely applicable to the situation in present case. Hon'ble Rajkot ITAT has also taken the same view in case of Ghanshyam KotumalIssrani (order dated 23.12.2010 in ITA No. 162/Rjt/2008). In present case the A.O. has not recorded any finding of any undisclosed investment found as a result of search by the Excise Department or in any subsequent investigations. The undisclosed investment has only been assumed as the source of purchases required for subsequent sales. As already discussed such assumption in the absence of any specific finding has been disapproved by the Hon'ble Gujarat High Court and Hon'ble Rajkot ITAT in the foregoing ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in absence of any specific findings of any investment routed in undisclosed sales, the undisclosed investment cannot be taxed on assessment basis. In the case of Manmohan Sadani 304 ITR 52 (M.P.), the High Court held that total sales cannot be recorded as profit of the assessee and it is only net profit rate which has to be adopted in such cases. In the case of CIT vs. Leo Formulations Pvt. Ltd. 48 taxmann.com 328, the Assessing Officer observed that the assessee had not recorded consumption of different raw materials correctly in the books of account and had suppressed production. Accordingly, the Assessing Officer estimated unaccounted sales of assessee at 40% of the turnover. The Gujarat High Court held that the contention of the Revenue that entire excess consumption should be added to the income of the assessee could not be accepted as the Assessing Officer himself has recorded in the assessment order that there has been unaccounted purchases which needed to be considered against unaccounted sales and further excess consumption of raw materials could not automatically result into matching value of excess sales of finished product. Accordingly, the High Court held that the en ..... X X X X Extracts X X X X X X X X Extracts X X X X
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