2018 (12) TMI 282 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on unaccounted sales, books rejection, and GP rate.

ACIT Central Circle-23 New Delhi Versus Latex Chemicals (P) Ltd.

The Revenue's appeal against the assessment order for Assessment Year 2007-08 was dismissed by the Tribunal. The Tribunal upheld the CIT(A)'s decision on ... GP of unaccounted sale - separate addition was made for the source of unaccounted sale - Held that:- AO wrongly observed the unaccounted turnover as unaccounted stock. The CIT(A) has correctly taken the actual facts and taken into account the unaccounted turnover. The decision in case of Balchand Ajit Kumar [2003 (4) TMI 76 - MADHYA PRADESH HIGH COURT] and President Industries [1999 (4) TMI 8 - GUJARAT HIGH COURT] are applicable in the present case and thus in case of unaccounted turnover, only addition of profit embedded therein can be made. AR also relied upon the case of S. M. Omer [1990 (1) TMI 3 - CALCUTTA HIGH COURT] wherein it is held that in such circumstances Assessing Officer cannot take resort to Section 69 of the Act and only net profit rate has to be applied which has been correctly done by the CIT(A). As regards to the rejection of books of accounts and estimation of GP rate is concerned, the Ld. AR submitted that complete books of accounts were already available with the Assessing Officer in the soft copy as the same were seized in the form of two CDs as per Annexure-N to the Panchnama. From the records it appears that complete books of accounts were produced before the Assessing Officer in 143(3) assessment wherein the GP rate as shown by the assessee was accepted. Thus, we are not inclined to interfere with the findings of the CIT(A). - Decided in favour of assessee. Issues involved:1. Addition of unaccounted sale in the assessment.2. Deletion of addition on account of low GP rate.3. Rejection of books of account under section 145A.4. Appeal against the assessment order.Analysis:1. Addition of unaccounted sale in the assessment:The appeal was filed by the Revenue against the order passed by CIT(A) for Assessment Year 2007-08. The original return of income was filed by the Assessee company, engaged in manufacturing and trading, declaring income of Rs. 19,12,110. Subsequently, search and seizure action was carried out, leading to the assessment of income at Rs. 1,69,22,000. The additions made included unaccounted stock of plastic granules and laminated pouch film. The CIT(A) confirmed the rejection of books of accounts and upheld the findings of unaccounted sales. However, the addition was sustained only to the extent of GP on unaccounted sales, and the estimated GP rate was reduced to 6.16%. The CIT(A) deleted the addition for unaccounted sales of pouches, totaling Rs. 54,18,861, based on the facts and evidence presented.2. Deletion of addition on account of low GP rate:The Revenue argued that the CIT(A) erred in deleting the addition of Rs. 95,91,030 on account of low GP rate, despite affirming the rejection of books of account under section 145A. The Ld. DR contended that the CIT(A) presumed unaccounted sales to be out of accounted finished goods, and corresponding addition for unaccounted investment should have been made. However, the CIT(A) reduced the estimated GP rate, considering the GP as per books for the relevant assessment year. The Ld. AR argued that in cases of unaccounted turnover, only the profit embedded therein should be added, citing relevant court judgments. The Tribunal found that the Assessing Officer incorrectly treated unaccounted turnover as unaccounted stock, and upheld the CIT(A)'s decision to consider the unaccounted turnover for additions.3. Rejection of books of account under section 145A:The CIT(A) confirmed the rejection of books of accounts under section 145A, as the appellant was found engaged in unaccounted turnover outside the books of accounts. The CIT(A) did not approve the application of a higher GP rate against the declared GP ratio, as the higher ratio was for a subsequent assessment year. The Tribunal agreed with the CIT(A)'s decision, emphasizing that in cases of unaccounted turnover, only the profit component should be added, not the entire turnover.4. Appeal against the assessment order:The Revenue's appeal against the assessment order was dismissed by the Tribunal. The Tribunal upheld the CIT(A)'s decision regarding the treatment of unaccounted sales, rejection of books of accounts, and estimation of GP rate. The Tribunal concluded that the CIT(A)'s findings were based on factual and legal considerations, and therefore, the appeal of the Revenue was dismissed.This detailed analysis covers the issues involved in the legal judgment, discussing the arguments presented by both parties and the Tribunal's decision on each issue.