TaxTMI 
TaxTMI 
2010 (3) TMI 937
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.... learned representatives of both parties, perused the findings of the authorities below and considered the material available on record. Briefly, the facts of the case are that the assessee filed return of income at Rs. 19,45,850 and the assessment has been completed at Rs. 4,78,01,723. The assessee is engaged in the business of manufacture and sale of clothes mainly of man made fabrics. Survey under section 133A of the Income-tax Act was carried out in this case on January 20, 2003. The inventory of the cash as well as of the physical stock available was prepared. The assessee was found to be having actual stock of goods worth Rs. 75,00,114 as per the books of account whereas the stock physically found was valued at Rs.73,47,458. The stock physically found was thus short by Rs. 1,52,656. The assessee was also found to have made unexplained investment in plant and machinery worth Rs. 3,50,000 and its factory building also to the extent of Rs. 6,00,000. Excess cash of Rs. 4,00,000 was also found. The assessee declared additional income of Rs. 15,02,656 in the return of income on account of the above investments, shortage of stock and excess cash. Prior to the date of survey by the I....
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.... discovered. Therefore, the Assessing Officer asked the assessee why the total of the above amounts of annexure 3 totalling to Rs. 4,12,13,749 be not treated as its unaccounted sales and the gross profit rate be not applied. The assessee filed detailed reply before the Assessing Officer which is incorporated in the impugned order in which it was briefly explained by the assessee that the assessee-firm is in existence for last more than 8 years and doing the manufacturing activities and there is no change in the production. All excise duties are paid and proper records are maintained. In order to buy peace of mind and to remain in the business and due to threat and harassment the assessee paid excise duty to the Central excise authorities. It was submitted during the aforesaid period of eleven hours it was not practically possible to measure the clothes in the factory of the assessee and that no other adverse material was found against the assessee. There is an increase in the gross profit rate from 5.04 percent to 6.09 percent Therefore, no addition is to be made on the basis of the third party documents. It was also explained that the assessee was not allowed any cross examin....
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....but ultimately treated the entire unaccounted sales as profit of the assessee. It was submitted that addition of Rs. 4,58,56,874 is unjustified because the figures of unrecorded sales worked out by the excise authorities are at Rs.3,86,14,825. Therefore, further addition is clearly unjustified. It was further submitted that if at all any addition is to be made, the same is to be restricted to the application of the gross profit rate at 6.09 percent only as proposed by the Assessing Officer against unrecorded sales. It was further submitted that value of the clothes which was physically available as per annexure B and claimed to be sold as per annexure D works out to Rs.25,37,331 and since it is already taken into consideration out of unaccounted stock, the addition to that extent should have been deleted. It was, therefore, submitted that no addition should be made in duplicate. It was further submitted that the entire amount of undisclosed sales cannot be added and the assessee relied upon several decisions of the Tribunal in support of the same as well as the decision of the hon'ble Gujarat High Court in the case of CIT v. President Industries [2002] 258 ITR 654 (Guj) ; 158 CTR 3....
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....mselves to justify the action of the Assessing Officer in rejecting the books of account of the appellant under section 145 of the Act. 3.2 The learned authorised representatives have submitted that the excise officials have concocted all the evidences and other material so that the appellant could be held guilty for evasion of excise duty. They have focussed their arguments to stress upon the fact that it was physically not possible to manufacture 32,65,676 L metres of cloth within a short span of time during December 18, 2002 to January 9, 2003. According to the authorised representatives, the manufacturing capacity of their unit was of 7 lakh metres per month on an average and therefore, such a vast quantity of cloth running into lakhs of metres could not be manufactured within such a short period. Their other argument is that all the manufacturing expenses including particularly the electric consumption, have remained commensurate to the quantity of cloth manufactured at 82,45,245 L metres which is duly shown in their books of account. It is also pointed out that no evidence of any unaccounted sales either in the shape of sales invoices or delivery challans, etc., were found....
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.... authorised representatives which however lead to many questions unanswered, e.g., the excess production of 32,65,676 L metres of cloth has been reported by the excise authorities for the period December 18, 2002 to January 9, 2003 whereas no such abnormality in the production has been pointed out for the period earlier to and subsequent to the date of their search. The production capacity of the plant is admittedly of 7 lakhs metres per month on an average and it is not understood as to how the appellant could manufacture such a huge quantity of cloth during such a short span of time which in the normal course, could have been manufactured over a period of 5 months or so. No extra consumption of other inputs like colours, chemicals, stores and particularly the power consumption has been detected by the excise officials so as to link it up with the unrecorded production. It is also strange to find that no evidence of unrecorded sales in the shape of sale bills/ vouchers was found nor any unaccounted cash was found in the custody of the appellant. Since the admitted capacity of cloth was of 7 lakhs metres per month on an average, the production of 32,65,676 L metres of unreported cl....
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....em. Had the Assessing Officer restricted herself to the sale price of Rs. 3,86,14,825 as was worked out by the excise officials, there was no need for her to make unwarranted addition of the balance amount of Rs. 72,42,049. The addition to the extent of Rs. 72,42,049 (Rs. 4,58,56,874-Rs.3,86,14,825) thus goes off straight away. 3.6 The next question would revolve around the issue as to what treatment should be given to the unrecorded sales of Rs. 3,86,14,825 (Rs. 58,85,530 + Rs. 3,27,29,295). In so far as the unrecorded sales of 4,28,395 L metres of cloth valued at Rs. 58,85,530 are concerned, these have been worked out on the basis of stock physically found vis-a-vis its availability in the stock records maintained in the books of account. After making such comparison, the stock physically wherever found to be short in comparison to its availability in the stock register, has been treated to be sold outside the books of account. In this view of the matter, the investment in acquiring these stocks has undoubtedly come from the declared sources of the appellant. In other words, the entire amount of unrecorded sales of Rs. 58,85,530 cannot be added as their income and only the pro....
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....atives have pointed out with the help of the chart reproduced in paragraph 2.6 above that 41,756 L metres of cloth valued at Rs. 5,16,559 has been doubly added as unrecorded sales. 3.9 After having gone through the details given in the chart so reproduced in paragraph 2.6 of the order, the contention of the authorised representatives that 41,756 L metres of cloth has been accounted for twice, is found to be correct. There are only two entries which have been repeated in both annexures. As is mentioned earlier, the shortage of stock which is held to be sold outside the books as per annexure B was worked out in comparison to its availability as per the books of account. On such comparison, 41,756 L metres of cloth mentioned at Sr. Nos. 67, 108, 131 and 133 of annexure B was found to be short in comparison to its availability in the books of account. The same amount was consequently taken to be the unrecorded sales in annexure B. While calculating the lot numbers 511, 521, 524 and 527 appearing at Sr. Nos. 39, 44, 47 and 50 of annexure D, 41,759 L metres of cloth has again been taken to be sold outside the books of account. This has definitely resulted into a double addition to the....
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....has not added the same on the ground that the said investment of unaccounted stock was available to the appellant in the shape of unaccounted receipts running into crores of rupees. The Assessing Officer has allowed the telescoping effect of application of unaccounted receipts vis-a-vis the investment in excess stock of Rs. 25,98,924. There is no need for my intervention in this regard because the telescoping effect has rightly been given by the learned Assessing Officer keeping into account the availability of massive unaccounted receipts in the hands of the appellant as on the date of search by the excise authorities. It is further noticed that as on January 20, 2003 when the survey under section 133A was conducted by the Income-tax Department, no such excess stock was physically found. The appellant was rather found to be having short stock of Rs. 1,52,656. Since the excess stock under consideration was not found to be in the physical possession of the appellant on January 20, 2003, the same is presumed to have been sold during the intervening period because such stock was very well in existence as on January 9, 2003. The profit element at the rate of 6.09 percent on such ....
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.... of the Assessing Officer and submitted that the learned Commissioner of Income-tax (Appeals) while working out various addition has not given opportunity to the Assessing Officer and wrongly reduced the additions. The learned Departmental representative submitted that addition is mainly made on account of the record prepared by the excise authorities which has not been disputed by the assessee because the assessee ultimately paid the tax to the excise authorities. The learned Departmental representative submitted that assessee is not entitled for any set off of Rs.25,37,331 out of the undisclosed sales worked out by the excise authorities because the assessee accepted the entire figures prepared by the excise authorities. The learned Departmental representative further submitted that the learned Commissioner of Income-tax (Appeals) was not justified in allowing set off of the declared income of Rs. 11,91,746 on account of unexplained investments made in the plant and machinery, factory building and the excess cash found at the time of survey because the assessee never claimed that unaccounted investments in the above properties have been made out of the income earned on account of....
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....ff as claimed by learned counsel for the assessee. The excise authorities have noted that the assessee has made unaccounted sales of Rs. 3,86,14,825 (Rs. 58,85,530 plus Rs. 3,27,29,295). The Assessing Officer without any basis presumed higher sales made outside the books of account. The learned Commissioner of Income-tax (Appeals) was, therefore, justified in taking the figure of unaccounted sales computed by the excise authorities as against the figure taken by the Assessing Officer. Since the Assessing Officer himself has not made any addition on account of excess stock of Rs. 25,98,924 as the telescoping effect is given to the assessee, therefore, such material cannot be used against the assessee for the purpose of enhancing the unaccounted sales. It is settled law that the entire undisclosed sales could not be treated as profit of the assessee. We rely upon the decision of the hon'ble Gujarat High Court in the case of CIT v. President Industries [2002] 258 ITR 654 (Guj) in which it was held that "addition cannot be of entire undisclosed sale proceeds. Only the profit embedded in sale proceeds can be taxed". The learned Commissioner of Income-tax (Appeals) was, therefore, justif....