TaxTMI 
TaxTMI 
2010 (11) TMI 713
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....t. (2) That the learned Commissioner of Income-tax (Appeals)-II, Agra has erred in law and on the facts of the case in considering the investment in unaccounted stock as apart of the business income without having any supporting evidence in this regard and ignoring the legal position that under the provisions of Income-tax Act the investment in unaccounted stock found at the time of survey has first to be worked out on the date of survey (i.e. 25-9-2000) and such investment has to be considered as "Income from Other Sources" unless it is proved otherwise by the assessee which has not been done in this case. (3) That the learned Commissioner of Income-tax (Appeals)-II, Agra has erred in law and on the facts of the case in accepting the rate of excess stock of scrap on the date of survey at the rate of Rs. 5,000 per M.T. Instead of prevailing rate of Rs. 7,000 per M.T. The learned Commissioner of Income-tax (Appeals) is not justified in not giving categorical finding for the valuation of unaccounted stock of 400 M.T. scrap found at the time of survey merely on the inference drawn that the entire exercise is academic only. (4) That the lear....
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....wer charges of Rs. 11,00,000 in absence of any evidence furnished by the assessee in this respect or without insisting upon the assessee to furnish the comparable figures of power tariff and consumption for the year under consideration and immediately preceding year. (9) Having confirmed the rejection of books of account excessive consumption of electricity, excessive wastage and application of gross profit rate as reasonable in principle, the learned CIT(A)-II, Agra has erred in law and on the facts of the case in not applying the same gross profit rate on estimated sales or on the sales of Rs. 40,17,534 determined by himself. (10) That the decision of learned Commissioner of Income-tax (Appeals)-II, Agra being erroneous in law and on facts deserves to be quashed and that of the Assessing Officer deserves to be restored. (11) That the appellant craves leave to add or alter any or more ground or grounds of appeal as may be deemed fit at the time of hearing of appeal." 3. The grounds raised by the assessee read as under :- "(1) That the order of the ld. CIT (Appeals)-II, Agra is bad in law and on the facts of the case, so far as it pertains to the tr....
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....spite which fact there was a loss shown whereas in the immediately preceding assessment year despite making a higher sale a G.P. of 1.69 per cent has been shown by the assessee. Accordingly, for the gross loss shown of Rs. 9,24,763 the assessee was required to produce the evidence. 6. In response to this, the following submissions were made by the assessee justifying the valuation of stock as on date of survey and gross loss. The same are reproduced from pages 2 and 3 of the Assessment Order :- "(1) The following stock found at the date of survey was valued as under :- (i) Iron Scrap 400 MT @ 5000 Rs. 20.00 lakhs (ii) Pig Iron 13.467 MT @ 9000 Rs. 1.21 lakhs (iii) Sponge Iron 1.532 MT @ 6400 Rs. .10 lakhs (iv) Forgings 287 Pcs. @ 240 Rs. .69 lakhs Total Rs. 22.00 lakhs It is clear that major item involved is iron scrap. The rate of iron scrap purchased by assessee during the year vary be....
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....inding that there were no irregularities subsequent to such inspection, addition for the probable suppression of turnover during subsequent period cannot be justified." Moreover, even when books of account are rejected, it does not automatically lead to rejection of sales and GP and thereby estimating the same. Kindly take note of CST v. Pilot Shoe Factory [1977] 39 STC 95, 98 (All.) according to which "merely because the books of account of the assessee are rejected as unreliable, it could not be said that the turnover returned by the assessee must necessarily be rejected and that such turnover should be estimated at a higher figure than returned by the assessee. In spite of such rejection of the assessee's books of account, whether the turnover returned by him should be accepted or whether a higher turnover should be estimated by the assessing authority, must depend upon the facts and circumstances of each case." As far as gross profit rate during the year is concerned, in fact there is no fall, rather it has increased. Gross loss appearing in the profit and loss account amounting to Rs. 9....
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....the cost of unrecorded stock works out as under :- Sl.No. Item Stock found at the time of survey Stock as per books Excess Stock Rate Value Justification of rate applied 1. Sponge Iron 5.000 MT 3.468 MT 1.532 MT 6650 PMT 10187 Bill dated 4-8-2000 HEG Ltd. 2. Pig Iron 88.000 MT 74.553 MT 13.467 MT 8650 PMT 116490 Bill dated 9-7-2000 of Jaiswal Neco Ltd., Raipur 3. Forging 3980 Pcs 3693 Per Piece 307 Piece 240 Per Piece 73680 Rate as stated by assessee 4. Scrap 450 MT 50 MT 400 MT 7000 PMT 2800000 Bill dated 14-8-2000 of Rajjo Bhai, Agra. Total 3000357 In view of above discussion, the value of unaccounted stock of Rs. 30,00,357 as discussed above will be added to the income of the assessee as undisclosed investment in stock under section 69 of the Income-tax Act, 1961 under the head 'Income from Other Sources'." 8. On account of the above reasoning the Assessing Officer rejected the books of account of the assessee under section 1....
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....ny satisfactory reply regarding decline in sales this year. From, the affairs of the assessee, it appears that less sales as compared to the sales of earlier year and loss thereon have been shown by the assessee so as to avoid tax on the additional income declared by assessee on account of unaccounted stock. Considering all the facts and circumstances of the case, sales are estimated at Rs. 5,00,00,000 as against Rs. 4,51,76,535." 9. In view of the fact that the sales had been estimated the Assessing Officer applied the N.P. rate of 0.43 per cent on the basis of last year's position with the following reasoning thereby making addition of Rs. 2,15,000 :- "As regards application GP or NP rate on estimated sales it maybe pointed out that in the earlier year on sales of Rs. 5,77,78,286, the assessee had declared net profit of Rs. 2,50,487 excluding other income and depreciation, the percentage of net profit comes to 0.43 per cent. Since from the comparison of expenses incurred in the year under consideration vis-a-vis expenses incurred last year, it is seen that though the sales have gone down this year as compared to last year but the expenses has been increased, and most of suc....
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.... Rs. 22 lakhs taken by the assessee then by the differential amount of Rs. 8,00,357 the debit side of the manufacturing and trading account would increase along with credit side of the Profit and Loss account. Thus, if the value of the stock is increased by Rs. 8,00,357 then the same shall have nullifying effect on the net profit. The position would have been different had the entire excess stock been not sold and would have found place in the closing stock. As this is not the case and the closing stock of scrap is of only 90 MT which also includes the purchases made after the survey, in my opinion, by enhancing the value of the excess stock, there would be no material effect on the net profit. This being the position, in my opinion, no interference is required to be made in the valuation of the excess stock as shown by the assessee in the return of income. This ground of appeal is, therefore, allowed." 12. Similarly, while dealing with rejection of books of account and the application of the net profit rate on the estimation of sales made as well as on the addition made on account of excessive wastage in melting and treating the valuation of excess stock found in survey as inco....
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.... that to this extent earlier submissions stand modified. The AR states that the only reason for gross loss is increase in power expenses which in real terms i.e., after considering the fall in production/consumption comes to Rs. 31 lakhs. Out of this increase, according to the AR Rs. 11 lakhs is on account of higher tariff effective from Sept. 2000. For the balance he states that the same is on account of lower production." 18. Accordingly, on account of the above, the CIT(A) was of the view that the contention of increase in cost of raw material and change in the product mix being the reasons for adversely affecting the trading result of the assessee were given up on behalf of the assessee. The only reason given by the assessee for the fall in the gross profit in fact for incurring a gross loss was the enhanced power charges. The necessary discussion thereon which led the CIT(A) to give the resultant relief which is agitated by both the sides is reproduced hereunder for ready reference :- "From the above, it can be seen, that at the concluding stage of the appellate hearing, the AR admitted that neither the cost of raw material nor the change in product mix has adversely aff....
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....ssee had indulged in unaccounted production/sales. The case can be seen from another angle also. As mentioned above, the assessee has shown the wastage of 669.710 MT which is about 21 per cent of the total consumption of 3200 MT. In my opinion, the Assessing Officer has rightly observed that the wastage claimed by the assessee is abnormal. His view is supported by an article published on Sponge Iron Industries in India in Iron and Steel Review, November, 2004. In this article, on page 36 it is clearly mentioned that in terms of quality and productivity use of Sponge Iron as cold charge is more advantageous. However, Sponge Iron gives a lower yield compared to pig iron/scrap. The article further states that the use of Sponge Iron/DRI in electric are furnace varies in the range of 83 per cent to 89 per cent while the yield from scrap is around 93 per cent to 94 per cent. As this article clearly states that the yield from sponge iron is 83 per cent to 89 per cent while from pig iron the same is 93 per cent to 94 per cent, the AR's contention that the Assessing Officer has not correctly understood the article does not appear to be correct. Similarly, the authorised person of Process....
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....ed in the manufacturing and trading account of the assessee. If this amount is added then the gross loss in the manufacturing business is reduced to Rs. 4,33,763 [Rs. 33,54,763 (-) Rs. 29,21,000]. Thus, even after this addition, there is a gross loss of Rs. 4,33,763 in the manufacturing account. In my opinion, after considering the additional power charges of Rs. 11 lakhs, which have been accepted by me above, in real terms there is now a gross profit of Rs. 6,66,237 [Rs. 11,00,000 (-) Rs. 4,33,763] in the manufacturing account which on the sales of Rs. 4,01,07,534 (Rs. 3,71,86,534 + 29,21,000) comes to 1.66 per cent and compare well with the trading results shown by the assessee in earlier year(s). In view of the above discussion, I am of the opinion that it would be just and fair if a trading addition of Rs. 29,21,000 is made in the appellant's case. During the appellate proceedings, the AR, however, contended that since the assessee had surrendered Rs. 22 lakhs on account of excess stock, telescoping of the trading addition is required to be allowed to the appellant. I find force in the aforesaid submissions of the AR. However, telescoping of the trading addition can be allow....
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....g Officer holding that the wastage shown by the assessee was excessively high. Further he took into cognizance the fact that the assessee at the time of survey itself accepted that the books of account were not being maintained in the proper manner and as a result thereof accepting this fact the assessee surrendered an amount of Rs. 22 lakhs on account of unaccounted stock. The CIT(A) took into cognizance the fact that as per the books of account the amount of scrap was only 50 MT whereas what was found at the time of survey was more than 8 times that amount. Thus, in view of the staggering quantity of 450 MT which was actually found on the premises of the assessee as against 50 MT as per books, the rejection of books of account and estimation of sales accordingly was held to be justified. The Assessing Officer had relied upon the judgment of the Delhi High Court in the case of Action Electricals v. Dy. CIT [2003] 132 Taxman 640 which too was held to be applicable. 22. Apart from that the CIT(A) for holding the action of the Assessing Officer took cognizance of the fact by recording an observation that as per the assessee's books the majority of sales were in cash. In fact th....
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....ssee's books based on these arguments that these Registers are subjected to independent and periodical verification or check or control by the Excise Department on the assessee's purchase and productions does not have much weight as the very fact that the assessee had been able to accumulate a huge quantity of unaccounted stock of more than 8 times of what had been recorded in its books of account was against it. The said stock was found according to the CIT(A) lying in open area by the survey party totalling 450 MT despite the so called check by the Excise records. Thus, it clearly demonstrated according to the CIT(A) that the Excise record or for that matter the Excise Department has no control or subversion over the assessee's purchases, consumption and production. 24. These aforementioned facts and findings which stand unrebutted before us. Accordingly in the facts as they stand, we find no good reason to interfere with the finding of the CIT(A) and uphold the action of the CIT(A) in confirming the action of the Assessing Officer in regard to rejection of the books of account of the assessee under section 145(3) of the Act. 25. A perusal of the line of argument initially ....
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.... to 10 per cent and CIT(A) has given a finding that in the year under consideration the assessee has used 54 per cent of pig iron/iron scrap and 46 per cent of small iron in the circumstances taking a liberal view he has taken average wastage of 13 per cent. 27. Accordingly, on considering the facts available and the point at issue it is seen that the consumption of electricity in the year under consideration which issue has been restored for verification may also have a hearing on the amount of finished products produced by the assessee thereby the amount available for wastage would also be affected. Accordingly, we do not give any finding on this aspect and restore this issue also back to the file of the CIT(A) who may examine the issue from the perspective of the assessee in regard to increase in the electricity tariff and the expenses on account of consumption of electricity and may also take into consideration the wastage claimed by the assessee considering the past history of the assessee the specific facts on record and a comparison in this line of business with other identically situated persons using in Sponge Iron/DRI/Pig Iron in electric are furnace. 28. In regard ....
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....rchase bills of scrap purchased within U.P. were called for the reason that 400 metric tone excess stock of scrap was found at Agra during the course of survey. Looking to volume of Iron scrap found, in the normal course of business activities, it is not possible to bring in that quantity of scrap at Agra from but of U.P. without being detected by the Government Departments - Sales Tax Department of U.P. and concerned States, Excise Departments and other departments. Considering the above facts and also the fact that addition was made under section 69, for the purpose of valuation of excess stock of scrap, the only rate which may be reasonably applied is prevailing rate of scrap at Agra on the date of survey or immediately before the survey. The rate of average quality of scrap in U.P. in the year 2000-01 was about Rs. 7,000 to 8,000 PMT which is evident not only from the fact that assessee itself had purchased scrap at the rate of Rs. 6,800 to Rs. 7,000 PMT during the relevant period (Reference- purchase bills of M/s Chaman Steel Traders, Agra dated 9-5-2000 and 13-6-2000, Nabi Iron Scrap Traders, Agra bill dated 15-6-2000 and 14-7-2000 Ram Scrap House, Agra bill dated 29-6-....
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....ee that the entire excess stock was consumed or sold in the year it is seen again dependent on the factum of the consumption of the electricity. The facts in regard to the same would address the issue whether the increase in electricity cost is on account of higher consumption of electricity or part of it is dependent on increase in electrical tariff needs to be examined on facts and would have a direct bearing on the issue. The issue of value of scrap in the peculiar facts and circumstances could not have been scuttled as an academic issue in view of the fact that the assessee has not been able to demonstrate or give any evidence before the Assessing Officer or the CIT(A) except general arguments ignoring the named parties, dates, bills and rates confronted to the assessee from its own records. Since no rebuttal by documentary evidence has come from the assessee except general arguments with no basis, we consider it appropriate to accept the rate adopted by the Assessing Officer as Rs. 7,000 per MT as the same is based on documentary evidences confronted to the assessee from its own records with named parties, dates and rates. Accordingly, ground Nos. 3 and 4 of the revenue are al....
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....so made a separate addition of Rs. 30,00,357 on account of undeclared stock as Income from Other Sources as against surrender of Rs. 22 for undeclared stock found at the time of survey and declared as business income by the assessee. The assessee had challenged the rejection of accounts, estimation of sales, application of net profit rate and the separate additions so made by the Assessing Officer. 3. The ld. CIT (Appeals) after accepting the correctness of decision to reject accounts under section 145(3) proceeded to make a trading addition of Rs. 29,21,000 on account of excessive wastage holding the same to be sales and by allowing telescoping to the extent of Rs. 14,60,500 against surrendered income. He, thus, directed resultant addition of Rs. 14,60,000 as against the estimated income of Rs. 2,15,000 and excessive wastage claimed at Rs. 6,72,200 assessed by the Assessing Officer. 4. As regards enhancement of value to undeclared stock surrendered as business income from Rs. 22,00,000 to Rs. 30,00,357 and assessing the same as income from other sources, the ld. CIT (Appeals) accepted the claim of the assessee that the income so surrendered is to be assessed as his income fr....
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....on that needed consideration with reference to the survey report forming part of assessment record, but no reference thereto has been made in the orders of the authorities below. Even the assumptions made in support of rate applied by Assessing Officer are contrary to record available with him at the time of assessment. The Assessing Officer appears to have deviated from the valuation taken by the Survey Party merely on the plea that the values as given by the assessee have been placed in making the valuation by the Survey Party. It was, therefore, necessary for the ld. CIT (Appeals) to have verified this fact from the survey report as to whether the survey team had accepted the value upon verification of facts such as the quality of scrap and average price thereof on the basis of some reliable material before it or it had acted mechanically on the dictates of the assessee. The assessee also had explained that part of these stocks were available with it from earlier years. The Assessing Officer did not deny this fact. Rather the Assessing Officer has recorded a finding at internal page 6 of the assessment order that the assessee has claimed excessive wastage. This fact stands confi....
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....ness of valuation that should have been made with reference to material that had come on record. The issue could not have been disposed by treating it to be merely of an academic nature. I, therefore, set aside his decision and restore the matter back to him for taking decision on the correctness of valuation of such excess stock found as a result of survey by passing a speaking order thereon. A reasonable and effective opportunity of being heard to the parties, shall be afforded before taking decision on this issue. 8. As regards the excess stock found at the time of survey, the assessee admitted the same to be his undeclared stock of business and surrendered the same as his income from business. Entries of such excess stock were accordingly made in the stock register as well as in the books of account maintained in the regular course of business. Income on account of surrender was shown as its business income in the profit and loss account filed with the return of income. The assessee also explained in assessment proceedings before the Assessing Officer that there were some old stocks of scrap having lower rate which fact stands recorded at internal page 4 of the assessment....
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....). The ld. CIT (Appeals) also took note of the remand report dated 1-12-2004 where he found that the Assessing Officer has admitted that the excess wastage of 254 M.T. represents excess production/sale which has not been accounted for by the assessee in the books. He, therefore, was justified in his action to have telescoped the amount thereof against the surrendered income of Rs. 22,00,000 made by the assessee as his business income which factually were secreted profits of his business. Under the peculiar facts and circumstances, and when the assessee had explained the nature and source of the undeclared stock as his business income, the findings of fact reached by the ld. CIT (Appeals) in accepting the excess stock of Rs. 22,00,000 as assessee's income from business is on appreciation of facts and circumstances already set out, but the revenue in appeal before Tribunal has not shown the same to be unsupported by any evidence nor any perversity in findings of fact was demonstrated in appeal before Tribunal. I, therefore, do not find any factual or legal infirmity in the decision of the ld. CIT (Appeals) in accepting the assessee's declaration of income on account of undeclared sto....
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....of total consumption of 3200 M.T. Agreeing with the Assessing Officer that the wastage claimed is abnormal and taking note of the product mix, he was of the view that wastage of 13 per cent in the year under consideration was reasonable. Excess wastage claimed by the assessee has, thus, been worked out at 254 M.T. This has been valued at Rs. 11,500 per M.T. and holding the same as unrecorded sales, a trading addition of Rs. 29,21,000 has been worked out. He also took into account the additional power tariff of Rs. 11,00,000 paid by the assessee and worked out a gross profit rate at 1.66 per cent as the sales of manufactured goods at Rs. 401.07 lakhs disclosed as per books of account of the assessee which was comparable to the trading result of the earlier year. He, however, taking note of the fact that there is a surrender of income by Rs. 22.00 lakhs on account of survey, a telescoping of income equivalent to 50 per cent of such trading of Rs. 29,21,000 at Rs. 14,60,500 was directed to be allowed. The rest of the addition of Rs. 14,60,500 was directed to be made against which both the parties are in appeal in aforesaid grounds. 13. The ld. counsel for the assessee contends that....
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....make the assessment of total income or loss to best of his judgment and determine the sum payable by the assessee on the basis of such assessment. In the present case in appeal, if the assessee had objected to the additions made and assessment of income, the ld. CIT (Appeals) ought to have corrected that by making a reasoned order on the points or basis what he honestly believed to be a fair estimate of income of the assessee after taking into consideration the relevant material that had come on his record. The. ld. CIT (Appeals), however, did not give any reason or basis not to accept the estimation of income made by the Assessing Officer by estimating sales or application of net profit rate applied by him. Nor did he give any reason for not accepting the plea of the appellant that the estimation so made has no rationale and this being an abnormal year, net profit rate on the basis of earlier year's profit rate could not be applied for determination of his income for the year under consideration. The ld. CIT (Appeals) also did not show as to why the entire amount of alleged sale of excess wastage claimed needs to be added and not the estimated profit embedded in sales for which ne....
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....wer and electricity, rise in cost of production and other selling administration and finance expenses and not to apply the net profit rate of earlier year as the same could not form a basis under the fact-situation of the year under consideration. The parties shall be afforded a reasonable and effective opportunity of being heard so that reliable evidence in support of their claim is adduced by them before he takes decision in accordance with law for estimating total income or loss of the year under consideration with reference to relevant material on record as envisaged by the provisions of section 144 of the Act. Accordingly, ground No. 1 in appeal by assessee stands allowed and ground Nos. 3 to 6 in that appeal stand allowed for statistical purposes only. Consequent to this, ground Nos. 5 to 10 in revenue's appeal are also allowed for statistical purposes only. 16. In the result, both the appeals stand allowed partly for statistical purposes only. REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 Re.: Reference to Hon'ble President, ITAT under section 255(4) of the Income-tax Act in ITA Nos. 95/Agra/2005 by revenue and 97/Agra/2005 by assessee for assessment ye....
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.... rate on that basis but to estimate income with reference to relevant material on record in the manner as provided under section 144 of the Act." THIRD MEMBER ORDER P.K. Bansal, Accountant Member, (As a Third Member). - Following questions on difference of opinion between the learned Accountant Member and the learned Judicial Member were referred to me by Hon'ble President under section 254(4) of the Income-tax Act : "(i) On the facts and circumstances, whether there is justification to set aside the decision of ld. CIT (Appeals) with regard to acceptance of valuation of undeclared stock of scrap found at the time of survey for passing a speaking order thereon or that the values adopted at the rate of Rs. 7,000 per M.T. taken by the Assessing Officer is to be restored. (ii) On the facts and findings whether the ld. Judicial Member is justified in her decision to direct ld. CIT (Appeals) to address on ground No. 2 in appeal by revenue as the same stands covered by the directions given by her in assessee's appeal or that the decision reached by the ld. Accountant Member in rejecting the said ground in appeal by revenue upholding decision of ld. CIT....
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....rence of the various items inventorized by the Survey Party. The finished goods were valued at Rs. 19,55,000 and raw material was valued at Rs. 40,29,000. During the course of survey, the assessee surrendered a sum of Rs. 22,00,000 as his additional income on the date of survey due to discrepancies found in the stock. The assessee had credited this additional income in the profit and loss account and shown a net loss of Rs. 3,71,404 in the profit and loss account. The Assessing Officer noted that there was unaccounted stock to the extent of Rs. 30,00,357 found during the course of survey while the assessee surrendered Rs. 22,00,000 only. The value of Rs. 30,00,357 has been re-worked out by the Assessing Officer on the basis of material as specified under page 4 of the assessment order. He also noted that the books of account were not maintained on day-to-day basis and the cash book was written only up to 22-9-2000. The assessee, even though accepted during the course of survey that some of the purchases and expenses have been incurred between 22-9-2000 to the date of survey, but these items could not be entered. It was also noted that there were variations in the items of the closi....
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....he total scrap purchased during the year was 68.040 M.T. and the total value of the purchase was Rs. 3,12,545 the average of which comes to Rs. 4,593.55 per M.T. The assessee at the time of survey agreed at a valuation at the rate of Rs. 5,000 per M.T. just to settle the issue. The survey party has also valued the unaccounted scrap at the rate of Rs. 5,000 per M.T. Thus, a sum of Rs. 22,00,000 was surrendered by the assessee which was credited to the profit and loss account. The Assessing Officer has valued it at the rate of Rs. 7,000 per M.T. The value of the unaccounted scrap was Rs. 20,00,000 which was included in the amount of Rs. 22,00,000 surrendered by the assessee. Thus, the Assessing Officer valued the scrap more by Rs. 8,00,000. My attention was also invited towards the copies of the purchase bills of the scrap which are available at pages 1 to 11 of the paper book. Thus, it was contended that the learned Judicial Member was not correct in law in setting-aside the order of ld. CIT(A) and restoring the order of the Assessing Officer. 6. The learned DR, on the other hand, relied on the decision of the learned Judicial Member. 7. I have carefully considered the rival s....
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....r thereon. 8. The second question referred to me is whether the amount surrendered by the assessee in respect of excess stock found during the course of survey be assessed under the head "income from business" or as "income from other sources". The learned Judicial Member has held that the income in respect of discrepancies in the stock be assessed as income from other sources while the learned Accountant Member has held that the income so surrendered should be assessed under the head "Income from business". 9. The learned A.R. before us supported the order of the learned Accountant Member while the ld. DR supported the order of the learned Judicial Member. The learned DR relied on the order of the Gujarat High Court in the case of Fakir Mohmed Haji Hasan v. CIT [2001] 247 ITR 290/[2002] 120 Taxman 11 and contended that during the course of survey unaccounted stock was found with the assessee. The addition relate to the investment made in such undisclosed stock under section 69 of the Income-tax Act. He vehemently contended that Gujarat High Court has clearly laid down that deemed income which are covered under the provisions of sections 69, 69A, 69B and 69C cannot be assesse....
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....ources, the Hon'ble High Court has held as under : "6. Under section 4 of the Income-tax Act, income-tax is to be charged in accordance with the provisions of the Act in respect of the total income of the previous year of every person. As provided by section 5, total income of any previous year of a person would, inter alia, include all income from whatever source derived which is received or is deemed to be received by such person, subject to the provisions of the Act. It will be seen from section 69A of the Act that where the bullion, jewellery or other valuable article is not recorded in the books of account and there is no explanation about the nature and source of its acquisition, or the explanation is not satisfactory, the value thereof may be deemed to be the income of the assessee of the financial year immediately preceding the assessment year in which the assessee is found to be the owner of such bullion, etc. 6.1 The scheme of sections 69, 69A, 69B and 69C would show that in cases where the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion, etc. owned by the assessee or the source of expenditure incurred ....
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....r any of these various heads, will not be attracted in case of deemed incomes which are covered under the provisions of sections 69, 69A, 69B and 69C of the Act in view of the scheme of those provisions. 7. It is, therefore, clear that, when the investment in or acquisition of gold, which was recovered from the assessee was not recorded in the books of account and the assessee offered no explanation about the nature and source of such investment or acquisition and the value of such gold was not recorded in the books of account, nor the nature and source of its acquisition explained, there could arise no question of treating the value of such gold, which was deemed to be the income of the assessee, as a deductible trading loss on its confiscation, because, such deemed income did not fall under the head of income "Profits and gains of business or profession". 11. From the perusal of the said judgment, it is apparent that the Hon'ble Gujarat High Court has categorically held that the undisclosed investments which are deemed to be the income of assessee in accordance with the provisions of sections 69, 69A, 69B and 69C, cannot be assessed under the head "Income from business or p....
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....e and made a separate addition on account of excess wastage. He also made separate addition in respect of unaccounted excess scrap under section 69 surrendered by the assessee valuing at the rate of Rs. 5,000 per M.T., but the Assessing Officer valued it for Rs. 30,00,357. Thus, I noted that the addition under section 69 in respect of investment made in the excess scrap found, was made separately but no addition has been made in respect to the profit being earned on the sale of scrap separately. The Assessing Officer has estimated the sales under the facts and circumstances of the case at Rs. 5 crores. The sales so estimated, in my opinion, would have taken both the activities of manufacturing as well as trading of the scrap and other goods dealt by the assessee. Since no separate addition was ever made by the Assessing Officer and even the CIT(A) has not also enhanced the assessment in this regard, therefore, in my opinion, the ground No. 4 taken by the revenue does not emanate from the order of the CIT(A). In my opinion, the department cannot raise this ground of appeal at this stage before the Tribunal when no such addition has separately been made by the Assessing Officer in th....
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....putation, figure has been taken at Rs. 2,45,000). Along with this, the Assessing Officer made the addition on account of excess wastage at Rs. 6,72,200. The Assessing Officer noted that the assessee has shown wastage at the rate of 14.2 per cent while the same was allowed at the rate of 10 per cent. Thus, the Assessing Officer noted that there was excess wastage to the extent of 134.44 MT which was valued at the rate of Rs. 5,000 per M.T. The assessee went in appeal before the CIT(A) and before the CIT(A) he initially contended that there was gross loss due to the increased cost of raw material, higher power charges and change in product mix. It was also contended that the power charges had increased considerably, but subsequently he gave the contention that there is increase in the cost of raw material and change in product mix. The CIT (Appeals) sustained the addition to the extent of Rs. 14,60,000 by observing as under : "Thus, now the only reason given by the assessee for the fall in the gross profit rather incurring of the gross loss, is the enhanced power charges. It is seen that in real terms the assessee has shown the power charges higher by about Rs. 32 lakhs as compare....
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....stage claimed by the assessee is abnormal. His view is supported by an article published on Sponge Iron industries in India in Iron and Steel Review, November 2004. In this article, on page 36 it is clearly mentioned that in terms of quality and productivity use of sponge Iron as cold charge is more advantageous. However, Sponge Iron gives a lower yield compared to pig iron/scrap. The article further states that the use of sponge Iron/DRI in electric arc furnace varies in the range of 83 per cent to 89 per cent while the yield from scrap is around 93 per cent to 94 per cent. As this article clearly states that the yield from sponge iron is 83 per cent to 89 per cent while from pig iron the same is 93 per cent to 94 per cent. the AR's contention that the Assessing Officer has not correctly understood the article does not appear to be correct. Similarly, the authorised person of Process and Product Development Centre whose report was submitted by the appellant, in his statement given before the Assessing Officer has stated that the certificate was given on the basis of the quality of the scrap given for testing. It is seen that this person in the statement has stated that if the prod....
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.... opinion after considering the additional power charges of Rs. 11 lakhs, which have been accepted by me above in real terms there is now a gross profit of Rs. 6,66,237 [Rs. 11,00,000 (-) Rs. 4,33,763] in the manufacturing account which on the sales of Rs. 4,01,097,534 (Rs. 3,71,86,534 + 29,21,000) comes to 1.66 per cent and compare well with the trading results shown by the assessee in earlier year(s). In view of the above discussion, I am of the opinion that it would be just and fair if a trading addition of Rs. 29,21,000 is made in the appellant's case. During the appellate proceedings, the AR, however, contended that since the assessee had surrendered Rs. 22 lakhs on account of excess stock, telescoping of the trading addition is required to be allowed to the appellant. I find force in the aforesaid submissions of the AR. However, telescoping of the trading addition can be allowed only for the pre-survey period i.e., April, 2000 to the date of survey. It is seen that till the date of survey the consumption of raw material and out put were 1543 MT and 1251 MT, and in the post-survey period, the same were 1592 MT and 1278 MT: It can thus be seen that the consumption and product....
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....ix which was given by the assessee the said person's statement as per the material available on record and found discussed on page 17 of the impugned order. The statement has been recorded wherein Mr. Joshi has stated that in the product mix of pig iron and iron scrap the wastage is 8 per cent to 10 per cent and if sponge iron is used then the wastage is about 15 per cent apart from 2 per cent - 3 per cent of oxidation loss. The certificate of 21 per cent was given by him in view of the fact that in the sample given to him 15 per cent old iron scrap which included some iron and steel dust also as such the wastage certified by him of the sample was much above the normal wastage. It is seen that the Assessing Officer has taken cognizance of the fact that the wastage in this line of business was generally 7 per cent to 10 per cent and CIT(A) has given a finding that in the year under consideration the assessee has used 54 per cent of pig iron/iron scrap and 46 per cent of small iron in the circumstances taking a liberal view he has taken average wastage of 13 per cent. 27. Accordingly, on considering the facts available and the point at issue it is seen that the consumption of elec....
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.... profit rate applied by him. Nor did he give any reason for not accepting the plea of the appellant that the estimation so made has no rationale and this being an abnormal year, net profit rate on the basis of earlier year's profit rate could not be applied for determination of his income for the year under consideration. The ld. CIT (Appeals) also did not show as to why the entire amount of alleged sale of excess wastage claimed needs to be added and not the estimated profit embedded in sales for which net profit rate was adopted and a separate ground Nos. 6 and 7 in that respect had also been taken by the assessee in appeal before him. It is also evident from record that the quantity weighing 3200 M.T. of the material on which excessive wastage has been worked is available out of recorded purchases and revenue has nowhere doubted nor recorded a finding about suppression of investment in such consumption of goods which are deemed as sales on account of excessive claim of wastage worked out at 254 M.T. by ld. CIT (Appeals) as against the quantity of 134.44 M.T. calculated by the Assessing Officer. Under the peculiar facts the entire amount of such sales could not have been added as....
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....to 6 in that appeal stand allowed for statistical purposes only. Consequent to this, ground Nos. 5 to 10 in revenue's appeal are also allowed for statistical purposes only." 18. This is a fact that the action of the Assessing Officer rejecting the books of account by invoking the provisions of section 145(3) got confirmed. Section 145(3) of the Income-tax Act empowers the Assessing Officer to make the assessment in the manner provided under section 144 if the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee or where the method of accounting provided in sub-section (1) or accounting standard as notified in sub-section (2) has not been regularly followed by the assessee. This section requires the Assessing Officer to make the assessment determining total income or loss of the assessee to the best of his judgment after giving an opportunity of being heard to the assessee. While making the assessment it is incumbent upon the Assessing Officer to take into account all the relevant material, which the Assessing Officer has gathered. There is difference between the assessment made on the basis of assessee's accounts and that made ....
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....under the normal circumstances. The authorities below have given sufficient opportunity to the assessee so far the application of the net profit rate is concerned. The ld. AR could not produce any evidence neither before us nor before the authorities below why the net profit as has been achieved by the assessee in the earlier year could not be applied to the current year. The only argument of the assessee relate to the increase in the power expenses and higher wastage. Except these two attributes, in my opinion, there is nothing wrong in directing the CIT(A) while restoring the matter to his file on these issues that the net profit rate has to be applied as has been taken in the preceding assessment year as the net profit rate of other earlier years were not given by the assessee. To that extent I agree with the view of the ld. Judicial Member, as in my opinion the net profit rate achieved in the immediately preceding year will be the relevant material on record on the peculiar facts of this case. I do agree with the Judicial Member that the consumption of the electricity will have direct bearing on the cost of the production. Similarly, the claim of wastage by the assessee in the ....