TaxTMI 
TaxTMI 
2011 (3) TMI 1736
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....ted underinvoiced purchases, particularly when it is established on the basis of material seized during the course of search in the case of M/s Ashish International Group that the assessee has indulged in unaccounted purchases from the said group and in such a situation the AO was well justified in making the addition in question. 3. deleting the disallowance of Rs. 7,27,300 made by the AO for payments made in cash in contravention of the provisions of s. 40A(3) of the IT Act, 1961. 4. The appellant craves liberty to raise additional ground and to modify/amend the ground of appeal at the time of hearing." 2.2 The assessee is engaged in the business of trading of plywood and mica. The assessee filed the return of income for the asst. yr. 2002-03 on 13th Sept., 2002 and the same was processed under s. 143(1) of the Act on 7th Jan., 2003 at the returned income of nil. The AO issued notice under s. 148 of the Act on the basis of the reasons recorded on 15th March, 2007. In the reasons recorded, it is mentioned that the Department has conducted search on 10th Feb., 2003 in the group cases of Ashish International, Jaipur. This group was wholesale dealer of plywood and was making sub....
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....les at Rs. 1.56 crore and applied the GP rate of 8.53 per cent as declared by the assessee and that resulted into trading addition of Rs. 3,19,514. The modus operandi of underinvoicing/unaccounted sales made by Ashish International, Jaipur is reflected in the documents seized during search in the group of M/s Ashish International. The brief facts as emerged during the course of search proceedings in the case of M/s Ashish International Group were confronted to the assessee and these are summarized as under : 1. As a result of search, plethora of evidences were found which confirmed that M/s Ashish International Group was actually involved in the underinvoicing of their sales to a large extent. Normally, the extent of underinvoicing has been found 1/3rd of the actual amount of the sale proceeds. 2. Unaccounted part of the sale proceeds was being collected from the retailers through certain collection agents appointed by the group. Such agents were not only collecting the cash from the retailers but also were collecting the cheque/DD in respect of regular purchases. 3. M/s Ashish International Group was keeping record of all such transactions at least for a few months. The coll....
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....f M/s Ashish International, Jaipur. The learned CIT(A) after considering the submissions of the assessee deleted the trading addition of Rs. 3,19,554 i.e. the profit on account of sale of unaccounted purchases. 2.8 The addition of Rs. 36,70,045 on account of unaccounted purchases and addition of Rs. 7,27,300 representing the disallowance under s. 40A(3) of the Act was deleted by the learned CIT (A) after observing as under : "In given facts and circumstances, the decision of the AO to adopt the higher turnover of Rs. 1,56,00,000 based on the 'alleged' 'unaccounted purchases' of Rs. 36,70,523 from M/s Ashish International, Jaipur is not confirmed as there was no unaccounted purchases from M/s Ashish International, Jaipur. The question of 'investment' in such unaccounted purchases become redundant. In the result, the trading addition of Rs. 3,19,554 and addition because of investment in unaccounted purchases of Rs. 36,70,045 is not confirmed. The grounds 3, 4, and 7 of the appeal are accepted." 2.9 Before us, the learned Departmental Representative supported the order of the AO. It was submitted by the learned Departmental Representative that M/s Ashish In....
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....re us, therefore, such letters are not relevant for the issue before us. Similar entries were found in the TFL files in the name of Vikas Timber Products (P) Ltd.That case has been decided by the Tribunal vide order dt. 29th Aug., 2007 in IT(SS)A No. 39/Jp/2006. In that case, it was submitted by the learned Authorised Representative before the Tribunal that the assessee, in order to co-operate with the Department and to purchase peace, submitted before the AO that if the allegation of understatement of sales are proved then reasonable profit be determined as income. In that case, the AO estimated the sales and applied the GP rate of 24 per cent. The learned CIT(A) scaled down the GP rate from 24 per cent to 10 per cent and considered the purchases which have been mentioned in the documents found during the course of search in M/s Ashish International Group. The increase in turnover by extrapolation of purchases was deleted. The Tribunal held that the profit rate is to be applied in case of unrecorded sales. Looking to the past history of the case, the Tribunal upheld the profit rate of 3 per cent on unaccounted sales as reflected in the diaries found in M/s Ashish International Gro....
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....justified in making the trading addition. However, looking to the quantum of the purchases and considering the disclosed GP rate, we feel that turnover should be taken at Rs. 1.55 crore. The AO will recompute the trading addition. Since unaccounted purchases have been considered as included in the turnover, therefore, there is no case of making the addition of Rs. 36,70,045. Since the, books of account are being rejected, therefore, the provisions of s. 40A(3) will not be applicable. The Hon'ble Allahabad High Court in the case of CIT v. Banwari Lal Banshidhar [1998] 229 ITR 229 held that no disallowance under s. 40A(3) can be made when the income is computed by applying the GP rate. The Hon'ble Himachal Pradesh High Court in the case of Amrit Sugar Co. v. ITO [IT Appeal No. 31 of 2003, dated 17-12-2010] has held that no disallowance is to be made under s. 40A(3) if the books of account are being rejected. Since the AO has rejected the books of account and has applied the net profit rate for the purpose of computing income then no disallowance could have been made under s. 40A(3) of the Act. Hence, the addition made under s. 40A(3) is deleted. The jurisdictional High Court ....