TaxTMI 
TaxTMI 
2015 (5) TMI 1192
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd confirming the estimated addition on account of suppressed sales and profit. 3.0 The learned CIT(A) also erred on facts as also in law in observing that profit element in respect of suppressed sales estimated by AO @ 25% is reasonable. The finding of the AO is totally unjustified and contrary to the facts on record and may kindly be quashed. 3.1 The ld. CIT(A) further erred in alleging that appellant has suppressed MRP to the tune of Rs. 17,56,54,060/- on which it could have earned profit @ 9% and thereby retaining / confirming addition of Rs. 1,58,08,865/- on account of alleged suppressed profit. The addition is sustained is totally unjustified on facts as also in law and deserves to be deleted, may kindly be deleted." 2.1 In ITA No. 142/Rjt/2013 for A.Y. 2008-09, Revenue has filed the appeal on the following ground: "1. The Ld. CIT(A) has erred in law and on facts in restricting the profit on suppressed sales @ 9% as against @ 25% as determined by the Assessing Officer and thereby the CIT(A) has restricted the addition to Rs. 1,58,08,865/- out of total addition of Rs. 4,39,13,515/- (9% of suppressed sales of Rs. 17,56,54,060/- i.e. Rs. 1,58,08,865/-). 3. The brief....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of Ceramics Glazed and Vitrified Tiles of Morbi and other parts of the state of Gujarat for the purpose of large scale of evasion of Central Excise duty with consequential evasion of commercial tax, income-tax and other local taxes such as Octroi or entry tax. The modus operandi adopted for evasion of taxes was found evident as per the incriminating documents seized and the statements recorded of all the key persons managing the affairs of the appellant group, dealers, shroffs etc. during the course of search proceedings and thereafter by the DGCEI such modus operandi was briefly stated as under: (i) The manufacturers of such tiles are removing finished goods from their registered factory premises by not declaring the actual Maximum Retail Price (hereinafter called 'MRP') of their products in the Central Excise Invoices. They were declaring only a part of actual MRP and consequently evade payment of duty of excise by determining a lower assessable value after availing abatement of 45% on such lower MRP. (ii) These manufacturers also mis-declare in the Central Excise invoices the actual ex-factory prices of such tiles, which was recoverable from their buyers. They artificial....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cating these details to their dealers and marketing personnel either telephonically or through SMS messages. They were also mentioning a fax number in such communications. Accordingly, the dealers were depositing cash amounts into these accounts at multi-locations and were sending a copy of the relevant pay-in-slip by fax to the number communicated by the manufacturers. The manufacturers, on the basis of fax copies of such pay-inslips received from the dealers, were communicating the details of such cash deposits to the shroffs. Thereafter, shroffs were withdrawing the cash amounts from the respective bank account and was either handing over the same to the manufacturers or their dedicated representatives. In order to evade cash transaction tax or to avoid detection by the authorities, these shroffs were sometimes transferring such cash amounts to some other bank accounts, mostly held in different co-operative banks in Rajkot, before withdrawing the cash amounts in the aforesaid manner. 3.3 After making detailed investigation with reference to the modus operandi adopted by the Tiles Manufacturers and after recording the detailed statements of all the key persons, a detailed show ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ince other expenses have also been met out of cash collected by the dealers over and above the disclosed sale price before sending the same to the shroffs, to be delivered to the manufacturers as well as the fact that the cash from the dealers of Gujarat was collected mostly through Angadia or in person through the representative of appellant group or was paid by the dealers during their visit to Morbi. 3.5 Assessing Officer in income tax proceedings, on the basis of the incriminating evidences collected by the DGCEI and the statements recorded of all the key persons as contained in the show cause notice issued by the DGCEI, has determined the suppressed sales by the appellant during the year under consideration at Rs. 17,56,54,060/- which is the difference in assessable value for the purpose of calculating differential excise duty. After discussing the adverse evidences collected by the DGCEI and after giving opportunity to the appellant, Assessing Officer has rejected the books of accounts of the appellant u/s 145(3) of the Act by holding that it is crystal clear that the books of accounts of the assessee are not giving the real picture of its state of affairs, more so, when th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-. 9.2 So far as the determination of quantum of suppressed sales on which there is evasion of Income-tax is concerned, it is necessary to find out the basis of evasion of excise duty as determined by the DGCEI. For example, the declared MRP on a box of tiles is Rs. 100/-. Therefore, the excise duty is to be levied on Rs. 55/- at the prescribed rate. However, it is noted that the said box has been actually sold at Rs. 200/-. Therefore, the actual MRP has to be taken at Rs. 200/- with reference to which excise duty should have been paid. The excise duty is actually leviable on Rs. 110/- after allowing an abatement @ 45% i.e. Rs. 90/-. Thus, the evasion of excise duty is on the difference in the assessable value i.e. Rs. 55/- i.e. (Rs. 110/- - Rs. 55/-). Thus on such Rs. 55/- which is the difference between assessable value as per actual MRP and the declared MRP after allowing an abatement @ 45%, there is evasion of excise duty. The above hypothetical example is given in a tabular form for better appreciation as under: No. of box of tiles MRP declared (Rs.) The assessable value subject to excise duty after abatement @ 45% (Rs.) Actual MRP (Rs.) Assessable value for the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rgin of the dealers are taken into account with reference to the actual MRP which will reduce the quantum of suppressed sales to that extent Therefore, in case of sales through dealers, the difference between the net sale price to the dealers and the sale price recorded in the books of accounts is the quantum of suppressed sales. However, since the quantum of suppressed sales is taken as the difference between the assessable value as per actual MRP (is Rs. 200/- per box) after allowing abatement @ 45% and declared MRP (is Rs. 100/- per box) after allowing abatement of @ 45%, as discussed above, such estimation of suppressed sales appears to be fair and reasonable. In the case of above example, since the quantum of suppressed sales is taken at Rs. 55/- only which signifies that actual sale price recorded in books is Rs. 55/- as against declared MRP of Rs. 100/- and which has been sold at Rs. 200/- (actual MRP) by the dealers to the ultimate buyers out of which Rs. 110/- has sent to the manufacturers. Out of such net sale price of Rs. 110/-, Rs. 55/- has been received by way of cheque or remaining Rs. 55/- has been received by way of cash over and above the recorded sale price. Thus,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....RPs ranging from 50% to 68.57% of the actual MRP were declared by the Vrundavan Group of Units. 7.10.1.6. It is thus evident that though Vrundavan Group of Units are declaring MRP of only Rs. 120/- per box for the tiles of all varieities of size 12"x12" of STD grade, they are charging amounts ranging from Rs. 100/- to Rs. 165/- from their dealers who are selling the same at the rates ranging from Rs. 160/- to Rs. 265/- per box. Thus on the central excise invoices, Vrundavan Group of Units are declaring MRPs of 45.28% to 75% only of the actual MRP. 14.7.3. Several pages of said file No.A/52 contain details of retail sales by M/s Cable. As an example, page No. 128 shows retail sales. 4 boxes of 12"x 12" floor tiles have been sold for Rs. 760/- @ Rs. 190/- per box. On the basis of said page, the rates of 12"x12" size tiles work out to Rs. 190/-, Rs. 200/-, Rs. 185/- and Rs. 180/- per box. Thus the said documents also reveal that M/s Cable were selling the tiles at the rates much higher than the MRP declared by the manufacturers of tiles. " 9.5 The quantum of such suppressed sales determined on the above basis has been confirmed by the Hon'ble ITAT in its order in the case....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave been duly admitted by them in their statements. Thus, there is not an iota of doubt that there is suppression of sales and, therefore, it is obvious that the book results of the appellant are not reliable since the same do not depict the true picture of its state of affairs. In view of the above, the rejection of books of accounts by the AO u/s 145 of the Act is perfectly justified which has also been upheld by the Hon'ble ITAT in its order in the case of M/s Vrundavan Ceramics P. Ltd. and M/s Gokul Ceramics P. Ltd. for AY 2007-08. 9.8 So far as the estimation of profits on suppressed sales is concerned, it is pointed out that there has been expenditure on account of transportation expenses, purchase of raw material etc. which has not been recorded in the books of account. There is no quantification done in respect of such unrecorded expenditure made by way of cash. The appellant has also not submitted the details / extent / quantum of such unrecorded expenditure either during the course of assessment proceedings or appellate proceedings. Therefore, estimation of profits on suppressed sales is the only available option since the entire suppressed sales cannot be taxed. O....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ul Ceramics P. Ltd., it cannot be so concluded particularly because the book results of the comparable cases are neither sacrosanct nor the Industry bench mark. Just because there has been no search by the DGCEI in the above comparable cases and the book results have been accepted by the AO in these cases, does not make them benchmark for the purposes of estimation of profit particularly in view of the fact that all the tiles manufacturers have been evading central excise / income tax on account of suppression of turnover as is evident from large amount of cash transfer to shroffs on account of unrecorded sales of tiles. In fact, the declared GP / NP in the case of the appellant is actually suppressed mainly because of the fact that a large portion of expenditure pertaining to suppressed sales is already debited in the books of account. The valid comparison, therefore, could have been made amongst the concerns which have been subjected to investigation by the DGCEI. Moreover, the CIT (A) in his finding has not accepted he book results of the comparable cases. Further, the facts of the case of Aero Club (2011) 336 ITR 400 (Delhi), are entirely different. In that case, there is no su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of finished goods. The above can be tabulated as under: Sr. No. Particulars (Rs.) Amount (Rs.) 1. Net sales as recorded in books 33,73,62,870/- 2. Expenses claimed 15,20,16,636/- (i) Power & Fuel (ii) Other Manufacturing Expenses 14,92,576/- (iii) Depreciation 1,85,45,409/- (iv) Remaining expenses Claimed (including cost Of Raw material) 15,61,87,612/- Total Expenses 32,82,41,933/- Ratio of Remaining expenses to Net Sales 46% Thus, amount of total expenses of Rs. 32,82,41,933/- claimed, a major portion of the expenditure of Rs. 17,20,54,321/- which includes expense on power and fuel and manufacturing expenses as well as depreciation, is not subject to any manipulation in the sense that there cannot be any unrecorded expenditure in respect of the above with reference to the suppressed sales. Thus, in respect of more than 50% of expenses, there is no scope of any variation. Only in respect of remaining expenses, there is possibility of unrecorded expenditure relating to suppressed sales. The amount of remaining expenditure i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ame as unaccounted income. Accordingly, the addition to the extent of 9% of suppressed sales (9% of Rs. 17,56,54,060/-) amounting to Rs. 1,58,08,865/- is confirmed. The balance addition is deleted." 10. Before us, Revenue has opposed the restriction of profit on suppressed sale @ 9% as against 25% as determined by Assessing Officer and thereby requested that CIT(A) was not justified in restricting the addition to Rs. 1,58,08,865/- out of total addition of Rs. 4,39,13,515/-. Accordingly, order of CIT(A) on the issue be set aside and that of Assessing Officer be restored. On other hand, learned Authorized Representative submitted that CIT(A) erred in facts and law in confirming the rejection of books result and confirming the estimated addition on account of suppressed sale and profit. CIT(A) also erred on facts and also in law in observing that profit element in respect of suppressed sales estimated by Assessing Officer @ 25% is reasonable. The finding of Assessing Officer is totally unjustified and contrary to the facts on record and matter accordingly be quashed. Learned Authorized Representative further submitted that CIT(A) erred in alleging that assessee has suppressed MRP to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of the Gokul and balance addition Rs. 90,38,554/- in case of Vrundavan and Rs. 13,45,295/- in the case of Gokul out of the total addition sustained by CIT(A) are deleted. 21. The learned representatives of the parties submitted that facts of the case in Gokul Ceramics Pvt. Ltd. are similar. Therefore, the cross appeal of that case is also decided in accordance with above discussion. 22. In the result, appeals of assessee are partly allowed and appeals by revenue are dismissed." Subsequently Hon'ble Gujarat High Court in Special Civil Application No.6500 of 2012 in case of Futura Ceramic Pvt. Ltd. vs. State of Gujarat in its dated 20th December, 2012, in similar situation observed as under: "From the above, it can be seen that the assessment which was previously concluded was reopened on the premise that during the excise raid, it was revealed that the petitioner had clandestinely removed goods without payment of excise duty. The Sales Tax Department, therefore, formed a belief that the value of goods plus excise duty evaded should form part of the turnover of the assessee for the purpose of tax under the Value Added Tax Act. It may be that the raid carried out by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing action and passing final assessment order merely on the premises that Excise Department has issued a show cause notice alleging clandestine removal of goods. Such order was quashed. 10.1 Similar view has been taken by Hon'ble Gujarat High Court in Special Civil Application No. 1038 of 2013 in case of Futura Ceramic Pvt. Ltd. vs. State of Gujarat in its order dated 13.11.2013 by observing as under: "[6.0] In view of the above decision of Division Bench of this Court, the impugned reassessment order deserves to be quashed and set aside. However liberty can be reserved in favour of the department to pass an order afresh in accordance with law and on merits after giving an opportunity to the petitioner and if permissible under the law now. [6.1] In view of the above and for the reasons stated above, petition succeeds. Impugned order passed by the Assistant Commercial Commissioner Tax (2), Nadiad [AnnexureF to the petition] dated 31.03.2012 is hereby quashed and set aside. However, it is observed that the same shall not affect the proceedings under the Central Excise Act for which the showcause notice has been issued. A liberty is also reserved in favour of the department to....